What is carbon accounting?

Carbon accounting – also known as a carbon or greenhouse gas inventory – is the process of measuring the amount of carbon dioxide, or other greenhouse gas (GHG), an organization emits. The aim is to help the entity understand its climatic impact.

Carbon accounting is a must for any becoming business today. The process helps organizations highlight and target high GHG emitting operations with emission reduction strategies. Such businesses better meet the demands of the regulatory environment while coming into alignment with investor, consumer, and employee preferences.

As such, in 2022 81% of S&P 500 companies reported their own emissions (scope 1), and the emissions of the electricity they bought (scope 2). In addition, globally, over 22,000 companies disclosed environmental data – with a focus on business emissions – to the Carbon Disclosure Project (CDP) in the same year.

Your business too needs to understand where your emissions are coming from and the volume exuded, to then devise and implement an effective GHG reduction program. And to do that, this Green Business Bureau is your guide.

In this guide, we focus on the application of carbon accounting at the business level. We explain fundamental concepts and terminology with the recognition that this understanding is vital to accurately quantify business emissions. We then deliver an 8-step process to track, measure, and report the GHG emissions associated with your business and related operations. To conclude, we discuss the most recent developments in carbon accounting, as the discipline continues to evolve with ongoing research and a greater understanding of the concept.

Use the links provided to navigate through this article.

The birth of carbon accounting

Carbon accounting describes a process that measures, records, and reports greenhouse gas (GHG) emissions. It’s a relatively new discipline born from the collective awareness that carbon dioxide emissions impact our climate.

Yet it wasn’t until 1992, with the adoption of the United Nations Framework Convention on Change (UNFCCC) during the Rio de Janeiro Earth Summit, that a global movement to inventory GHG emissions, and with that, carbon accounting began.

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FROM RIO TO GLASGOW: THE POLITICAL RECOGNITION OF OUR CLIMATE CRISIS INCREASES

On the 9th of May, 1992, the United Nations Framework Convention on Change (UNFCCC) was adopted.

The objective of the convention was to:

“Stabilize greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climatic system.” – UNFCCC, What is the United Nations Framework on Climate Change?

Although this level was not defined by the convention, the aim was to allow ecosystems and society to adapt naturally to climate change, which means slowing global warming down. Since the convention’s establishment, the countries involved meet annually during the Conference of the Parties (COP). COP is a supreme decision-making body that aims to promote the effective application of the convention.

30 years later came COP 26 (2021) – held in Glasgow. COP26 brought together 120 world leaders and over 40,000 registered participants. Countries involved included the US, the UK, the European Union, and China. One of the main agreements made by COP26 was the commitment to end and reverse deforestation, along with securing global net zero targets by the mid-century and keeping 34.7°F (1.5°C) within reach.

The ongoing commitment towards UNFCCC – via COP – symbolizes how the political recognition of climate change has increased globally. There have been two significant events worth noting since the establishment of COP that are relevant to carbon accounting:

• The Kyoto Protocol: The first meeting of the Conference of the Parties (COP1) took place in 1995 in Berlin. COP1 launched strict and precise commitments to mitigate climate change in what was named the Kyoto Protocol. The protocol sets binding and measurable objectives for combating climate change for the first time, stipulating global ceilings for GHGs.
• The Paris Climate Agreement: COP21 took place in Paris 2015, and marked a new momentum for climate action. During COP21, leaders worldwide signed the Paris Agreement, which has the central aim of strengthening the global response to the threat of climate change. The Paris Agreement outlined the action necessary to limit global temperature rise this century below 35.6°F (2°C) (which is warmer than pre-industrial levels), and to cap further temperature increases to 34.7°F (1.5°C). The Paris Climate Agreement opened for signature on Earth Day (22nd of April 2016), at the UN headquarters in New York. 192 states and the EU – representing 98% of global GHG emissions – have ratified or acceded to the agreement. This includes China and the US (with president Biden’s remittance after Donald Trump’s previous withdrawal).

Today, the EU has set targets and measures for reducing carbon emissions. Among these is the Corporate Sustainability Reporting Directive (CSRD). The CSRD expects all large companies to report on their carbon emissions, and small and mid-sized businesses are likely to be included. The EU also expects claimed GHG emissions to be both audited and validated. In addition, in 2019 the UK introduced the Streamlined Energy and Carbon Reporting (SECR) standard, making it mandatory for large companies operating in the UK to annually report their energy and carbon emissions.

With these political shifts comes heightened regulatory demand for businesses to measure, track and report their GHG emissions.

In the United States, reporting on GHG emissions is mandatory for large GHG emitters. In addition, several states have their own more demanding legislation in place, such as California’s and Massachusetts’ Global Warming Solutions Act.

Plus we see these mounting regulations on a global level, far beyond the US and the EU. For instance, in 2007 Australia introduced the National Greenhouse and Energy Reporting Scheme (NGERS) to set mandatory emission reporting.

These changes in the political landscape create the first reason why carbon accounting is important: To stay ahead of the regulatory wave.

Why is carbon accounting important?

As well as helping organizations keep ahead of the regulatory environment, below we discuss additional reasons why carbon accounting is important.

