What is Carbon Accounting?

Carbon accounting is the process of measuring and quantifying greenhouse gas emissions, particularly carbon dioxide (CO2), produced by an organization, product, or activity. It provides a systematic approach to tracking and reporting these emissions, allowing businesses to understand and manage their carbon footprint. In simple terms, carbon accounting is the practice of calculating and monitoring the amount of CO2 and other greenhouse gases released into the atmosphere because of human activities.

The Importance of Carbon Accounting

Carbon accounting is instrumental in driving environmental stewardship, meeting investor expectations, complying with regulations, and gaining a competitive advantage. It is a vital tool for organizations seeking to address climate change, reduce their environmental impact, and contribute to a sustainable future. Here are 5 key reasons why it holds significant importance:

1. Investor and Stakeholder Expectations: Investors and stakeholders increasingly expect organizations to disclose their carbon emissions and demonstrate a commitment to environmental sustainability. Carbon accounting and ESG reporting have become crucial in building trust, attracting investments, and maintaining positive relationships with stakeholders who prioritize sustainable and responsible practices.
2. Regulatory Compliance: Governments worldwide are introducing carbon-related regulations and reporting requirements. Carbon accounting ensures organizations stay compliant with these regulations, avoiding potential penalties and reputational risks associated with non-compliance.
3. Reputation and Competitive Advantage: Embracing carbon accounting demonstrates an organization’s commitment to environmental responsibility and sustainability. It enhances brand reputation, attracts environmentally conscious customers, and provides a competitive edge in a market increasingly focused on sustainable practices.
4. Environmental Impact: Carbon accounting enables organizations to understand and measure their greenhouse gas emissions, which directly contribute to climate change. By quantifying these emissions, businesses can identify areas of high impact and implement strategies to reduce their carbon footprint, thus mitigating environmental harm.
5. Climate Change Mitigation: Carbon accounting is essential for effective climate change mitigation strategies. It provides a basis for setting emission reduction targets, implementing energy-efficient practices, transitioning to renewable energy sources, and adopting sustainable business practices. It empowers organizations to take proactive measures to combat climate change.

Carbon Accounting Methodology

Carbon accounting methodology encompasses various processes that enable accurate measurement, reporting, and management of carbon emissions. Here’s an overview of the key components:

• Data Collection: The first step involves gathering relevant data on energy consumption, fuel usage, transportation, waste management, and other activities that generate carbon emissions. This data is collected from internal records, utility bills, supplier data, and emission factors specific to each emission source.
• Measurement and Calculation: Once the data is collected, emissions are calculated using established emission factors and conversion formulas. These factors consider the carbon intensity of energy sources, such as electricity grids or specific fuels. The calculated emissions are often measured in metric tons of carbon dioxide equivalents (CO2e).
• Scopes of Carbon Emissions: Carbon emissions are categorized into three scopes:
  • Scope 1: Direct emissions from sources owned or controlled by the organization, such as on-site combustion of fossil fuels or company-owned vehicles.
  • Scope 2: Indirect emissions associated with purchased electricity, heating, or cooling consumed by the organization.
  • Scope 3: Indirect emissions resulting from activities outside the organization’s control, such as supply chain emissions, employee commuting, business travel, or waste disposal.
• Accuracy and Reliability: Accurate data collection is crucial for reliable carbon accounting. Organizations should ensure data integrity, establish quality control processes, and use standardized calculation methods. Independent verification by third parties further enhances the credibility of reported emissions.

VL’s ESG Steward streamlines data collection automates calculations and provides comprehensive sustainability reporting capabilities. With intuitive data entry interfaces and integration capabilities, Visual Lease simplifies the process of capturing emissions data from various sources, ensuring accuracy and consistency.

With ESG Steward, organizations can enhance their environmental reporting, monitor emission trends, set reduction targets, and make informed decisions to drive sustainability initiatives effectively.

