Understanding Your Corporate Carbon Footprint in 4 Steps

Having insight into company emissions is of utmost importance, given the intricate and expansive nature of greenhouse gases (GHG). Organizations must familiarize themselves not only with the classification of GHG but also with their sources, emission output, carbon footprint, reporting timelines and areas, and reduction strategies. This article navigates the fundamental concepts of GHG emissions, how to compile a precise emissions inventory, and presents a summary of the best reporting practices.

What is a Carbon Footprint?

A carbon footprint is the aggregate of greenhouse gases produced by an entity through its activities. Awareness of carbon footprint is significant in order to adhere to regulatory mandates. With more regulatory authorities around the world, such as the U.S. SEC, EU CSRD, CS3D, etc., asking for companies to disclose their greenhouse gas emissions, it becomes crucial for companies to provide carbon footprint information. Moreover, organizations are likely to receive requests from customers and business partners, who need to report their emissions, to provide carbon footprint information.

Greenhouse Gases Contribute to Climate Change

Greenhouse gases (GHG) in the Earth's atmosphere trap heat and contribute to climate change. The largest contributors to GHG emission are carbon dioxide, methane, and nitrous oxide, alongside hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs). According to the Environmental Protection Agency (EPA), carbon dioxide is the primary contributor accounting for almost 79% of all greenhouse gases.

• Carbon Dioxide – Produced by the burning of fossil fuels like coal, natural gas, and oil.
• Methane – Produced during the production and transport of coal, natural gas, and oil, livestock and other agricultural practices, land use, and by the decay of organic waste.
• Nitrous Oxide – Produced from agricultural and industrial activities, the combustion of fossil fuels and solid waste, and treatment of wastewater.
• Fluorinated Gases – Produced by household, commercial, and industrial applications, and processes.

Steps to Measuring Your Carbon Footprint

Carbon footprint management is integral to a thorough ESG approach and requires in-depth evaluation and tracking, though there are measures businesses can adopt to gauge their carbon impact.

Step 1: Identify GHG Emissions

Greenhouse gas (GHG) emissions can be likened to ripples that expand endlessly from a central point making it hard to determine what exactly to measure. To provide organizations with a clear method of measuring emissions, the GHG scopes were developed. These scopes categorize different emission sources and types of activities into three buckets called Scope 1, Scope 2, and Scope 3. The carbon footprint is a sum of all emission scopes.

Scope 1 GHG emissions refer to direct emissions produced by a company-owned source, such as those from vehicles or boilers, resulting from burning of fossil fuels. Scope 2 GHG emissions are due to energy use and associated with an organization but are not directly produced by the organization onsite. They include, for instance, the purchase of electricity, steam, heating, or cooling.

Scope 3 GHG emissions, not produced by the organization, result from both upstream and downstream supply chain activities, including transportation, distribution, corporate travel, and employee commute. Scope 3 emissions usually make up the majority of a company’s total carbon footprint and are more difficult to measure.

Scope 3 emissions are at the center of a heated climate reporting and disclosure debate due to the challenges companies face in collecting the necessary information to calculate these emissions. Regulatory bodies struggle with the need to balance mandates related to Scope 3 emissions, which could make up 75% of a company’s overall emissions, with the responsibility of considering the enormity of such a task and the strain it places on businesses. Companies must weigh the potential costs of measuring and managing this type of data against the long-term benefits.

Step 2: Use Carbon Footprint Calculation Tools

A significant number of mid-market and public companies in the U.S. are currently facing challenges in data collection, specifically in regards to measuring greenhouse gas (GHG) emissions. Despite SEC regulation, approximately 3,800 public companies have yet to begin collecting this data. Utilizing software that is specifically designed to measure, track, and record GHG inventory is the most effective method of managing such emissions. While standalone GHG calculators may be helpful for quick calculations, they are not ideal for long-term ESG planning. Employing comprehensive ESG and GHG emissions software can streamline data entry and calculation processes, while simultaneously reducing the possibility of human error and costly manual work.

Benefits of Using Software to Calculate a Carbon Footprint

Using software to calculate your carbon footprint provides many benefits, including consistency and comparability of data, tracking progress over time, assurance of data readiness, automated splitting of emissions into Scope 1, 2 and 3, serving as a data repository, illuminating opportunities for improvement, possibility of automated data collection, and saving time and company resources.

Step 3: Prepare for Reporting and Assurance

The reporting and assurance aspects of ESG and GHG emissions are in a constant state of evolution. Although the changes may result in a shifting landscape for corporations, regulatory agencies, and auditors, it is no excuse to disregard GHG emissions. There are currently many global standards that require reporting and verification, and now with the SEC entering the mix, organizations should act with due diligence to comply. Examples of reporting GHG emissions standards:

• SEC in the U.S.
• CSRD in Europe
• CS3D
• TCFD Globally
• CDP

The most prudent guidance at present is to select the optimal framework for reporting that aligns with your organization's interests. One such framework gaining wide acceptance is the Taskforce on Climate-related Financial Disclosures (TCFD). Notably, TCFD is the leading standard for climate-related disclosures and is widely considered the model for SEC reporting requirements. Additionally, the report you generate from your GHG inventory should be capable of being audited, certified, or reviewed by an auditor, engineer, or consultant firm.

Step 4: Set Emissions Goals and Targets
After acquiring commendable GHG emissions and carbon footprint data, the final stage involves setting goals and targets to minimize these figures. By utilizing your reporting software, you can identify areas of your carbon footprint that require more focus to minimize the emission levels. Businesses can achieve great results regarding reduced emissions by employing environmental networks like SBTI and RE100. These resources ensure streamlined progression towards sustainability by maintaining a neutral carbon footprint. Calculating the carbon footprint of your organization is in itself a challenge. With the process taking months to accomplish, it's advisable to set achievable goals for your ESG team to create tangible emission reduction progress.

Calculate Your Carbon Footprint with Elliott Davis

As the U.S. takes strides in refining its policies and regulations governing GHG emissions, and with the increased corporate focus on ESG, it is imperative to comprehend your company’s carbon footprint. Choosing the right partner to support your goals and to navigate the dynamic greenhouse gas emissions landscape is crucial to ensure economic stability for the future. Collaborate with our team of ESG professionals and initiate the first step towards GHG emissions assessment.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.