CARBON ACCOUNTING ADDRESSES HUMAN-ATTRIBUTED CLIMATE CHANGE BY REDUCING A BUSINESS ENTITY’S ASSOCIATED EMISSIONS

The Intergovernmental Panel on Climate Change (IPCC) was established in 1988 by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP) at the behest of the G7.

The role of the IPCC is to:

“Assess the scientific, technical, and socio-economic information relevant for understanding the risk of human-induced climate change – Cooperation with the IPCC

IPCC is a body that assesses and coordinates research into climate change occurring across the world.

In 1990, the IPCC published its first assessment report (FAR), which confirmed climate change is a threat to human life and stability. The IPCC estimates that the concentration of CO₂ in our atmosphere has increased from 280 parts per million (ppm) – during the pre-industrial era – to 412.5 ppm in 2020. Such a rise has not been seen in the last 650,000 years, and never before has atmospheric CO₂ increased as rapidly.

This increase in atmospheric carbon dioxide is associated – as predicted – with an average temperature rise. Yes, the Earth’s average temperature naturally oscillates. What’s different this time is humans are interfering with this natural rhythm and pushing it out of sync. For instance, our planet is currently heating up, when over the past 7,000 years, the average temperature has been decreasing at a baseline rate of 0.01°C per century.

The most recent IPCC report, published on Monday 28th February 2022, paints the bleakest picture yet regarding the impacts of climate change risk on ecosystems, wildlife, human health, society, and our economy. The report confirms that the widespread impact of global warming is being felt around the world. Once more, further impacts are in the pipeline even if emissions are cut to meet the most ambitious scenario targets.

“We also conclude that many future climate-related risks are more severe than previous IPCC assessments, increasing the urgency of cutting greenhouse gas emissions to limit future warming to as low as possible.” – Professor Richard Betts MBE, Met Office, and the University of Exeter and report lead author” – Prof Richard Betss MBE, Met Office, the University of Exeter and report lead author

Hence, to ensure resilient and stable planetary systems, our global economy must meet a 45-50% reduction in emissions by 2030, with the aim of achieving global net zero by early 2050.

With these targets in mind, 2015 marks a significant point in our history. As we mentioned, it was in this year that 192 countries (plus the European Union) signed the Paris Climate Agreement, to limit global temperature rise to 2°C (35.6°F) above pre-industrial levels by 2040.

As global leaders work to deliver a zero-carbon future, pressure mounts on business leaders to do the same. As such, during the fiscal years 2018 and 2019, half of the fortune 500 companies (F500) fully or partially reported GHG emission data. Plus, 60% of America’s largest companies have set at least one target to reduce GHG emissions.

In addition, a 2018-2019 Fortune 500 Greenhouse Gas Emissions Report calculated that the F500 was responsible for 13.34 billion tons of CO_2e in 2018, and 13.15 billion tons of CO_2e in 2019. Once more, a 2017 Carbon Major Report stated 50% of global industrial emissions can be traced to just 25 organizations (since human-induced climate change was officially recognized). Hence, businesses withhold the power to dent global GHG emissions and mitigate the effects of climate change. Keeping track of organizational emissions via carbon accounting is key to realizing this power.

CARBON ACCOUNTING PROVIDES LONG-TERM BUSINESS VIABILITY

A 2021 survey reported 83% of consumers declared that it’s very important for them to buy from a company that operates sustainably. In the United States alone, 56% of consumers will stop buying from companies they believe operated unethically – although this percentage has been obtained from research conducted in 2015, so may be outdated.

And it’s not just consumers that are demanding responsible businesses. For Gen Z (67%) and Millennials (64%) sustainability is a significant factor in an employee’s decision-making process when deciding where to work.

Investors, also, are demanding sustainability in business as practices design lower-risk investment options. For instance, one report by Bloomberg showed investors doubled sustainability-led capital in 2021. The same report also indicated investments are growing rapidly, and now represent almost one-third of all professionally managed assets globally.

Measuring, tracking, and reporting business emissions via carbon accounting represents a vital element for any business wanting to operate sustainably. Hence, carbon accounting helps businesses secure funding.

CARBON ACCOUNTING ALLOWS COMPARISON AND BENCHMARKING

Carbon accounting is not simply a case of tracking emissions. The purpose of carbon accounting is to help stakeholders derive meaningful insight, which means comparing an entity’s current emissions to historical datasets to illustrate improvements (or declines). Benchmarks should also be set to help companies track progress.

Plus, stakeholders can use a given entity’s emission reports to compare one firm to another and understand an organization’s relative performance.

Carbon accounting glossary: Understanding important terminology and concepts

The complexity involved in measuring, tracking, and reporting business emissions makes carbon accounting a daunting topic to tackle. Plus, as a fairly new discipline, the concepts, terminology, frameworks, standards, and practices continue to evolve. As such, it’s important you grasp the foundations of carbon accounting before measuring and tracking your organization’s emissions. And that understanding starts with defining the jargon.

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SCOPE 1 EMISSIONS

Head to: Scope 1 2 and 3 Emissions Diagram (Understanding Corporate Emission Sources) to learn more about the above diagram and the different emission scopes.

Scope 1 emissions, as defined by the GHG Protocol, are GHGs released directly by the business in question by the burning of fossil fuels onsite. For simplicity, when defining scope 1 emissions, think burnt. To learn more about scope 1 emissions, head to our article GHG Protocol: Scope 1 Emissions Explained.

