Carbon accounting and the future of sustainability

What is carbon accounting? 

Carbon accounting is a way of measuring and reporting the amount of greenhouse gases (GHGs) that an organization emits. GHGs are gases that trap heat in the atmosphere and contribute to global warming and climate change. Carbon dioxide (CO2) is the most common GHG, but there are others, such as methane, nitrous oxide and hydrofluorocarbons.  

There are different methods and standards for carbon accounting, but one of the most widely used is the Greenhouse Gas Protocol, which classifies emissions into three scopes: 

• Scope 1: Direct emissions from sources that are owned or controlled by the organization, such as fuel combustion, industrial processes or refrigeration. 
• Scope 2: Indirect emissions from the generation of electricity, heat or steam that the organization purchases and consumes. 
• Scope 3: Indirect emissions from the organization’s value chain, such as raw materials, transportation, waste disposal or business travel. 

Why is this relevant to my organization? 

The ESG and sustainability landscape has shifted from voluntary to mandatory reporting and compliance, underpinned by regulation and stakeholder demands for transparency. 

We’re coming into an era where ESG and sustainability is moving from a ‘nice to have’ into a required accounting standard for organizations. Within the last six months, the International Sustainability Standards Board (ISSB) handed out two new globally applicable disclosure standards: IFSR 1 and IFSR 2. In these standards, it states that you need to disclose the emissions associated with your organization, perform the accounting in line with the global protocol and disclose the uncertainty and assumptions associated with those calculations.  

In addition, the recently passed California Climate Accountability Package is made up of four landmark reporting requirements for companies doing business in California. The most impactful of the requirements being SB 253 and SB 261. These state that if an organization is doing business in California with revenues over $1 billion, the organization will need to report on Scope 1, 2 and 3 emissions. And if the organization has revenues over $500 million, it will need to conduct a bi-annual climate-related risk assessment. Organizations that don’t hit that $1 billion dollar marker are likely still going to need to report their emissions profiles to the companies they serve and supply. Organizations are starting to realize that this does apply to them and are turning to accountants saying, “Can you help us with this?”.

Why are clients turning to accountants for ESG and sustainability reporting? 

1. Accountants have the expertise and skills to measure, verify and communicate performance of an organization based on data. The responsibility to report on Scope 1, 2 and 3 and other ESG metrics naturally becomes a task that accountants can assist with. 
2. Accountants can perform assurance or verification over Scope 1, 2 and 3 data and other ESG metrics to enhance the credibility and trustworthiness of ESG reports. 
3. Senior leadership team members have uncertainty about the regulatory landscape and need assistance managing the regulatory risks. 
4. Accountants provide value in an organization’s overall business and generate topline growth through the measurement and management of ESG metrics.

What to do to get carbon accounting ready – start now! 

1. Understand what data you need 
2. Find where the data is coming from 
3. Identify which of your customers are likely to be asking for this information 

Baker Tilly’s focus is to provide value by protecting and enhancing organizations now and making sure they’re ready in the future so their ESG journeys are as seamless, efficient and provide as much economic and social value as possible.