What is Carbon Accounting and why should your business care?.

Article | Angela Lei & Melanie Hallam, PEM | 5th June 2024

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Carbon accounting is the measurement of a company’s Greenhouse Gas (GHG) emissions – that is, the greenhouse gases that are emitted by the company from its activities and operations.

For organisations quantifying their emissions for the first time, you’ll be performing a ‘baseline emissions assessment’. This involves identifying and quantifying all of the sources of emissions within an organisation’s operations, including direct emissions from activities like burning fossil fuels (like driving a car), as well as indirect emissions associated with the consumption of electricity, freight of materials, or from the purchase of goods and services you buy (from suppliers within your value chain).


The GHG Protocol supplies the world’s most widely used Greenhouse Gas accounting standards. Nearly every other framework (think of the endless acronyms you’ve heard) is underpinned by the GHG Protocol for the carbon accounting part. These standards set out the things you need to include and the methods you can follow (and yes, they cover methods where you don’t have perfect data because in reality, nobody does).

The standards really are accounting standards more than environmental science. But let’s take a minute to go a little deeper for context. What are greenhouse gases or GHGs? They are gases present in our atmosphere that absorb and emit energy within the thermal infrared wavelength of light (IPCC, 2018) (wavelengths slightly longer than the visible spectrum we see in).

These gases essentially trap some of the incoming solar radiation, warming our planet. Basically, greenhouse gases are responsible for the rising temperatures that are leading to climate change and its catastrophic consequences. The primary greenhouse gases that drive the greenhouse effect are water vapour (H2O) (in the form of clouds etc.), carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O) and ozone (O3).

Applying this to carbon accounting

When it comes to carbon accounting, you’re calculating the quantity of those gases generated from the businesses activities, and the output is usually expressed as kg of CO2-e.

What does CO2-e mean?

Each one of those gases has a global warming potential (‘GWP’ for short). When you multiply any of those gases by its GWP – you get CO2-e. Essentially, the idea is that you are expressing the impact of each greenhouse gas in terms of the amount of carbon dioxide or CO2 that would be required to create the same amount of warming. It simplifies things and provides a common unit. Don’t worry, you don’t have to know what activity creates exactly what gas and what the equivalent amount of carbon is based on your own knowledge and research.

How do you know what to account for?

Under the GHG Protocol, emissions are split up into ‘scopes’ (categories of emissions essentially). There are three scopes used in GHG accounting, which differentiate between direct and indirect emissions:

  • Scope 1 emissions: Direct GHG emissions from sources that are owned or controlled by the company, such as burning fuels from cars, trucks, gas stoves, boilers, and BBQs.
  • Scope 2 emissions: Electricity, indirect GHG emissions from purchased electricity consumed by the company (like what’s on your power bill). Scope 2 emissions are generally straightforward, it’s the emissions associated with the electricity, steam, heat or cooling a business buys from a utility or retailer. Scope 2 represents one of the largest sources of GHG emissions globally, with generation of electricity and heat now accounting for at least a third of global GHG emissions (hence the push towards renewable energy). These emissions are categorised as indirect, as they are technically emitted from sources owned by other entities i.e. the electricity provider, rather than a business generating the electricity themselves.
  • Scope 3 emissions: Other indirect emissions which are a consequence of the activities of the company but occur from sources not owned or controlled by the company (like all the suppliers the business buys goods and services from). From its brief description, this category probably makes the least sense… Scope 3 emissions are essentially every other emission in the value chain other than Scope 1 and 2, meaning most of a company’s emissions are related to Scope 3 sources, in fact, it’s often around 80-90%! So it’s absolutely critical to account for Scope 3 emissions.

Scope 3 emissions are divided into 15 categories:

  1. Purchased Goods and Services
  2. Capital Goods
  3. Fuel and Energy-Related Activities
  4. Upstream Transportation and Distribution
  5. Waste Generated in Operations
  6. Business Travel
  7. Employee Commuting
  8. Upstream Leased Assets
  9. Downstream Transportation and Distribution
  10. Processing of Sold Products
  11. Use of Sold Products
  12. End-of-life treatment of Sold Products
  13. Downstream Leased Assets
  14. Franchises
  15. Investments

How do accountants and finance teams play a role in all this?

Have you ever thought about how hard it is to know whether a business is truly sustainable? If you were buying new office equipment for your own business, could you easily understand whether one keyboard or desk supplier emitted less carbon than another? The answer is no. And that’s because not all businesses are carbon accounting properly. This means it’s very hard for businesses to make informed decisions from a carbon or sustainability perspective, despite the desire to do so.

Carbon accounting has never been more important. It’s essential if businesses are to make informed decisions, and if industries and countries are to meet net zero targets. The PEM VFO team uses Xero (or CSV downloads from other systems) that integrates with Sumday’s software, to provide you with relevant financial and activity data. This transaction data can then be coded to the relevant emissions source in Sumday and reports can be prepared for audit readiness and easy reconciliation with financials so you can see where your business stands through reports and dashboards.

So, if you’re would like your business to start carbon accounting, or more information about Xero or Sumday, contact our VFO team to discuss in more detail.

This article was correct at time of publication.

About the author

Angela Lei & Melanie Hallam, PEM

Learning Lead, Sumday