SCOPE 2 EMISSIONS

Scope 2 emissions, as defined by the GHG Protocol, are indirect GHGs released due to the energy purchased by the business in question. By energy purchased, we’re referring to electrical energy. For simplicity, when defining scope 2 emissions, think bought. To learn more about scope 2 emissions, head to our article GHG Protocol: Scope 2 Emissions Explained.

SCOPE 3 EMISSIONS

Scope 3 emissions as defined by the GHG Protocol are indirect GHGs released across an organization’s value chain. For simplicity, when defining scope 3 emissions, think beyond. To learn more about scope 3 emissions, head to our article GHG protocol: Scope 3 Emissions Explained.

The GHG Protocol outlines 15 categories that fall under scope 3 emissions. These categories are grouped as either upstream or downstream activities, and are as follows:

• Upstream activities:some text
  • Business travel;
  • Employee commuting;
  • Waste generation;
  • Purchased goods and services;
  • Transportation and distribution;
  • Fuel and energy-related activities;
  • Capital goods;
  • Upstream leased assets.
• Downstream activities:some text
  • Investments;
  • Downstream distribution and transportation;
  • Processing of sold products;
  • Franchises;
  • Downstream leased assets;
  • Use of sold products;
  • End-of-life retirement.

CARBON DIOXIDE EQUIVALENT (CO_2E)

When dealing with emission data, you’ll emissions represented as carbon dioxide equivalents – CO_2e. What does this measure mean?

A carbon dioxide equivalent is a standard unit for counting greenhouse gas (GHG) emissions regardless of whether they’re from carbon dioxide or another gas, such as methane.

As we know, GHG emissions are mainly carbon dioxide (CO₂). But there are other GHGs that contribute significantly to human-induced global warming such as methane (CH₄), nitrous oxide (N₂0), refrigerant gasses (HFCs, PFCs, and CFCs), sulfur hexafluoride (SF₆), water vapor (H₂0), and ozone (O₃).

These different GHGs have distinct fundamental structures and properties, meaning they have differing IR absorbing capacities and greenhouse gas effects. A gas’s IR absorption ability is captured in Global Warming Potential (GWP) measures.

Because CO₂ is the main culprit when it comes to human-induced climate change, every GHG is translated into a CO₂ equivalent. This translation is based on the global warming potential (GWP) of a given GHG – the higher the GWP, the higher the greenhouse gas effect.

The GWP of CO₂ is 1, as CO₂ is compared to itself. The GWP of CH₄ is 21 according to the latest estimates. This means that 1 ton of CH₄ has the global warming potential of 21 tons of CO₂ – and so we would say 21 tons of CO_2e.

EMISSION FACTOR

An emission factor (EF) is a multiplier that describes the volume of GHGs emitted during a given activity. High EF values define an activity that releases a large volume of GHGs into the atmosphere.

EFs are used because calculating exact measures for GHG emissions would exhaust both time and money. Hence companies calculate emission estimations based on activity data and the EF associated with that activity.

What do we mean by activity data?

Activity data represents production to reflect fossil fuel energy demand. For instance, the activity data could be the number of liters of diesel consumed, or the tons of iron ore used in an industrial process.

Activity data is then multiplied by the EF, which is calibrated to measure an activity’s CO₂ equivalent. Hence EFs are represented by kg CO_2e/accounting unit of activity. You can look up the emission factors associated with a given activity from IPCC’s emission factor database.

LOCATION-BASED APPROACH

The location-based approach is a carbon accounting method designed to help companies report their scope 2 emissions. Scope 2 emissions are calculated using a standard emission factor that’s set by the grid. The issue with this approach is that an organization’s specific emission reduction efforts aren’t captured, such as the purchasing of green power. To address this issue, the market-based approach was adopted, which we discuss later.

Using the location-based approach, an organization’s scope 2 emissions are calculated using the following measures:

• Direct line emission factor;
• Regional emission factor;
• National emission factor.

These measures are defined below.

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DIRECT LINE EMISSION FACTOR

A direct line emission factor is applied when an organization purchases electricity through a direct line connection with a known supplier – a direct line links an isolated generation site with an isolated customer. The organization should allocate a direct line emission factor to the portion of the electricity purchased from the specific known source.

REGIONAL EMISSION FACTOR

If an organization purchases electricity that’s delivered through a grid, the organization should use published emission factors based on the geographical location of each of its facilities. The regional emission factor is the average emission factor for the electricity generation facilities in a given region. Regional factors are available for several countries through national governments or other sources. For operations in the U.S., the recommended regional factors are the total output subregion grid factors published by the EPA’s Emission & Generation Resource Integrated Database (eGRID).

The EPA publishes an Emission Factors Hub that contains the most recent eGRID subregion emission factors. It must be noted that there’s often a delay between the release of the new version of eGRID and updates to the Emission Factors Hub. You can find the most recent version of eGRID, along with supporting documentation and resources here. If you don’t know what eGRID subregion your organization is located in, use the Power Profiler Tool to find out.

NATIONAL EMISSION FACTOR

If regional emission factors are not available, use the national emission factor, such as those published by national governments or the International Energy Agency.

