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ICAEW Sustainability

Carbon Accounting: Empowering SMEs to Measure and Mitigate Environmental Impact


Published: 11 Jul 2023

In today's rapidly evolving business landscape, the need for organizations to address their environmental impact has become paramount. Carbon accounting, a technique used to measure and manage carbon emissions, has emerged as a powerful tool for businesses to understand and reduce their carbon footprint. In this article, we will explore what carbon accounting entails, how it can benefit small and medium-sized enterprises (SMEs), and why chartered accountants should embrace carbon accounting.

Understanding Carbon Accounting:

Carbon accounting is a methodical approach to measuring an organization's carbon emissions. These emissions are categorized into three scopes: scope 1, 2, and 3. Scope 1 covers direct emissions from owned or controlled sources, scope 2 includes indirect emissions from purchased electricity, and scope 3 accounts for all other indirect emissions from activities such as supply chains and employee commuting.

Carbon accounting works by converting various measurable business activities into carbon dioxide equivalent (CO2e). CO2e is a metric measure used to compare different GHG emissions based on their global warming potential. It converts the amounts of other gases into the equivalent amount of CO2, considering their respective Global Warming Potential (GWP). There are two main methodologies employed in carbon accounting: Spend Based and Activity Based, which provide businesses with flexibility in choosing the approach that suits their specific needs.

Benefits for SMBs

Carbon accounting provides SMEs with the tools to measure, mitigate, and manage their environmental impacts effectively. By quantifying their carbon footprint, businesses gain insight into the areas where emissions are generated and can identify opportunities for improvement. This enables them to develop strategies to reduce emissions, enhance sustainability practices, and align with changing customer expectations.

Sage's Acquisition of Spherics

Spherics, a carbon accounting platform, has recently been acquired by Sage, a leading technology company all accountants are familiar with. Spherics simplifies the process of measuring emissions, including those from suppliers, by automating the calculation process. Sage's acquisition of Spherics reflects its commitment to assisting SMEs in addressing climate change. The carbon accounting sector is experiencing rapid growth, making it a multi-billion-dollar industry. Moreover, as governments and corporations worldwide commit to net-zero targets, carbon accounting for SMEs is on the path to becoming mandatory.

Where can Chartered Accountants feed into this?

Accountants play a crucial role in addressing the climate crisis through carbon accounting. By engaging in this practice, accountants contribute to the three Ps of sustainability: People, Planet, and Profit. They help businesses attract and retain the right talent, protect the planet by reducing emissions, and ensure long-term profitability by staying relevant in an evolving business landscape.

1. Future Business Opportunities
Companies that fail to demonstrate transparent reporting and a clear reduction pathway will face challenges in winning business in the future. As per Policy Procurement Note 06/21, any business trading with the UK public sector must produce a carbon reduction plan and report on all three scopes of emissions. Therefore, embracing carbon accounting opens doors to new business opportunities and partnerships.

2. Access to Capital
Taking climate action has become a critical factor in accessing capital. Financial institutions, such as NatWest, have included climate action in their risk and credit framework. This means that companies demonstrating their commitment to climate action will be perceived as lower credit risks. Embracing carbon accounting allows businesses to access capital at a more affordable cost.