Carbon Accounting Challenges

Carbon accounting presents several challenges that organizations need to navigate to ensure accurate reporting and disclosure of greenhouse gas (GHG) emissions. Common challenges include:

• Data Complexity: Gathering comprehensive and reliable data across diverse operational areas can be challenging. Organizations often face difficulties in collecting data from multiple sources, ensuring its accuracy, and managing data consistency over time.
• Scope 3 Emissions: Accounting for scope 3 emissions, which encompass indirect emissions from the value chain, can be particularly complex. This involves collecting data from suppliers, calculating emissions from activities like transportation and waste management, and addressing data gaps and inconsistencies.
• Calculation Methodologies: Choosing appropriate calculation methodologies and emission factors for different emission sources is complex. These methodologies evolve, and organizations must stay updated with the latest guidelines and standards to ensure accuracy in emission calculations.
• Reporting and Disclosure: Reporting GHG emissions requires adherence to various frameworks and standards, such as the Greenhouse Gas Protocol, CDP (formerly Carbon Disclosure Project), and industry-specific guidelines. Ensuring compliance with these frameworks while providing transparent and accurate disclosures can be challenging.

Manual processes and spreadsheets may not be sufficient to handle the complexities of carbon accounting. Specialized software tools are essential for streamlining data collection, calculation, and reporting. These tools provide automated workflows, data validation, and real-time reporting capabilities, enabling organizations to effectively manage the carbon accounting process.

Ensuring the Accuracy and Reliability of Carbon Accounting Data

Accurate and reliable carbon accounting data is essential for organizations to demonstrate their commitment to environmental sustainability. Accurate data instills trust, enhances reputation, and establishes credibility, making it an essential aspect of demonstrating a genuine dedication to sustainability practices.

Investors and stakeholders increasingly prioritize environmental sustainability when making decisions and assessing the long-term viability of organizations. Accurate carbon accounting data serves as evidence of an organization’s commitment to managing its environmental impact. Investors seek reliable data to evaluate the risks and opportunities associated with climate change and to make informed investment decisions aligned with their sustainability goals. Likewise, stakeholders, including customers, employees, and regulatory bodies, expect transparency and credible information to assess an organization’s environmental performance and hold them accountable for their actions.

With VL’s ESG Steward, organizations gain peace of mind with data validation checks, ensuring the accuracy and integrity of the collected data. By leveraging VL’s analytical capabilities, organizations have gained valuable insights; identifying emission hotspots, tracking trends, and making data-driven decisions.

Designed to align with reporting frameworks and standards such as the Greenhouse Gas Protocol, CDP, and industry-specific guidelines, ESG Steward ensures that organizations not only collect accurate data but also report in accordance with established frameworks, further enhancing the credibility of their sustainability reporting.

Carbon Accounting Software

Carbon accounting software offers a range of features and functionalities that streamline the process of collecting, analyzing, and reporting carbon emissions data. Here are key aspects of effective carbon accounting software:

• Calculation and Reporting: The software provides calculation tools based on recognized emission factors and methodologies, enabling accurate measurement of carbon emissions. It generates comprehensive reports, customizable dashboards, and visualizations that facilitate data analysis and disclosure.
• Compliance and Standards: Carbon accounting software aligns with established reporting frameworks and standards, such as the Greenhouse Gas Protocol and CDP. It ensures compliance with regulatory requirements and industry-specific guidelines, providing organizations with confidence in their reporting accuracy and integrity.
• Data Collection and Integration: Carbon accounting software simplifies data collection by integrating with various data sources, such as utility bills, financial systems, and supplier information. It automates the data capture process, reducing manual errors and ensuring data consistency.
• Goal Setting: Advanced carbon accounting software allows organizations to set emission reduction targets. It enables them to assess the impact of different strategies, evaluate the feasibility of targets, and track progress over time.

