4.1 Setting Organisational Boundaries (Equity Share vs. Control Approach)
Understanding how to measure a business's emissions starts with grasping the organisational intricacies. Businesses come in various structures, including subsidiaries, wholly owned operations, and incorporated ventures. There are two key approaches for defining organisational boundaries within the GHG Corporate Standards:
1. Equity Share Approach:
- This approach accounts for GHG emissions based on the company's share of equity in an operation.
- It mirrors the economic interest in the company, linking risks and rewards to the organisation's ownership percentage.
- Emissions from subsidiaries and associates are considered but distributed based on the organisation's equity share in these entities.
2. Control Approach:
- Under this approach, a company includes 100% of emissions from operations it or its subsidiaries control operationally or financially.
- This applies even if the company doesn't own 100% of the subsidiary.
- The control approach involves choosing either financial or operational control.
Deciding which approach to use is a nuanced decision and often requires discussion within the business. The equity share approach is often preferred, aligning with the commercial reality. If a company gains economic profit from an activity, it takes responsibility for associated GHG emissions, as outlined by the equity approach. Additionally, financial liability typically falls to the company holding equity share, ensuring comprehensive coverage of liability and risks.
However, when participating in emissions trading schemes or complying with government regulations, diligent compliance monitoring is crucial. In such cases, compliance responsibility generally lies with the operator, not the equity holder. Therefore, the control approach may be necessary. Choosing the right approach is a complex but vital decision, shaping the methodology for completing the emissions assessment. Open communication with the business is key for making informed decisions on the most suitable approach.
4.2 Understanding Carbon Accounting Methods (Spend-Based, Activity-Based)
Having delved into the intricacies of defining organisational emissions boundaries and gaining a comprehensive understanding of the three emissions scopes earlier, let's now shift our focus to exploring the methodologies for calculating these emissions.
Carbon accounting relies on two primary sets of information: business data and emissions factors.
1. Business data relates to the operations conducted by a business. This information can come in two forms:
- Spend Data: This refers to the monetary transactions made to company X for a particular product or service.
- Activity Data: This involves quantifying the volume, such as the number of litres of fuel or kilograms of material purchased.
2. Emissions factors constitute the second type of data essential for carbon accounting. These factors specify the quantity of greenhouse gas emissions linked to a specific unit of business data.
The Spend-Based Approach
The spend-based method of calculating GHG emissions takes the financial value of a purchased good or service and multiplies it by an emission factor – the amount of emissions associated with that activity – resulting in an estimate of the emissions produced.
Spend-based emission factors are typically derived from so-called environmentally extended input-output (EEIO) models that depict the flow of resources between different sectors of the economy. Based on this, one can calculate the average amount of emissions associated with each unit of money paid to a company in some specific industry and region.
There are around 344 categories - all with different emissions factors that spending can be allocated to. Categories have different emission factors and therefore impact a company’s total footprint differently based on the allocation of spending. For example, a dollar spent on company car repairs does not equal a dollar spent on legal services.
While its estimation of total carbon footprint is reliable, the method limits the impact tracking of individual products. Furthermore, average industry data may be skewed by outliers such as inflation and the exchange rate. These uncertainties and limitations around the spend-based approach should be noted. However, it remains the best method to ensure calculations can be rapidly and accurately made for any-sized business.
Activity-Based Approach
If you are pursuing carbon certification in the near future, using the spend-based approach as a backstop for the more comprehensive activity-based approach is best. What we mean is that the activity-based approach involves collecting specific activity data from invoices rather than relying wholly on the dollar value. For example, the cost of a flight from Sydney to London could differ drastically depending on factors like the airline, ticket class or stopovers. With the activity-based approach, you would consider these factors to develop a more accurate calculation of your emissions.
Of course, you may not always have the minor details at your disposal or written clearly in fine print. This is why emissions calculation is hierarchical. The activity-based approach is prioritised at the top because it’s the most accurate. Furthermore, most respected carbon certifications require activity base source data. It’s when you do not have activity data that you should use emissions per dollar estimates, i.e. the spend-based approach.
