Gone are the days when environmental factors were solely the concern of “eco-friendly,” “conscious” or “mission-driven” companies. Carbon accounting has emerged as a crucial practice for companies of all sizes, both private and publicly traded. As stakeholders, from consumers to investors, demand greater transparency and action on climate change, businesses that embrace carbon accounting are positioning themselves for success in an increasingly environmentally conscious world.
But what are the benefits of carbon accounting for your organization? And what exactly even is carbon accounting
What is carbon accounting?
Carbon accounting, also known as greenhouse gas (GHG) emissions accounting, is the process of measuring and quantifying the amount of GHG emissions produced by an organization’s activities. This comprehensive approach considers direct emissions from company-owned sources (Scope 1); indirect emissions from purchased electricity, steam, heating and cooling (Scope 2); and all other indirect emissions that occur in a company’s value chain (Scope 3).
The most widely used framework for carbon accounting is the Greenhouse Gas Protocol, which provides standardized methodologies for businesses and other organizations to measure and report their GHG emissions. By implementing carbon accounting, businesses gain a clear picture of their environmental impact and can make informed decisions to reduce their carbon footprint.
Who needs carbon accounting?
The answer might surprise you. Our ESG team at BPM receives carbon accounting-related requests from companies of all sizes, including those with fewer than 50 employees and a single office location. Many of our clients are conducting their emissions inventory for the first time and have expressed frustration at their customers’ requests to report their carbon footprint. Some feel that, given their size or portion of the customer’s spending, this level of environmental reporting should not be necessary.
However, regulations aside (such as California’s SB 253 and SB 261, and the SEC’s climate-related disclosure rules), many large companies have decided to prioritize decarbonization. This means they’re actively looking for opportunities to minimize their carbon footprint, including through their supply chain. A company working to decarbonize is very likely to seek vendors aligned with this goal, as vendors’ carbon emissions are reflected in the company’s total carbon emissions.
As the global community grapples with the urgent need to address climate change, businesses increasingly recognize the importance of measuring, reducing and reporting their greenhouse gas emissions. The process of carbon accounting provides a structured approach to understanding and managing a company’s carbon footprint, offering numerous benefits that extend far beyond environmental considerations.
8 Benefits of carbon accounting
Let’s explore eight key benefits of carbon accounting for today’s businesses and how it can help your organization thrive in a low-carbon future.
Benefit 1: Regulatory compliance and risk mitigation
One of the primary benefits of carbon accounting is its role in helping businesses navigate the increasingly complex regulatory landscape surrounding environmental reporting. Governments worldwide are introducing stricter regulations on emissions disclosure and reduction targets. For example, the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the United States Securities and Exchange Commission’s (SEC) proposed climate risk disclosure rules are set to impact thousands of companies.
By implementing robust carbon accounting practices, businesses can stay ahead of these regulatory requirements and avoid potential fines or penalties. Moreover, proactive carbon accounting helps companies identify and mitigate climate-related risks, such as physical risks to assets or supply chain disruptions, which can have significant financial implications.
Benefit 2: Cost savings and operational efficiency
Some may view carbon accounting as an additional expense. However, the benefits of carbon accounting surface when it’s done correctly. Carbon accounting often leads to substantial cost savings in the long run. By meticulously tracking emissions across operations, businesses can identify inefficiencies and areas of energy consumption. This insight allows companies to implement targeted reduction strategies, often resulting in lower utility bills and operational costs.
For instance, reducing fuel usage is a promising driver of both cost and emissions savings. The North American Council for Freight Efficiency estimates that most fleets can reduce idling by 20%, which could result in significant fuel and emissions. Additionally, improving energy efficiency through measures like switching to efficient LED light bulbs, installing smart thermostats or implementing demand flexibility can reduce both Scope 2 emissions and electricity costs, which are likely to rise in the foreseeable future.
While companies often accept these expenses as a standard operating cost, many are surprised by the room for improvement in both emissions and expenses when they see the full picture.
Benefit 3: Enhanced brand reputation and customer attraction
In an era when consumers are increasingly making purchasing decisions based on a company’s environmental credentials, the benefits of carbon accounting can be powerful, particularly in requests for proposals. Companies can build a stronger brand reputation and exceed expectations. They can also build trust with environmentally conscious consumers by transparently reporting emissions and demonstrating concrete actions to reduce them.
According to the 2024 Global Sustainability Study by Simon-Kucher, 64% of consumers now rank sustainability as a top-three purchasing consideration, reflecting a growing priority on environmental responsibility in consumer decision-making. Moreover, the study found that 54% of consumers are willing to pay a premium for sustainable products, up from 35% two years ago. By committing to sustainability through carbon accounting and transparently reporting emissions, businesses can attract consumers and maintain a competitive edge.