By utilizing a comprehensive platform for carbon accounting and ESG reporting, organizations can benefit in various ways:

• Enhanced Efficiency: Integrated software streamlines data collection, calculation, and reporting processes, saving time and reducing manual errors associated with manual data entry and spreadsheet-based approaches.
• Improved Accuracy and Reliability: Carbon accounting software incorporates data validation checks and standardized calculation methodologies, ensuring accurate and reliable reporting. It minimizes the risk of data inconsistencies and enhances the credibility of reported emissions.
• Stakeholder Engagement: Utilizing sophisticated software showcases an organization’s commitment to environmental responsibility, attracting environmentally conscious investors, customers, and employees. It improves stakeholder engagement and enhances an organization’s reputation as a sustainability leader.

Visual Lease’s ESG Steward is an example of a comprehensive software solution that streamlines the data collection process, provides accurate calculations, and offers robust reporting tools. By leveraging VL’s ESG Steward, organizations can simplify their carbon accounting and ESG reporting efforts, gain insights into their sustainability performance, and meet the expectations of investors and stakeholders.

The Opportunities of Carbon Accounting

Implementing carbon accounting practices presents organizations with numerous opportunities and benefits that extend beyond environmental responsibility. Here are some key advantages:

• Operational Efficiency: Carbon accounting provides insights into an organization’s energy consumption and emissions profile. By identifying energy-intensive processes or areas with high emissions, businesses can implement efficiency measures and optimize their operations. This can lead to reduced energy usage, streamlined processes, and cost savings.
• Cost Savings: Carbon accounting helps identify inefficiencies and wasteful practices that contribute to higher energy consumption and emissions. By implementing energy-saving measures, organizations can reduce their carbon footprint and realize significant cost savings in energy bills. Energy efficiency measures often pay for themselves over time and contribute to long-term financial sustainability.
• Improved Sustainability Performance: Carbon accounting allows organizations to set measurable sustainability targets and track their progress. By actively managing and reducing their carbon emissions, businesses can demonstrate their commitment to environmental stewardship and sustainability. This, in turn, can enhance their reputation, attract environmentally conscious customers and investors, and create a competitive advantage.
• Regulatory Compliance: As governments worldwide strengthen environmental regulations, carbon accounting helps organizations stay ahead of compliance requirements. By accurately measuring and reporting emissions, businesses can ensure compliance with environmental standards and avoid penalties or reputational risks associated with non-compliance.
• Risk Management: Carbon accounting helps organizations identify and manage climate-related risks. By assessing the potential impact of climate change on their operations and supply chains, businesses can develop strategies to mitigate risks, build resilience, and adapt to a changing business landscape.
• Stakeholder Engagement: Carbon accounting practices demonstrate an organization’s commitment to sustainability and environmental transparency. This can enhance stakeholder engagement and relationships with investors, customers, employees, and communities. Investors increasingly consider environmental factors when making investment decisions, and customers prefer businesses with strong sustainability practices.

Carbon Accounting Standards

When it comes to carbon accounting, adherence to industry standards and frameworks is essential for ensuring consistency, comparability, and credibility of reported data. Here are some prominent standards and frameworks that govern carbon accounting practices:

Greenhouse Gas Protocol (GHG Protocol): Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol is widely recognized as the global standard for measuring and managing greenhouse gas (GHG) emissions. It provides comprehensive guidelines for organizations to quantify and report emissions from various sources, including direct and indirect emissions (Scope 1, 2, and 3).

CDP (formerly Carbon Disclosure Project): CDP is a global disclosure platform that helps companies and cities measure, manage, and disclose environmental data, including carbon emissions. CDP’s climate change questionnaire is widely used by investors and stakeholders to evaluate an organization’s environmental performance and risks associated with climate change.

International Sustainability Standards Board (ISSB): The ISSB is an independent standard-setting body under the International Financial Reporting Standards (IFRS) Foundation. It was established in response to the growing demand for globally recognized sustainability reporting standards. The ISSB’s primary objective is to develop a comprehensive set of sustainability reporting standards that provide consistent, comparable, and reliable information on organizations’ environmental, social, and governance (ESG) performance.

