Why Carbon Accounting Boosts the Bottom Line

A business’ carbon footprint is a measure of the impact your business activities have on the environment in terms of the amount of greenhouse gases produced, measured in units of carbon dioxide equivalent (CO2e).

Preparing for Possible Mandatory Annual Carbon Reporting

In the past, carbon emissions were managed as part of corporate and social responsibility (CSR) programmes, but with new legislation coming through, via the Climate Change Act, and increasing pressure along supply chains, carbon management has been prioritised as a key business consideration. From the regulatory position, the government has recently completed a consultation regarding making reporting of carbon emissions a mandatory part of companies’ annual reporting. There are four different options they could follow, although only one of these is a ‘voluntary’ route – all others describe mandatory reporting, which may affect potentially as many as 20,000 businesses across the UK. The government’s highly awaited decision is expected later this autumn.

Businesses That Manage Their Carbon Financially Outperform Those Who Don’t

Aside from this, research conducted by PwC for the Carbon Disclosure Project (CDP) reveals the rapid growth in voluntary corporate carbon reporting across the Global 500 businesses. The research showed that companies with plans to reduce their carbon footprint have delivered double the average investment returns over the past six years compared with those who did not.1

Intangibles such as brand value and reputation are also affected by your company’s environmental performance. The Department for Environment, Food and Rural Affairs (DEFRA) has recently updated the Green Claims Code2 which now puts the focus on the need to use robust, plainly worded evidence (such as quantitative measures) to support claims in your marketing materials. Failure to comply with this could incur significant cost, upheaval and damage to your brand/ product launch if an advertising/marketing campaign has to be withdrawn.

Consequently, failure to manage carbon emissions not only impacts our environment, but potentially exposes business to unnecessary commercial risk, such as:

  • Legislative penalties.
  • Energy costs – typically up to 30% is wasted.
  • Stakeholder relations.
  • Failure to meet sales tender environmental criteria requirements.
  • Brand and market reputational damage.

Although this might seem a gloomy picture, businesses who adapt to the sustainability challenge are prospering, not only by reducing their operational energy spend and avoiding legislative penalties, but also by building robust environmental performance that differentiates their business and brands from competitors – vital as we emerge from the recession.

Managing Your Business Risk: The Cost of Carbon

The Carbon Reduction Commitment (CRC) Energy Efficiency Scheme is a hugely important driver for carbon management. Since the comprehensive spending review of autumn 2010, when the recycling of payments was removed, the CRC is now seen broadly as a ‘carbon tax’; with a carbon price of £12 per tonne (which is expected to increase over the coming years), this represents a highly significant cost impact on businesses (around £400,000 to typical businesses in the CRC, though potentially much more for high energy users). The end of the first ‘footprinting year’ was March 2011 and emphasis is now for businesses to reduce their emissions as much as possible to save on these ‘carbon tax’ costs

Even if your business is not currently within the CRC, you may be affected by business clients who are increasingly scrutinising their suppliers’ credentials; whereas previously , this may have been a ‘box ticking’ exercise, now robust commitments and performance metrics must be demonstrated – sometimes even just to be invited to tender. A carbon footprint measurement is one of the most quantitative measures of environmental performance.

How Do You Account for Your Carbon?

Clearly the pressure is on for businesses to measure their carbon footprints. But what needs to be reported and measured? You need to make a decision on whether you should measure your organisational footprint or your product /service footprint.

Organisational footprinting forms the main part of our discussion and convention is to repeat this on an annual basis. However, products and services can also be quantified and the industry best practice for this is Publicly Available Specification 20503, PAS2050, also known as product lifecycle analysis (LCA).

LCA calculations take into consideration:

  • ‘Up-stream’ carbon emissions due to product /service source materials and their transportation.
  • Production/manufacture/packaging emissions.
  • Distribution, retail, use and end of life issue emissions.

By their nature, LCA calculations are far more involved than organisational carbon footprint projects and the former often involves weeks – even months – of work (and cost) depending on product/service complexity and access to supply chain partner data.

How to Measure Your Carbon Footprint

The process for carbon footprint measurement and management includes a number of key steps:

  1. Decide the type of assessment to be made (organisational or lifecycle analysis).
  2. Define the operational boundaries.
  3. Collate all source data (include all GHGs not just CO2).
  4. Perform calculation (use DEFRA metrics).
  5. Analyse and benchmark performance.
  6. Input results into carbon management plan.
  7. Report – sharing with all stakeholders.

An organisational carbon footprint is based upon the emissions of the business itself, though can include emissions that are not directly controlled/managed by the business. The methodology for footprinting is described by BS ISO14064:1 2006 and The World Resources Institute Green House Gas Protocol (WRI GHG) Protocol (Tables 1 and 2) defines the scopes of these emissions. You must establish at the onset realistic ‘operational boundaries’ for your calculations; these boundaries should always be disclosed when you report your carbon footprint.