MARKET-BASED APPROACH

The market-based approach instructs organizations to use more specific emission factors that account for the electricity mix sourced. With this method, if a business decides to derive a portion of electricity from a renewable energy supplier, then this will be reflected in an organization’s GHG inventory. Emission factors applied in the market-based approach include:

• Energy Attribute Certificates – such as Renewable energy certificates (RECs);
• Contracts;
• Supplier-specific emission factor;
• Residual mix factor;
• Regional emission factor;
• National emission factor.

The above terms are defined below.

RENEWABLE ENERGY CERTIFICATES (RECS)

Renewable energy certificates (RECs), otherwise known as a Guarantee of Origin, represent 1 megawatt-hour (MWh) of electricity generated from a renewable energy source, such as wind, solar, or biomass.

RECs are traded between the renewable energy supplier and the organization seeking to reduce its climatic impact.

BUNDLED AND UNBUNDLED RECS

Bundled RECs are sold alongside the electrical energy produced.

Unbundled RECs are sold separately from the electrical energy produced, which is instead, fed to the grid.

The purpose of unbundled RECs is to give organizations a cost-effective and flexible means of supporting renewable energy developments, and meet sustainability goals even if clean energy products are not available locally. By purchasing unbundled RECs, a business does not need to alter its existing power contracts. An entity can “cancel out” emissions from operations by financially supporting the renewable energy market. This hinges on the concept that greenhouse gas emissions (GHGs) mix globally in the atmosphere and that it doesn’t matter where GHGs are emitted, what matters is the overall impact an organization has on global GHG levels.

Bundled RECs, on the other hand, will have a direct impact on the buyer’s energy mix by providing renewable energy.

ENERGY ATTRIBUTE CERTIFICATES

An Energy Attribute Certificate (EAC) guarantees the energy’s origin is from renewables. A EAC electronically tracks the production, trade/distribution and consumption of renewable energy. The most common type of EAC is a REC – as previously explained. The emission factor associated with an EAC is based on the specific energy source that the certificate represents. As RECs use a renewable energy source, that emission factor is often set at zero. But they may also have a non-zero emission factor (e.g. if there is a fossil-fuel or biomass generation component).

CONTRACTS

An organization may have a contract, such as a power purchase agreement (PPA) as defined below, to purchase electricity from a specific generating facility. If there are no certificates (EACs) available indicating the amount of energy and emissions associated with this contract, then the contract itself will carry an emissions factor associated with the generation facility.

1. If certificates are issued to the generating facility then the emission factor is conveyed by the certificates rather than the contract.
2. If the certificates are bundled with the contract, then the purchasers can claim the emission factor.
3. If the certificates are sold to another entity, then the purchaser cannot make that claim, and the energy should be assigned the residual mix factor.

SUPPLIER-SPECIFIC EMISSION FACTOR

The supplier-specific emission factor is one that is reported by the utility provider. This emission factor must include all the electricity delivered by the supplier, including the electricity it generates and the electricity purchased from others.

RESIDUAL MIX FACTOR

Think of the residual mix factor as what’s left over. That is, the residual emission factor represents the emissions and energy generation that remain after certificates, contracts, and supplier-specific factors have been claimed and removed from the calculation.

POWER-PURCHASE AGREEMENT

A power purchase agreement, otherwise known as an electricity power agreement, is a contract – usually 5-20 years in length – during which time, the purchasers buy energy at a pre-negotiated rate. PPAs are fundamental in supporting independently owned electricity generators, especially producers of renewable energy such as wind or solar.

MARGINAL EMISSION FACTOR

A marginal emissions factor refers to the rate at which emissions would change dependent on the energy load.

For instance, say a town runs on 75% hydroelectric power and 25% on coal power. For inhabitants in this town, the electricity they receive is mostly clean. This could entice businesses wanting to operate via clean energy to move into the area. However, such a move will increase electricity demand on the grid. If that demand cannot be matched by an increase in hydroelectric power, then in effect, the business is operating on 100% coal-generated electricity. This is captured in a marginal emission factor. Hence, thinking in marginal rather than average carbon emissions can dramatically affect a company’s choices to reduce their climatic impact.

CARBON OFFSET

A carbon offset describes the reduction, or removal, of carbon dioxide or other greenhouse gas using a process that measures, tracks, and captures GHG emissions to compensate for an entity’s emissions exuded elsewhere. GHGs are captured using projects such as tree planting schemes, renewable energy infrastructure, carbon capture programs, or community-based sustainable developments.

Carbon offsetting works on the following principle: It doesn’t matter where GHG emissions are reduced or absorbed because GHGs mix globally in the atmosphere. Therefore, companies can partner with/pay other companies to help minimize their impact on the environment.

CARBON CREDIT

When a business invests in a carbon offsetting project, that business will receive carbon credits. A carbon credit is a transferable instrument, certified by governments or independent bodies, and represents a reduction in GHG emissions of one metric ton of CO_2e. As such, a carbon credit is a generic term for any tradable certificate or permit. These represent the right to emit a set amount of carbon dioxide, or the equivalent amount of a different greenhouse gas.

An easy way to think about this is to imagine carbon credits as the tokens, or accounting language used to convey net climatic benefits from one entity to another.

To learn more about carbon offsets and carbon credits, read: Carbon Offsets vs Carbon Credits: What’s the Difference?