European Financial Reporting Advisory Group (EFRAG): EFRAG is an organization based in Europe that provides technical expertise and advice to the European Commission on financial reporting matters. In recent years, EFRAG has been actively involved in advancing sustainability reporting within the European Union. The European sustainability reporting standards developed by EFRAG will complement existing financial reporting requirements and contribute to the EU’s goal of a sustainable and resilient economy. EFRAG aims to ensure that these standards align with global developments, including the work of the ISSB, to promote international consistency in sustainability reporting.

• With VL’s ESG Steward, customers benefit from transparent calculations, comprehensive controls, and complete audit trails for compliance with GRI, EFRAG, ISSB, TCFD, Greenhouse Gas Protocol, and other disclosures required by regulators and stakeholders.

Carbon Accounting with Visual Lease

In conclusion, carbon accounting and sustainability reporting have become integral components of corporate responsibility and transparency. Adhering to industry standards, such as the GHG Protocol are crucial for accurate and reliable carbon accounting. The emergence of organizations like the ISSB and EFRAG further underscores the global push for standardized sustainability reporting.

VL’s ESG Steward stands out as the ideal choice for businesses navigating the complexities of carbon accounting and ESG reporting. Our carbon accounting software encompasses key features required for efficient data collection, accurate calculations, and comprehensive reporting. By utilizing Visual Lease’s solution, organizations can streamline their carbon accounting practices, meet industry standards, and enhance the credibility of their reporting.

To take advantage of ESG Steward and unlock the benefits of accurate and reliable carbon accounting, schedule a demo, today.

Update: On June 26, 2023, The International Sustainability Standards Board (ISSB) announced their first two global sustainability-related disclosure standards in response to widespread demand for better transparency, consistency and reliability into sustainability plans and performance. IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium and long term. IFRS S2 establishes the specific requirements for climate-related disclosures.

While the Standards will ensure that organizations are reporting on robust sustainability data that is both verifiable and comparable, many companies are not yet prepared for the required effort. This blog post details three steps organizations can take to establish a baseline for reporting.

ESG reporting requirements are standards for how a company tracks and reports its Environmental, Social and Governance behavior. Although U.S. requirements have not yet been finalized, it is clear that these requirements will have a significant impact on organizations with the potential to mitigate environmental risk and improve sales through positive brand recognition. 

Socially conscious investors are the best-known driving force behind an organization’s adoption of ESG reporting, but the practice has been gaining more momentum among regulators in recent years. Recently, The International Sustainability Standards Board (ISSB), a branch of IFRS, announced that businesses should start prioritizing climate-related disclosures. Further ESG regulations from the ISSB, SASB and SEC are also expected to go into effect. Even though Europe is further along on the ESG journey than the U.S. is, many U.S.-based companies are likely already impacted by EU regulations, and there are widespread efforts to implement global regulations.

However, many organizations are not yet prepared for what’s ahead as it relates to ESG reporting and goal setting. In fact, only 5% of Senior Real Estate executives said their company’s ESG program is fully established. By waiting for regulations to be fully finalized, organizations are placing themselves at a disadvantage. One of the main factors holding companies back is not knowing what their current environmental impact is and how they can make the changes required to get on track. However, finance teams are in a unique position to be able to help their organizations proactively get a handle on their owned and leased assets, providing them with a strong understanding of their environmental impact. 

This blog post will highlight three ways to get ahead of ESG reporting requirements: 

Three Ways Finance Teams Can Prepare for ESG Reporting Requirements 

1. Create an ESG task force

In order to effectively manage owned and leased assets throughout their entire lifecycle, it is essential for organizations to establish a task force dedicated to Environmental, Social, and Governance (ESG) initiatives. This task force will involve multiple stakeholders, such as finance, real estate, procurement, accounts payable, legal, and others. By clearly defining roles and responsibilities within the task force, organizations can streamline decision-making processes and ensure that the right individuals are involved at each stage.

