6 Benefits of carbon accounting

In recent years, businesses have faced increasing scrutiny over the role they play in climate change.

Facing internal and external pressures to measure, report and reduce carbon emissions (both those produced directly by business activities and indirect greenhouse gas emissions in their value chains), more companies are adopting carbon accounting as a tool to solve this problem.

Just decades ago, accurately measuring and measuring a company's direct and indirect carbon emissions was a Sisyphean task. Now, thanks to powerful carbon accounting software,  companies are best positioned to take control and own the impact of their business activities on the planet.

6 BENEFITS OF CARBON ACCOUNTING

There are six key reasons why your company should choose carbon accounting for emissions reductions and stand out as a forward thinker in your industry:

1. Reducing regulatory risk

Historically, carbon accounting has been conducted on a voluntary basis. But without the looming threat of non-compliance penalties, few companies have truly conducted rigorous self-analysis. A 2021 survey found that only 9% of organizations can comprehensively and accurately measure total greenhouse gases.

In response, both the SEC and the EU have made carbon accounting and disclosure a regulatory priority. Now the tide is turning with existing regulations such as the EU's Sustainable Finance Disclosure Regulation (SFDR), the Corporate Sustainability Reporting Directive (CSRD) and the SEC's proposed climate risk disclosure rule.

American and European companies need to stay ahead and above regulatory sustainability requirements. That's why carbon accounting is important. It empowers businesses to paint a clear picture of their direct and indirect carbon emissions, thereby reducing the risk of fines, penalties and reputational damage should greenhouse gas regulations become the status quo.

2. Energy and cost savings

Carbon accounting provides comprehensive visibility over all of an organization's activities and supply chain. It can tell you:

• Amount of carbon emitted
• Parts of the business or value chain responsible for emissions
• Where carbon reduction opportunities exist within the business

By identifying inefficiencies in its operations, a company can make necessary changes, eliminate greenhouse gas hotspots, and ultimately optimize resource efficiency.

Over time this can deliver significant cost savings as well as environmental and reputational benefits, enabling LED retrofits, for example, to have a payback period of 1-3 years. It also allows proactive companies to identify new business opportunities and increase their competitive advantage in the low-carbon economy of the future.

3. Supply chain flexibility and efficiency

Scope 3 emissions (greenhouse gas emissions produced not directly by the company but by participants up and down the value chain) tend to account for 80% to 90% of an organization's total emissions.

Carbon accounting allows businesses to identify scope 3 risks and opportunities in the supply chain, particularly emissions hotspots (i.e. carbon-intensive value chain participants or activities).

For example, carbon-intensive suppliers will inevitably be more vulnerable to changes in the regulatory environment. Or some suppliers may be overly exposed to climate risks, such as resource scarcity or extreme weather events.

Equipped with carbon accounting insights, businesses can develop carbon reduction strategies, such as diversifying or restocking supply chains, to increase resilience and efficiency across the entire value chain.

4. Making the business ready for the future

Climate-related financial risks such as extreme weather, rising global temperatures, stranded assets and rising emissions pricing threaten business profits around the world.

According to the 2019 CDP report, the world's largest companies face $1 trillion in climate-related financial risks, and a significant portion of this return is expected to occur within the next five years. Their findings included the following statistics:

Companies report potential $250 billion in losses due to asset write-offs

Climate business opportunities estimated at $2.1 trillion

The potential value of sustainable business opportunities is estimated to be almost 7 times the cost of realizing them

Financial companies tap $1.2 trillion from low-emission products and services It predicts initial income

Many businesses are completely unaware of the financial risks associated with climate change. But one of the biggest benefits of carbon accounting will be that businesses will be better informed and positioned to make smarter investments and operational choices in the face of this looming threat.

5. Brand positioning

As we mentioned before, sustainability is the first priority of consumers, investors, stakeholders and employees. According to PWC , “Consumers and employees want businesses to not only comply with regulations but also invest in delivering sustainable improvements in the environment and society, and they are prepared to reward (or punish) brands accordingly. The overwhelming majority of both consumers and employees said they are more likely to buy from or work for companies that share their values across multiple elements of ESG.”

Simply put, accounting for carbon and taking steps to reduce greenhouse gas emissions is a signaling mechanism that brands can use to demonstrate their commitment to the cause. By being proactive rather than reactive, a business can differentiate itself from competitors, stand out as a thought leader, and appeal to environmentally conscious customers and investors.

6. Environmental and social benefits

Along with its direct impact on a company's profitability and reputation, carbon accounting empowers a business to play a key role in overall efforts to combat climate change  . By reducing its carbon footprint, a company can contribute to the fight and promote sustainable development for future generations.