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ADDITIONALITY

Additionality is the defining concept of carbon offset projects. To qualify as a carbon offset, the emission reductions made as a result of the project must be additional to what would have happened if the project had not been carried out.

Grid additionally means production is accompanied by an additional source of renewable energy capacity.

EMISSIONALITY

Emissionality builds on the idea behind additionally. Emissionality quantifies a real-world drop in fossil fuel emissions, and is used by buyers of RECs to show their purchasing decisions are really driving a global impact.

ATTRIBUTIONAL CARBON ACCOUNTING

Attributional carbon accounting uses inventories of an organization’s emissions – scopes 1, 2, and 3 – with the aim of allocating “carbon budgets” to entities. With attributional carbon accounting, emission inventories are static and are allocated to a defined scope of responsibility. The aim is to establish emission quotas and to track emissions over time. The output of information is the quantity of GHGs released and/or removed from the atmosphere under the boundaries of the given entity.

CONSEQUENTIAL CARBON ACCOUNTING

Consequential carbon accounting (otherwise known as intervention accounting) quantifies the change in emissions caused by decisions, interventions, and projects. Consequential carbon accounting methods estimate the change in GHG emissions and/or removals from the atmosphere caused by a specified decision or intervention relative to a counterfactual baseline.

To illustrate the difference between attributional and consequential accounting, let’s consider an example. Say we have a brewery business that’s decided to use grain residues from the distilling process as fuel, substituting fossil fuels. With this change, the GHG emissions reported via the attributional carbon accounting method indicate a reduction in business emissions. However, livestock farmers previously relied on these grain residues as animal feed. Farmers now have to buy more soy meal, placing a higher demand on agricultural output in international markets, expanding deforestation. Under the consequential carbon accounting method, GHG emissions have increased.

SUPPLIER-SPECIFIC METHOD

The Supplier-Specific Method collects product-level cradle-to-grave GHG inventory data from the suppliers of goods and services. Using this method, an organization’s GHG emissions are calculated using the following formula:

Supplier activity x secondary emission factor

For instance, let’s say your business bought 200 iPads and wants to calculate the associated emissions. Using the supplier-specific method you’d use the secondary emission factor associated with an iPad which is estimated to be 78 kg CO_2e per iPad, and then the number of iPads your business has purchased.

The supplier-specific method is used to estimate scope 3 emissions under the following categories:

• Purchased goods and services;
• Capital goods;
• Fuel and energy-related activities;
• Waste generated in operations.

PHYSICAL-UNIT METHOD

The physical-unit method calculates the GHG emissions based on the number of physical units purchased, plus measures for the energy consumed by those units. For instance, let’s say a company purchases 100 vehicles, and each vehicle consumes 10,000 liters of gasoline. Using the physical-unit method we can calculate the associated emissions using the following formula:

100 cars x 10,000 litres x 88.05 CO_2e per litre = 88, 050,000 CO_2e

The physical unit method can be used to estimate scope 3 emissions under the following categories:

• Capital goods;
• Purchased goods and services.

SPEND-BASED METHOD

The spend-based method calculates the financial value of a purchased good or service, then multiplies this by the associated emission factor to give the amount of GHG emissions produced per monetary unit. The following calculation is used in the spend-based method:

Cost (purchased goods or service) x emission factor

The spend-based method is recommended to calculate scope 3 emissions under the following categories:

• Purchased goods and services;
• Capital goods;
• Upstream transportation and distribution;
• Business travel;
• Downstream transportation and distribution.

HYBRID METHOD

The hybrid method is recommended by the GHG Protocol to calculate scope 3 emissions. This method includes recording as much activity-based data as one can collect from the supply chain and then using the spend-based approach to estimate what’s left over.

Carbon accounting standards and frameworks

At present, there are no internationally recognized standards for measuring, recording, and reporting an organization’s GHG emissions. This can make it difficult for businesses to know how to account for their emissions. Many separate entities have developed programs that both promote GHG accounting/reporting while helping to define the ways in which it’s carried out. With this many standards and frameworks to choose from, it can be difficult to select ones that are right for your business. To help, we’ve detailed the most widely recognized standards and frameworks used in carbon accounting below. We recommend you choose more than one framework or standard to inventory your organization’s GHG emissions.

IPCC

The Intergovernmental Panel on Climate Change (IPCC) has provided several key principles that have been adopted by today’s carbon accounting standards. In this sense, the IPCC set a foundational framework to base carbon accounting standards on. Elements of this framework that are most consistently applied include transparency, accuracy, consistency, and completeness.

TASK FORCE ON CLIMATE-RELATED FINANCIAL DISCLOSURE (TCFD)

The Task Force on Climate-Related Financial Disclosures was created as a follow-up to the 2015 Paris agreement. The TCFD has established a framework of recommendations on the types of information companies should disclose to investors, lenders, and insurance underwriters.

SUSTAINABILITY ACCOUNTING STANDARDS BOARD

The IFRS Foundation’s International Sustainability Standards Board (ISS) encourages companies to keep using the SASB Standards. These standards enable organizations to provide industry-based sustainability disclosures about the risks and opportunities that affect enterprise value. Included in this is the tracking and reporting of an entity’s GHG emissions.