Benefit 4: Improved investor relations
As ESG factors become central to investment decisions, carbon accounting is increasingly vital for maintaining strong investor relations. PitchBook’s Analyst Note on The State of Private Market ESG and Impact Investing in 2024 highlights how investors are placing greater emphasis on the transparency and accuracy of climate-related reporting. By implementing robust carbon accounting practices, companies can demonstrate their commitment to sustainability, enhance their ESG ratings and appeal to environmentally conscious investors.
Accurate carbon accounting also mitigates the risk of greenwashing by ensuring that reported data is reliable. The benefits of carbon accounting through this transparency include building investor trust. Transparency also positions companies to secure better access to capital and potentially lower financing costs in a market where climate-related risks are increasingly significant.
Benefit 5: Supply chain optimization
Carbon accounting extends beyond a company’s direct operations to encompass its entire value chain, including suppliers (Scope 3 emissions). This comprehensive approach often reveals surprising insights about where the bulk of a company’s emissions originate.
For many businesses, especially those that don’t own the majority of their manufacturing and logistics processes, Scope 3 emissions can account for over 70% of their total carbon footprint. By engaging in detailed carbon accounting of their supply chain, companies can identify hotspots of emissions intensity and work with suppliers to implement reduction strategies. This not only reduces overall emissions but can also lead to a more resilient and efficient supply chain, potentially uncovering opportunities for cost savings and innovation.
Benefit 6: Competitive advantage
Early adopters of comprehensive carbon accounting are positioning themselves as leaders in transitioning to a low-carbon economy. This forward-thinking approach can translate into a significant competitive advantage, allowing companies to differentiate themselves in the market and potentially capture new business opportunities.
In today’s business environment, the Request for Proposal (RFP) process increasingly includes detailed questions about environmental practices, including a company’s carbon footprint. As more companies become subject to emissions reporting regulations, obtaining accurate carbon data from suppliers is crucial not only for winning contracts but also for regulatory compliance.
One of the benefits of carbon accounting is that companies that can provide clear, accurate carbon accounting and demonstrate a commitment to reducing emissions are more likely to win contracts. This trend underscores the importance of integrating robust carbon accounting practices — not solely for compliance, but as a critical factor in maintaining and enhancing competitive advantage in the market.
Benefit 7: Environmental impact and corporate social responsibility
Beyond the direct business benefits, carbon accounting plays a crucial role in addressing one of the most pressing issues of our time: climate change. Businesses contribute to global efforts to mitigate climate change impacts by accurately measuring and actively working to reduce emissions.
This alignment with broader societal goals fulfills an important aspect of corporate social responsibility (CSR). It helps companies meet the growing expectations of various stakeholders, including employees, customers, and local communities. A strong commitment to environmental stewardship, supported by robust carbon accounting, can enhance employee morale, attract top talent and strengthen relationships with local communities.
Benefit 8: Access to funding and tax incentives
Measuring and actively reducing your company’s carbon emissions can unlock significant opportunities for funding and tax incentives under the Inflation Reduction Act (IRA). The IRA provides over $370 billion in investments to accelerate clean energy solutions, including tax credits for businesses committed to reducing their greenhouse gas emissions. One of the benefits of carbon accounting is that companies with robust carbon accounting practices are better positioned to qualify for these incentives, which can substantially support clean energy projects, energy-efficient upgrades and other sustainability initiatives.
Understanding and reducing emissions also opens the door to a variety of specific incentives under the IRA. These include tax credits for renewable energy investments, energy-efficient building improvements and the adoption of electric vehicles. Businesses can further benefit from grants and loans aimed at supporting clean energy projects, such as installing solar panels or upgrading to energy-efficient machinery. By accurately tracking and reducing emissions, companies not only gain access to financial support that helps reduce costs but also align with their customers’ sustainability efforts and regulatory requirements.
Implementing carbon accounting in your business
Getting started with carbon accounting may seem daunting, but it’s a crucial step for businesses looking to thrive in a low-carbon future. Here are some essential steps to begin:
- Establish your organization’s goals for and expectations of this process
- Identify a small team to lead the process
- Determine the scope of what you want to include in your baseline inventory
- Collect relevant data across your operations and supply chain
- Calculate your emissions using standardized methodologies
- Set reduction targets and develop action plans
- Engage key stakeholders in the ongoing creation and implementation of your action plans
The benefits of carbon accounting stretch far beyond environmental considerations. Carbon accounting has become essential for businesses of all sizes. Benefits include regulatory compliance, cost savings, enhanced reputation and competitive advantage. As climate change challenges intensify, companies adopting comprehensive carbon accounting will be better equipped to thrive in a low-carbon economy, serving as a gateway for opportunities for innovation and growth.
Many businesses seek professional guidance to help ensure accuracy and compliance. BPM partners with clients to tailor carbon accounting strategies to their specific goals. Now is the time to assess your organization’s needs and act. By collaborating with experienced professionals like BPM, you can develop a robust carbon accounting system that positions your company for long-term success.
Contact BPM today for expert support in implementing effective carbon accounting strategies customized to your organization’s unique requirements.
