How To Simplify Carbon Accounting

Carbon accounting is a simple idea: a way to report on your organization's carbon emissions.

But most businesses struggle to make carbon accounting a simple process. The average publicly traded company spends nearly £500 thousand annually on climate-related disclosure, of which carbon accounting and reporting is a fundamental component.¹ 

There are a lot of factors that contribute to this cost. The size of your business has a big impact and whether or not you are reporting on Scope 1, 2 or 3 data. 

However, this figure raises a question — is carbon accounting more complicated than it needs to be? 

Most large and small businesses approach carbon accounting in a very manual, time-consuming and error-prone way. These processes are increasingly outdated and do not take full advantage of the latest advances in carbon accounting software to automate data management.

Fundamentally, the trick to simplifying carbon accounting is to automate the most time-consuming, error prone aspects of data management in carbon accounting

Here, we’re going to explore the basics of carbon accounting that add complexity, and then explain how the use of modern carbon accounting software can streamline that whole process.

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What is carbon accounting?

Let’s start with a straightforward description of what carbon accounting is.

Carbon accounting evaluates the amount of greenhouse gas emissions that are produced by a company, government, or person. Its ability to track carbon footprints make it vital for organizations that want to understand and manage their impact on the environment.

There are 3 main factors to consider during carbon accounting:

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Scope 1, 2, & 3 Emissions

The Greenhouse Gas (GHG) Protocol provides standard frameworks to measure and manage greenhouse gas emissions. They classify emissions into three scopes, which are required to be reported on by both voluntary and regulatory reporting frameworks around the world:

• Scope 1: Direct emissions from owned or controlled sources.
• Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting entity.
• Scope 3: All other indirect emissions that occur in a company’s value chain. While these tend to be seen as optional to measure, they can be the most difficult to measure accurately.

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Spend-based vs. activity-based calculations

When it comes to calculating emissions, there are two overarching types of data:

• Spend-based: Examples of activity data used in this approach include financial spend on activities like fuel or energy acquisition, goods procurement, and travel services, which means spend-based emission factors have to be used. This approach is simpler, usually used when more granular activity data is unavailable, and yields emissions results with higher uncertainty.

• Activity-based: Examples of activity data used in this approach include physical units and type of fuel or energy acquired and consumed, specification of goods and number of units procured, and travel services used with metadata such as fuel type and distance travelled, which allows more precise emission factors to be used. Examples include kWh of electricity consumed in the UK, gallons of diesel combusted, and long-haul kilometers of air travel flown business class. This approach yields results with lower uncertainty, it provides greater emissions intelligence, but it requires more detailed input data.

Data gaps, estimates, and uncertainty

Carbon accounting often involves estimating emissions where certain input data is unavailable. Businesses often use solutions like extrapolation or intensity-based estimation to fill these unavoidable gaps.

However, those estimations need to be made as accurately and transparently as possible to both make them defensible and avoid misreporting. Otherwise, businesses face credibility and regulatory risks on account of misreporting.

This is one area that carbon accounting software has really evolved to address. Automation tools extract information from activity data records with ease, identify and flag quality issues such as data gaps, and instantly and transparently model these gaps where they are unavoidable. Companies don’t have to use manual processes to comb through their records, transcribe data into spreadsheets, identify data issues, and estimate data gaps — helping them achieve more precise and credible carbon accounts with less time lost along the way.

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Priorities for simple carbon accounting

Ultimately, the main cause of complexity in carbon accounting comes down to how all of the above information is stored in different records. Keeping track of this range of data, let alone consolidating it into actionable reports, is difficult to do without extra support.

Simplifying carbon accounting has to revolve around 2 main goals:

1. Freeing up a business’ internal resources while enhancing the precision of results.
2. Making the process more efficient and prioritizing accuracy at every step.

The best way a business can achieve those goals is by using carbon accounting software. Let’s cover how the various steps in carbon accounting can be simplified with the help of the right tool.

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Priority 1: Automate carbon accounting data processing

Processing data is arguably the most time-consuming and error-prone step in carbon accounting, making it an ideal process to simplify. Between common challenges like activity data logged in different places/formats and poor data contributions, it can take a lot of time and manpower to have this step done correctly — let alone efficiently. Companies also tend to use traditional data logging methods like Excel spreadsheets to complete this step but that often leads to crucial data getting lost.

Generative AI has proven itself to be a gamechanger in carbon accounting technology. By leveraging AI, carbon accounting software can automatically extract, process, and organize primary data from various sources into a standardized format. Human resources are freed up by 70%, there’s much less reliance on spreadsheets, and the potential for human error is significantly reduced, ensuring more accurate and reliable data management.

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Priority 2: Provide personalized guidance for carbon data collection

Knowing what to collect is a big barrier for a lot of organizations. This is a challenge for getting started, but communicating this to data contributors is also difficult. 

Software can simplify this step by providing tailored guidance based on specific industry needs and compliance requirements. This includes helping organizations identify critical data points, understand regulatory frameworks, and better their data collection methods to ensure completeness and precision.

Certain tools prioritize having a user-friendly approach that makes this step easy for data contributors. For example, the Ideagen Carbon Accounting tool has a smart discovery system and personalized dashboards that guide contributors through what they need to do. Time’s saved and accuracy is guaranteed.

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Priority 3: Ensure audibility

When dealing with multiple datasets (especially when relying on human teams to track them), it becomes incredibly difficult to keep track of important information. This is an even bigger problem when companies are doing it manually and using secondary records. 

Using carbon accounting software that can process primary records instantly makes auditing easy. By automatically logging all data inputs and changes, this software creates a transparent and traceable record that supports both internal audits and regulatory reviews. This is particularly important when it comes to making estimates that are unavoidable, but need to be done accurately and transparently.

Plus, organizations can demonstrate to regulators, buyers and partners that they’re committed to accurate reporting and environmental responsibility.

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Priority 4: Streamline communication and engagement

Time is wasted just keeping track of who needs to do what, from collecting information from third parties to logging that data. Doing this via email only adds complexity and silos communication. 

Carbon accounting software makes this easy by centralizing everything into one platform. You can assign owners, track progress in real-time and have complete visibility over relevant conversations.

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Automation is critical to simple carbon accounting

Embracing automation is the crucial step towards simplifying carbon accounting and reporting.

The point and end goal here isn’t to just make the process less time-consuming — but reduce risk of errors, misreporting and reputational and regulatory harm. If anything, the accuracy and traceability afforded by an AI-powered solution will bring more gains over time.

That’s what we set out to do by creating Ideagen Carbon Accounting. With compliance and security at its core, our platform simplifies every critical step in the carbon accounting process.

To experience what our tool can do for yourself, just book a free trial. Start on the path towards better carbon accounting today.

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