GLOBAL REPORTING INITIATIVE

The Global Reporting Initiative (GRI) is an international independent set of standards that help businesses, governments, and other organizations understand and communicate their impact on issues such as climate change, human rights, and corruption. These standards are used by over 10,000 organizations across 200 countries and are advancing the practice of sustainability reporting – which includes the reporting of business GHG emissions.

CLIMATE REGISTRY

The Climate Registry offers a variety of tools and guidance to help businesses track their emissions and become more efficient, sustainable, and accountable. Resources provided include access to the Carbon Footprint Registry, Net Zero Portal, and Protocols that outline best practices in carbon accounting.

CDP

The Carbon Disclosure Project asks for voluntary disclosures of non-financial data, which includes GHG emissions (along with a company’s broader financial performance such as water security, forest health, and preservation). CDP is a non-profit charity that runs global disclosure systems to be used by investors, companies, cities, states, and regions. Today, the CDP holds the largest database in the world of primary information regarding a company’s carbon footprint and carbon-reduction strategies. Eg. in 2020, more than 9,600 companies with (more than) 50% of the global market capitalization disclosed carbon footprint data through CDP. Information on climate risk alongside low carbon opportunities is requested. Industry peers are used as a benchmark as companies are scored and ranked publicly.

THE GREENHOUSE GAS PROTOCOL

The Greenhouse Gas Protocol was developed by the World Resource Institute and the World Business Council for Sustainable Development. The aim of the GHG Protocol is to help organizations track and measure their progress toward decarbonization. The GHG Protocol represents the most used standards for GHG accounting. Business emissions are measured, tracked, and recorded across 3 scopes – which have been defined above.

ISO 14064

ISO, WRI, and WBCSD worked together to ensure consistency amongst the ISO and GHG Protocol standards. As such, ISO 14064 is largely based on the GHG Protocol. The standards include minimum requirements for GHG inventories which provide the basic structure against which credible and consistent independent auditing can be performed. The ISO 14064 standard offers policymakers a ready foundation of best practices upon which to build a GHG reduction program. The aim of ISO 14064 is to improve consistency, increase flexibility, and decrease the effort associated with voluntary GHG inventories.

GHG REPORTING PROTOCOL BY USEPA

The United States Environment Protection Agency (USEPA) Greenhouse Gas Reporting Protocol (GHGRP) requires the reporting of greenhouse gas (GHG) data and other relevant information from large GHG emission sources, such as fuel and industrial gas suppliers, and CO₂ injection sites in the United States. ~8,000 facilities are required to report their emission data under the GHGRP standards, and this information is made public in October of each year.

The GHGRP requires facilities to report two types of GHG emissions:

1. Combustion emissions that result from the burning of fossil fuels onsite;
2. Other emissions from industrial processes such as chemical reactions. Emissions from leaks or irregular emissions are also process emissions.

ESG REPORTING AND CARBON REPORTING

The demand for environmental, social, and governance (ESG) reporting continues to rise. Carbon accounting is incorporated within the E of ESG. In this sense, frameworks and standards for ESG reporting also apply to carbon accounting. Take a read of our article: ESG Reporting Frameworks, Standards, and Requirements to find out more.

Getting started with carbon accounting

Access to accurate and granular GHG emission data is essential for organizations looking to identify where to focus emission reduction efforts, develop a clear strategy, and track the impact of emission reduction activities. In the next section of this guide, we will outline 7 key steps to help you get started with carbon accounting.

CAPTURE BUSINESS EMISSION DATA

You want solid sustainability data to underpin your GHG accounting and decarbonization disclosures.

The main challenge to overcome in this step is the removal of organizational data silos. It’s common for companies to have GHG emission data scattered across various internal systems, with these systems running in isolation and not communicating with one another. For instance, your utility providers might not have systems and processes in place to share data. Below we’ve detailed best practices to help your business overcome this barrier.

Step #1: Consider outsourcing data

Consider outsourcing data capture to a specialist and aim to get close to the original data source if you can – for instance, take a meter reading rather than looking at invoice data. Aim to automate this process – you want to minimize the amount of human intervention involved.

Step #2: Work with your utility providers

Contact your utility providers and explore what data-sharing options are available. You can automate data provision via an online portal or an application programming interface (APR) that allows data exchange. If assessing utility meter data is impossible, explore sub-meter options.

Step #3: Create a robust and flexible data structure

You want to organize your data in a structured way, to support your decarbonization target. Consider the types of data your business needs to capture, and how that data can be tagged and aggregated. You can aggregate data at the account or meter level, which can then be further aggregated to location and then, reporting groups.

1. Meters and accounts: Account data is monthly or quarterly. Meter data is consumption data that’s delivered daily – using 15-30 min intervals and can be tracked at the same location.
2. Location: Where meter data is tracked and reported
3. Organization: Data reported at the whole-of-organization level is an aggregate of all locations and underlying data.
4. Reporting groups: Use groups to aggregate data from multiple locations. This can help you set boundaries for sustainability reporting.

It should be easy for you to reconfigure data and change reporting groups, locations, accounts, and meters that underlie it. Baseline emissions must be recalculated when your organization goes through structural change.

