So… what is carbon accounting?

LAST UPDATED: Apr 21, 2024

Understanding the environmental impact of your business is critical in today’s business environment — and carbon accounting is a fundamental step in this process. With carbon accounting increasingly becoming another compliance measure mandated by regulators, businesses of all types and sizes need to get their emissions numbers in order.

This is particularly true if you’re a small business that provides goods and services to a larger organisation. Many large companies are scrutinising their entire business operations in line with new compliance requirements, including product life cycles and supply chain. Suppliers that are unable to provide this information may find themselves locked out of contracts and supply chains as a result.

Luckily, Xero is connected with a number of powerful carbon accounting apps that can help you and your clients get started on your carbon accounting journey. What used to be time consuming and cost-prohibitive is now quick and affordable, and readily available to businesses of all kinds.

What is carbon accounting?

Carbon accounting is the name given to the process of assessing an organisation’s impact on the environment, by calculating its emissions of carbon-based greenhouse gases (GHGs). Essentially, carbon accounting is just maths: emissions are calculated by multiplying business data (such as employee travel data or an office electric bill) by an ‘emissions factor’, or the average emissions generated by that activity.

Working through this process for your firm’s entire operation will leave you with the output of the carbon accounting process, referred to as your carbon footprint.

Understanding your carbon footprint

A carbon footprint captures and summarises the total amount of GHG’s that are generated as a result of your operations. Up until recently, carbon footprints have typically been calculated and recorded on large, complex spreadsheets. However, we’re now seeing streamlined software solutions, such as Greenly, Ecologi (UK only) and Sumday, managing this process from start to finish.

Within your carbon footprint, emissions are broken down and reported into three scopes based on ownership and control:

• Scope 1: Direct emissions that occur from sources owned or controlled by the company. This includes driving a petrol vehicle, powering a diesel generator or operating a fuel-powered forklift.
• Scope 2: Indirect emissions from the generation of purchased electricity. 
• Scope 3: Indirect emissions that occur as a result of your operations, that are generated by the goods and services in your supply chain. Examples include business flights, third party delivery services, cloud hosting services or even employee commuting.

What are GHGs and why should you measure them?

Greenhouse gas (GHG) emissions – the atmospheric gases responsible for causing global warming and climatic change – are critical to understanding and addressing the climate crisis. While most GHGs are naturally occurring, human activities have also been leading to a problematic increase in the amount of GHGs emitted and their concentration in the atmosphere. This increased concentration, in turn, has and will continue to lead to adverse effects on the climate. Effects include increases in the frequency and intensity of extreme weather events – including flooding, droughts, wildfires and heat waves – that affect millions of people and cause trillions of dollars in economic losses.

What methodologies should you align to? 

Carbon accounting can be a complex process, but thankfully global standards have been developed to help ensure that the way that businesses measure and account for carbon emissions is consistent and comparable. The most widely used global framework has been developed by the Greenhouse Gas (GHG) Protocol. They’ve developed a corporate standard that provides guidance on the methodology and process to follow when setting off on this journey.

Why is this important to your business?

We’re seeing a global shift towards a low carbon economy, driven by legislation as well as consumer, business, and investor preferences. At its core, carbon accounting is an important step to better understand and be transparent about your business’s environmental impact. A company’s carbon footprint is increasingly becoming a key indicator for external stakeholders that may be assessing your company as a potential customer, business partner or investor.

An example is in Australia, where the federal government is signalling a mandatory disclosure regime for the reporting of climate-related financial information. While small businesses won’t have to report themselves, many will be caught in the requirements because they’re part of the supply chain of larger businesses that are required to report.

The time is now to get ahead of this process, to future proof your position in low carbon supply chains and the broader green economy.

How can you start carbon accounting?

One of the easiest ways to get started is by using a carbon accounting app from the Xero App Store. Carbon accounting apps securely connect to you or your client’s Xero account and analyse business data to calculate your carbon footprint. They’ll guide you and your clients along the way, help simplify a complex process, and answer any questions that arise.

Make Earth Day count: limited time promotion

As part of Earth Day (22 April 2024), we’ve worked with carbon accounting app partners Greenly, Ecologi and Sumday to create some special sign up offers:

• Greenly – 20% discount for all Xero customers who sign up through the campaign using promo code: EARTHDAY. This discount will be available for all of Greenly’s GHG reporting packages. (Offer is available from 18 April 2024 and ends 30 June 2024).
• Ecologi (UK only) – Limited time offer for Xero customers: 20% off for your first 12 months of an annual subscription plan when you sign up with promo code ‘XEROEARTHDAY20’ by 30 April 2024 (Offer is available from 22 April 2024 – 30 April 2024).
• Sumday – 50% off for 3 months for all Xero customers who start a free trial via the Xero App Store by 30 May and subscribe by 30 June 2024. (Offer is available to those customers that start a free trial between 18 April 2024 – 30 May 2024, and subscribe by 30 June 2024).

 Learn more about our approach to sustainability.