One crucial responsibility of the ESG task force is to stay informed about ESG reporting guidance, emerging regulations, and relevant laws. It is important to designate at least one member of the task force to monitor additional updates from regulatory bodies like the Securities and Exchange Commission (SEC) and the ISSB. This individual should possess a comprehensive understanding of key concepts, such as differentiating between scope 1 and 2 emissions. By staying up to date with evolving requirements, the task force can proactively address any necessary changes and maintain compliance.

Establishing an ESG task force will ensure that your company has a dedicated team focused on tracking, reporting, and fulfilling ESG requirements. This team will play a crucial role in gathering and analyzing data, monitoring progress, and making informed decisions regarding ESG initiatives. By centralizing these efforts, your organization can effectively engage stakeholders and demonstrate its commitment to sustainability and responsible business practices.

2. Decide how to track and report data long-term

Implementing a centralized system of record not only empowers organizations to gain insights into their portfolio of owned and leased assets and optimize financial expenditures but also, enables them to track and assess the environmental impact of these assets. By leveraging such a system, organizations can make informed decisions based on real-time data and begin taking steps to mitigate their carbon footprint related to their real estate and equipment leases, as well as owned properties.

For instance, as a company’s lease approaches its end, they can use the centralized system to compare the carbon emissions of their current leased office space with alternative options. This analysis can help them determine if relocating to a different space could lead to a significant reduction in their carbon footprint. By identifying and selecting environmentally friendly alternatives, organizations can align their operational practices with their sustainability goals and contribute to a more eco-friendly future.

3. Establish a strong lease controls framework 

To empower the cross-departmental collaboration required to effectively manage, track, report and analyze owned and leased asset data, organizations must implement dedicated technology. A solution that provides a strong lease controls framework will mitigate the risk of reporting errors, ensure that the right people have the right access to the right information at the right time, and also, provide access to meaningful insights. 

Virtual Lease recently launched VL ESG Steward to do all this and more. It is the first solution to push real estate, procurement, facilities and finance teams to go beyond portfolio optimization, accounting and compliance to focus on the environmental impact of their assets, projects and processes. 

ESG Steward is built in accordance with GRI, CSRD, and the Greenhouse Gas Protocol – the global gold standard for ESG and Emissions reporting guidance, ensuring accuracy, consistency and compliance with regulations and enabling organizations to tie hard data to their environmental disclosures with supporting evidence to substantiate claims of progress with confidence.

For more information on how Visual Lease can help your business get ahead of ESG regulation requirements, schedule time with our team. 

With more and more organizations focusing on ESG initiatives, we’ll use this blog to demystify what ESG is, why organizations choose to focus efforts on ESG related initiatives, and how your organization can get started on ESG reporting.

What is ESG

ESG stands for Environmental, Social, and Governance. These three factors are used to evaluate the sustainability and ethical impact of a company’s operations.

• Environmental: Environmental factors refer to a company’s direct or indirect impact on the environment, and may include carbon emissions, energy consumption, climate change effects, pollution, waste disposal, renewable energy, and resource depletion.
• Social: Social factors refer to a company’s impact on society including how a company treats its employees, customers, and the communities in which it operates. Social factors include discrimination, diversity, equity and inclusion, human rights, community relations, and animal rights.
• Governance: Governance factors refer to a company’s internal management and decision-making processes that help ensure that a company’s leadership is accountable to its shareholders, investors and employees; abides by government regulations, and that the business operates with integrity. Governance factors include executive compensation, shareholder rights, takeover defense, staggered boards, independent directors, board elections, and political contributions.

For the purposes of this blog post, we’ll be focusing on the Environmental factors.

Why Focus on ESG?