Step #4: Embed business processes for data management and ownership

Create an accountability matrix for data management and assign responsibilities to staff. This matrix needs to set out a regular schedule to review data completeness and to catch errors and address them. Note that the process of capturing data demands buy-in from a diverse range of stakeholders who’ll share data from their respective business units. Be mindful of the challenges this may present.

Your data storage process needs to be both auditable and traceable. Make sure your data management system can store reference documents and meet core audit requirements such as change tracking, time stamping, and data origin. Your aim is to have a trusted and secure single source where you can access this data, and share it with relevant stakeholders.

Keep a close eye on the data flowing in. You’ll want to set up an inactivity alert against each data source to identify data gaps early on. Follow up promptly with parties that have not fulfilled data provision commitments.

Step #5: Establish consistency and reliability in reporting processes

Keep track of decisions made and the reasons for them, with up-to-the-minute records of calculations and their inputs, plus relevant documentation and paperwork. Make sure to maintain data quality through clear lines of responsibility, regular attention, and by staying up-to-date with the changes made in reporting frameworks – noting that decarbonization guidelines are evolving and subject to change.

You can share data with the relevant stakeholders using bespoke reports and sustainability software that inform and engage. Use these reports as part of your engagement plan, and alongside the communication of your emission reduction mission.

CALCULATE YOUR BUSINESS’S GHG EMISSIONS

With a solid foundation of emission data, it’s now easier for you to calculate your GHG emissions for reporting and disclosure while also obtaining significant GHG reductions. You can use this data alongside selected emission reporting standards and frameworks mentioned previously, such as the GHG Protocol and the Carbon Disclosure Project.

To add to these standards, below we detail key focus areas when preparing your data for GHG accounting, reporting, and disclosure.

Step #6: Detail your baseline

You need a means of measuring progress. Your baseline is a clear line in the sand which will enable you to measure this progress. When setting your baseline, you need to consider:

• How you will define the boundaries of your activities.
• How you will structure your data so it can easily be captured for future activity.
• What data is the most appropriate, making sure your historical work on carbon reduction isn’t discounted.

Make sure you’re clear about your objectives and understand the technical criteria to meet these goals.

Step #7: Use the correct emission factors for calculating GHG emissions

Selecting the right emission factor is essential but can present a challenge. When selecting the right EF to use, pay close attention to the following criteria:

• Carbon accounting approach: Decide on whether you’re using a location-based approach to calculate emissions or a market-based approach. This will decipher what emission factors you need to use.
• Region: Important when considering location-based emission factors, with the aim of selecting factors that are as granular as possible.
• Reporting period vs factor period: Emission factor updates probably won’t align with your reporting timeline. With this in mind, set regular schedules for when to source and update factors. This will prevent confusion and maintain consistency between reporting periods and versions.
• Emission sources: Make sure you know your emission source accurately. E.g. is your vehicle fleet running on diesel or gasoline? Selecting the wrong emission factors will cause errors in your GHG reporting processes.

Step #8: Use consequential carbon accounting methods

You want to use consequential carbon accounting methods over attributional carbon accounting to measure the effectiveness of implemented carbon reduction initiatives for reducing business emissions. Attributional carbon accounting is most effective for establishing your business baseline and tracking business-related emissions at set time intervals. However, to establish the effectiveness of sustainable change, and to reduce global GHG emissions – which is your overarching aim – means a consequential carbon accounting approach must be applied.

Carbon accounting developments and challenges

The nuances of carbon accounting continue to evolve, with the most recent changes relating to the way organizations account for renewable energy purchases, capture business scope 3 emissions, and report on a 4th emission scope. In the next section of this article, we explain these developments.

UTILIZE THE MARKET-BASED APPROACH TO MEASURE SCOPE 2 EMISSIONS

Before 2015, organizations were required to report their scope 2 emissions based on standard grid-average emission factors. However, this approach – known as location-based carbon accounting – meant innovative companies working to reduce business scope 2 emissions were not receiving the credit they deserved for their efforts. That is, companies obtaining electricity from the same grid supplier are lumped together under one emission factor.

Issues with this approach led to the development of the market-based approach. Scope 2 emissions under this approach are determined by the mix of EACs, contracts, utility emission rates, and residual mix emission factors – which a company has a significant degree of control over. With this approach, organizations pursuing clean and renewable energy gain the credit they deserve.

It’s therefore important your organization favors the market-based approach to capture scope 2 emissions over the location-based approach.

ACCOUNTING FOR AND REDUCING SCOPE 2 EMISSIONS

Renewable energy certificates (RECs) play an essential role in energy systems today, and help organizations reduce business-related scope 2 emissions. Most energy purchased comes in the form of electricity from the grid. Traditionally, RECs give organizations the opportunity to reduce scope 2 emissions through the concept of additionality or carbon-offsetting, as we explain.

In additionality, a business matches electricity demand with the MWh of electricity provided via purchased RECs. In this sense, emissions are canceled out. The aim is to have 24/7 carbon-free energy. For every hour of operation, attributes are found. This means the business injects the same amount of energy as it takes from the grid using the renewable energy provided by RECs.

Another approach is to seek attributes at locations where marginal emissions are high. RECs are purchased to displace emissions caused by the marginal emission factor. This second method is more of a carbon offsetting approach.

However, the effectiveness of RECs to reduce an organization’s scope 2 emissions via these two approaches is limited because temporal and geographical information is not supplied. To improve the system, a more granular method has been developed by the company Energy Tag.

