The problem with ‘Creative Carbon Accounting’

Carbon accounting is a technique used to understand an organisations carbon impact – using a combination of methodologies and data analysis. This granular understanding is essential for making positive emissions changes and modelling future operational decisions to future proof an organisation.

With prevailing concerns about the environment and building pressure to achieve net-zero, it is more important than ever to ensure that businesses are implementing transparent and consistent carbon management and reporting.

The challenge

It is currently mandatory for all large businesses to report on their scope 1 and 2 emissions, which are direct emissions from a business. However, reporting on scope 3 emissions – which come from a company’s value chain, and is outside of direct control – is not yet mandatory in the UK, despite accounting for more than 70 per cent of business’ carbon footprint.

The combination of scrutiny and unclear Scope 3 emissions reporting has led to many accusations that businesses are getting a bit too ‘creative’ with their carbon accounting, in a bid to balance books and appear greener.

What is ‘Creative Carbon Accounting’?

A joint report released earlier this year by NewClimate Institute and Carbon Market Watch suggests that the majority of businesses’ climate pledges are full of loopholes and misleading claims that could harm their credibility. This is also known as “Creative Carbon Accounting”, a phrase coined by climate activist Greta Thunberg to critique government action following the Paris agreement.

The report also found that based on the companies’ 2030 targets, we will likely fall well short of the ambition required to align with the internationally agreed goals of the Paris Agreement and avoid the most damaging effects of climate change.

While the media have latched quickly onto the catchy-sounding concepts of greenwashing and greenhushing, ‘Creative Carbon Accounting’ is more of a niche area that isn’t getting the same scrutiny, but sits as one of the key tactics being used by businesses to ‘wash’ and ‘hush’ carbon emissions. But we’re seeing interest really pick up, with journalists asking more technical questions, digging into the reality of business’ environmental reporting and how they’re reporting emissions. Couple this with legislation and it’s essential that businesses start getting a grip on this in 2023.

What needs to happen?

In April this year, the UK did update its regulations to mandate Task Force on Climate-Related Financial Disclosures (TCFD) reporting.

While this may be a step in the right direction, it still does not take Scope 3 into account. It only impacts 1,300 organisations, and recent statistics show just 4 percent of companies disclosed their emissions in line with all 11 TCFD recommendations.

It is evident that full scope greenhouse gas reporting must become mandatory, but further measures are needed to ensure carbon accounting is conducted accurately and transparently. To foster this, auditing should be made compulsory to prevent companies from implementing Creative Carbon Accounting. Auditing is crucial with the upcoming Corporate Sustainability Reporting Directive (CSRD) in the EU and Securities and Exchange Commission (SEC) legislation in the US, but the UK must follow suit.

The UK needs to establish stricter carbon accounting standards that account for Scope 3 emissions, and until the government mandates this, it is up to businesses to plan proactively. Not only can they be a leading example in carbon management, but also to improve stakeholder confidence and financial performance.

So where should businesses start?

Until clearer frameworks and regulations related to Scope 3 emissions are put into place, it is crucial that businesses continue working towards reducing their carbon emissions. Businesses should begin with identifying where carbon emissions could be reduced in their internal processes and operations first (Scope 1) – where they have direct control and can implement changes. This will also put them in a better position to eventually tackle their Scope 2 and 3 emissions regardless of whether regulations have been put into place or not. There are a raft of incredible data-led businesses helping industry understand this huge challenge. This would also mean addressing the issue from its very source, and will ultimately remove the need to greenwash.

For the short-term, it is important for businesses to be as transparent as possible in alignment with stricter regulations, so the progress noted is honest, tangible, and realistic targets could be set as a result.

To read more about how to effectively communicate your business’ sustainability targets click here. If you’d like to discuss how our industry-leading team could support you, get in touch today.

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