There are 4 main reasons why an organization may choose to focus on ESG initiatives:

1. Financial performance: In the past decade, studies have confirmed a link between ESG policy performance and financial performance. One of the largest studies conducted by the Journal of Sustainable Finance & Investment, analyzed over 2,000 empirical datasets, with 90% of them indicating either positive or neutral correlations between ESG factors and financial performance.
2. Regulatory risks: While ESG reporting in the United States is currently largely voluntary, companies that ignore ESG factors may face regulatory and legal risks in the future. Many state and local governments are implementing ESG-related regulations, with fines and penalties for organizations that do not comply. The European Union (EU) is leading the way in requiring compliance to sustainable business practice; they currently have the world’s most advanced ESG regulations. For example, the ‘European Green New Deal’ is a comprehensive plan that aims to make Europe climate-neutral by 2050 through an array of measures to combat climate change and promote sustainable innovation.
3. Reputation: Consumers and investors are increasingly looking to do business with companies that prioritize ESG, and companies that don’t prioritize ESG may risk damaging their reputation. According to PwC, 76% of consumers say they will stop buying from companies that treat the environment, employees, or the community in which they operate poorly.
4. Environmental impact: Companies that prioritize ESG are more likely to operate sustainably, reduce their carbon footprint, and engage in ethical business practices.

It’s becoming increasingly essential for organizations to determine where the risks and opportunities lie in a company’s ESG profile and whether they will have a material impact on its strategy, messaging, risk assessment, and reporting. This is especially true as companies compete for capital and stakeholders demand more transparency around a company’s environmental impact.

Where to Get Started?

While having your organization prioritize ESG initiatives can seem like a daunting task, there are some clear steps you can take to start navigating this complex landscape.

1. Gather the right team members in the business to discuss your ESG priorities and set goals. Examples of ESG goals may include:
   1. Partnering with non-profits to identify, fund, and scale proven environmental impact solutions
   2. Reducing scope 1, 2, 3 GHG emissions
   3. Reducing energy and using renewable energy sources to become a net zero organization.
   4. You can also look towards standards (i.e. ISSB) or frameworks (CDP) for guidance on relevant goals.
2. Establish an internal task force. If your organization doesn’t have a head of sustainability or similar role, consider bring together folks from:
   1. C Suite – consider asking your CFO to serve the role as executive sponsor
   2. Reporting & Finance – like your Controller, and/or Director of Reporting
   3. Data Gathering & Execution – like Facilities Manager, Procurement lead, Real Estate executive and/or Supply Chain manager
3. Develop an understanding of scope 1 and scope 2 emissions and requirements. Keep in mind, requirements for ESG reporting may vary depending on the specific standard being used.:
   1. Scope 1 emissions are a type of greenhouse gas emissions that come directly from the sources owned or controlled by your organization. You can think of this in terms of “I burned it,” Examples include your organization’s facilities and company vehicles.
   2. Scope 2 emissions are also a type of greenhouse gas emissions, but these come from the generation of purchased electricity, steam, heating & cooling of a company. You can think of this in terms of “I paid someone else to burn it.”
4. Start taking practical steps for gathering your data so you can establish baselines. This may vary depending on where and how information is stored, but energy bills, for example, are a great source of information for gathering energy consumption.
5. Ensure your team considers best practices in reporting. You’ll likely want to track energy and water consumption, waste and biodiversity activity data, and calculate greenhouse gas emissions based on the Greenhouse Gas Emissions Protocol and EPA Energy grid emissions factors. Alternatively, leverage a tool with automatic and transparent calculations complete with audit trail.

While the ESG compliance requirements are still evolving, one thing is certain: ESG compliance isn’t a one-and done disclosure, it’s a mindset shift across an organization and an ongoing, iterative journey towards sustainability. For more information on how to begin your journey and to learn about Visual Lease’s carbon accounting tool, visit ESG Steward