We here focus on your business’s ‘primary emissions’ – as these you can most realistically control and manage. However we encourage you also to consider your secondary emissions if possible.

The primary footprint

There are two primary causes of emissions, the energy use in buildings and travel emissions. This encompasses electricity use, burning oil or gas for heating, and fuel consumption as a result of business travel or distribution. The primary footprint corresponds to elements within scopes 1, 2 and 3 of the WRI GHG Protocol, as indicated in the table below.

Table 1: Table to Show Primary Footprint

Source: Carbon Footprint

 

The secondary footprint

Is a measure of the indirect emissions from a company’s upstream and downstream activities, typically from outsourced/contract manufacturing, and products and services offered by an organisation. The secondary footprint corresponds to scope 3 of the WRI GHG Protocol excluding employee business travel as indicated in the table below.

Table 2: Table to Show Secondary Footprint

Source: Carbon Footprint

 

It is more typical for organisational calculations to focus on the primary footprint, as this lies under the control of the organisation. It is best practice to recognise that there is a secondary footprint and select suppliers based on their environmental credentials, not just other elements of performance and price. You will need access to information on all these datasets to compile your carbon emission calculation. If this seems onerous, then don’t lose sight of the fact that typically businesses waste 30% of all energy used, which is a huge potential cost saving that can only be identified by following this process. Whereas datasets on building energy use are easily found (e.g. with an operational manager) travel data can be harder to locate and more fragmented – often data is held within finance teams and sometimes within human resources, if it relates to claimed expenses.

Once you have all the data within your calculation scope, you will need to convert it from its native units (e.g. kWh of electricity and gas or litres of diesel fuel) into tonnes of CO2e. To achieve this you need to multiply through by the carbon emission metrics. DEFRA publishes carbon emissions on a regular basis and this database has been widely accepted as an industry ‘standard’4. Although the calculation seems easy, the complexity of the organisation will determine the time and resource you need to complete your assessment.

Other complexity arises if your business for instance shares facilities with other parties (often the case for small to medium-sized enterprises (SMEs) in serviced accommodation) or you need to apportion carbon to a particular business subsidiary from its corporate parent.

A number of carbon footprint measurement software tools are available; some are free to use and available on-line5 and others are geared towards particular sectors, e.g. manufacturing.6 There is also a range of commercially available carbon management software now emerging in the marketplace. The best tools will use ISO14064 methodology/WRI GHG Protocol and use metrics from recognised databases (e.g. DEFRA’s carbon emission factors) to convert energy, fuel use and GHG emissions into CO2 equivalent emissions.

What Does it Look Like and What Next?

A simple pie chart or bar chart representation is often the easiest way to interpret your current emissions status.

Figure 1: Breakdown of Carbon Footprint

Source: Carbon Footprint

 

This will provide a snapshot of your current performance and allow you (and your management team) to prioritise budget/resource on those areas contributing most heavily. Figure 1 shows a service based business’s emission for which site electricity dominates their carbon footprint. This might indicate significant overnight electricity draw from the building. Possible causes such as lighting or PCs being left on should be investigated in this instance.

It is also valuable to benchmark your current performance against other similar businesses. Although current data resources are a little patchy, useful data is becoming available and is commonly expressed in terms of tonnes of CO2 per employee/by sales turnover (see Table 3).

Table 3: Summary of Carbon Emission Benchmarks7

Source: Carbon Footprint

 

Once you have completed your carbon footprint calculation, use this as a baseline emission level for comparisons to be set against in future years. It also breaks down into a number of key sources all of which should be used to set targets for future reductions (and cost savings).

What Next? Building a Carbon Management Plan

A carbon footprint calculation is an essential measure of carbon status and performance. Once you have this, you need to develop and implement a carbon strategy and management plan which will need to engage with a range of different functions across your business. It is not unheard of for a business to be faced with as many carbon savings by making cultural/behavioural change (requiring very low/no capital expenditure) as they do from technology changes within their buildings.

In either case, you will need an action plan that is fully inclusive, reaching across all functional areas of your organisation in order to implement reductions. It is vital to assure that inputs come from colleagues from all functional areas and that you have sponsorship (better still ownership) of the plan at executive management level – this will assure ‘buy in’ at all levels and help foster the cultural changes that are the key to behavioural change and carbon footprint reduction.

Conclusion

Carbon footprint measurement and management is a robust discipline now established to be linked to business profitability. Simple online tools now provide a good starting point for your carbon management programme. Ultimately, the success of carbon footprint management in your business is down to the success of your implementation of a carbon management plan which may mean significant cultural change; this being achieved, your organisation will establish robust sustainable practices and credentials, that reduce energy costs and bring new sales success.

 

8 views

Related reading