4.3 Importance of Emissions Factors
When it's not practically feasible to directly measure emissions from every source in a business, we turn to estimates based on widely accepted assumptions—these are referred to as emissions factors. These factors play a crucial role in determining the Greenhouse Gas (GHG) emissions from a specific source in relation to a particular unit of measure, be it physical or economic. Typically, this involves converting an activity into a carbon dioxide equivalent (CO2e), and you might also hear these conversions being called conversion factors, emissions intensity, or carbon intensity.
For example, imagine figuring out how many tonnes of carbon are emitted when you burn 200 MJ of natural gas, purchase 100 tonnes of timber, acquire 100 kgs of coffee beans, or dispose of 5 tonnes of organic waste in a landfill.
To make these calculations, we rely on databases full of emissions factors that give us insights into the average emissions associated with each of these activities.
4.4 Strategies for Effective Data Collection and Management
Efficient data collection is the backbone of successful carbon accounting. This involves navigating challenges related to data accuracy, consistency, and availability. From manual data collection methods to the integration of advanced technologies, understanding the best practices for gathering data ensures the reliability of emission calculations. Streamlining this process not only enhances the accuracy of reporting but also contributes to the overall efficiency of sustainability initiatives.
How do you Track your Emissions?
Regarding carbon tracking, there are two primary methodologies: Manual and Automatic. Many organisations utilise the former and manually collate data using spreadsheets. However, the method often leads to severe inefficiencies and errors that may falsely represent a business’ sustainability outlook. This, in turn, erodes confidence in the data and generating auditable reports becomes much more difficult, especially when they may be released to the general public.
Consequently, we recommend the use of climate enterprise software. These types of software automatically utilise financial data to calculate a firm’s carbon footprint, drastically shortening the man-hours required to track emissions correctly. Likewise, NetNada’s software streamlines the data capture process. Users are given a detailed breakdown of their scope one, two and three emissions within minutes of syncing their financials. XERO and MYOB help make this easy.
Considering inevitable reporting standards, climate enterprise software lets users easily share their progress with stakeholders and auditors via a centralised dashboard that contains trends, reports, documentation and certifications. Most remarkably, they automate the ESG consulting process by providing suggestions and strategies formulated by generative AI. Because of its convenience and cost-efficiency, we highly recommend you explore how ESG software can improve your sustainability.
4.4 Strategies for Effective Data Collection and Management
Efficient data collection is the backbone of successful carbon accounting. This involves navigating challenges related to data accuracy, consistency, and availability. From manual data collection methods to the integration of advanced technologies, understanding the best practices for gathering data ensures the reliability of emission calculations. Streamlining this process not only enhances the accuracy of reporting but also contributes to the overall efficiency of sustainability initiatives.
How do you Track your Emissions?
Regarding carbon tracking, there are two primary methodologies: Manual and Automatic. Many organisations utilise the former and manually collate data using spreadsheets. However, the method often leads to severe inefficiencies and errors that may falsely represent a business’ sustainability outlook. This, in turn, erodes confidence in the data and generating auditable reports becomes much more difficult, especially when they may be released to the general public.
Consequently, we recommend the use of climate enterprise software. These types of software automatically utilise financial data to calculate a firm’s carbon footprint, drastically shortening the man-hours required to track emissions correctly. Likewise, NetNada’s software streamlines the data capture process. Users are given a detailed breakdown of their scope one, two and three emissions within minutes of syncing their financials. XERO and MYOB help make this easy.
Considering inevitable reporting standards, climate enterprise software lets users easily share their progress with stakeholders and auditors via a centralised dashboard that contains trends, reports, documentation and certifications. Most remarkably, they automate the ESG consulting process by providing suggestions and strategies formulated by generative AI. Because of its convenience and cost-efficiency, we highly recommend you explore how ESG software can improve your sustainability.