Energy Tag has developed a system in which REC certificates give a time stamp stating where the energy came from at the specific hour of the day, and from what renewable energy source and plant. This means granular RECs represent the energy your business is using for every hour of the day. To explain further, let’s work through an example.

Say your business is operational in Indiana. You seek RECs from Texas to cancel out the fossil-fuel-generated electricity from the grid in Indiana. You buy Texan RECs because they’re in plentiful supply and cheaper in this region. This is because RECs come from a large Texan wind farm. However, this wind farm is only operational at night, meaning you cannot state that during the time period within which your business runs, the electricity supplied is renewable or completely accounted for by the RECs you purchased.

Now, consider the fact that the marginal emission factor in Indiana is a lot higher than in Texas, meaning your business places more pressure on the grid than is fully accounted for by the RECs you purchase.

A granular REC, on the other hand, records the amount of energy produced in a certain period and gives the location and source. E.g. 1 MWh of solar energy is produced in Indiana. Not only do these certificates bestow a more accurate representation of your business’s impact on global emissions, but they also give a time-based signal to markets conveying the real value of RECs. E.g. RECs from solar energy are more valuable at night than during the day.

Large tech companies such as Google and Microsoft have set targets to power operations on 100% clean energy, every hour, by 2030. In addition, the US Federal government is set to buy half of its energy on an hourly time frame using time-based RECs. Hence, granular REC certificates are entering the market, and the demand for this system is increasing. It’s important your business seeks granular RECs when they’re available to truly account for, and reduce scope 2 emissions.

IMPLEMENT BEST PRACTICES AND SEEK MORE ACCURATE MEASURES FOR SCOPE 3 EMISSIONS

The CDP Supply Chain Report cites supply chain emissions are 5.5x greater than scope 1 and 3 emissions. Hence, capturing scope 3 emissions is vital to gain a more thorough understanding of how your business impacts the environment. Unfortunately, capturing scope 3 emissions is the most difficult. But luckily developments in this area are helping organizations better understand such emissions.

To help you effectively track your business scope 3 emissions, adopt the below best practices:

1. Use sustainability software to automate what would otherwise be a painstaking manual data collection process. You want to utilize sustainability software that uses electronic data interchange (EDI) and artificial intelligence (AI) technology.
2. Be prepared to rely on manual surveys and conversations with individuals that represent key emission hotspots along your supply chain.
3. Note that the data you obtain from various suppliers will come in different formats. Steps #4 and #5 specified in this guide give the flexible data structure you need here.
4. Make sure to account for business scope 3 emissions across every category as detailed by the GHG Protocol (categories detailed in our carbon accounting glossary). Use the supplier-specific, physical unit, spend-based, and hybrid-based methods to account for emissions in each category.
5. Understand the shortcomings of scope 3 emission reporting and how these can be overcome using alternative methods, such as the E-Liability method discussed below.

UNDERSTANDING THE NEED FOR AN E-LIABILITY ACCOUNTING SYSTEM

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The issue with accounting for and addressing business scope 3 emissions is that most companies only know a few of their non-tier-1 suppliers. Plus, companies often don’t know their customers well enough to gauge meaningful data from them – to understand how their product will be disposed of, or how their service will be utilized, which will have a significant impact on a product’s or service’s downstream emissions. Yet, the GHG Protocol expects companies to diversify product lines to gather emission data from all of their multi-tier customers and suppliers – a complex task.

Hence, accounting for business scope 3 emissions has meant the GHG Protocol allows companies to use industry and regional averages, rather than pursuing actual measures from suppliers, distributors, and consumers.

This secondary data – to only be used when primary data isn’t available – is obtained from published databases, government statistics, literature studies, industry associations, financial data, proxy data, and other generic data.

However, using secondary data in certain circumstances seriously undermines the integrity of emission reporting. Imagine producing financial reports using industry cost averages rather than actual invoice information.

In addition, now let’s say a company makes a fundamental and innovative change to reduce business emissions. The organization’s downstream customers are then able to report lower emissions as a result – as they should. However, these changes will also reduce emission averages for the industry, meaning through the use of secondary data, all of that brand’s competitors and all of their downstream customers can also claim the emission-reduction benefits. This would be an inaccurate representation of competitor emissions meaning companies that aren’t even trying to lower their emissions will gain from another organization’s proactive GHG reduction efforts.

To address this issue, Pro. Robert S. Kaplan from the Harvard Business School and Pro. Karthik Ramanna from the University of Oxford have developed an alternative approach for accounting for scope 3 emissions, termed the E-liability approach.

The E-liability approach explained

E-liability is an accounting algorithm that allows organizations to produce real-time, accurate, and auditable data on their scope 3 emissions. The method combines well-established best practices from the financial sector and cost accounting with recent advancements in climate science and blockchain technology.

Blockchain technology is a shared, immutable ledger used to facilitate the process of recording transactions and tracking assets within a business network. Blockchain technology is important as it provides immediate, shared, and completely transparent information that’s stored on an immutable ledger, to be accessed by permission network members. The blockchain network can track orders, payments, accounts, production, and much more.

With E-liability, each supplier along the supply chain records direct carbon emissions. This data is then transferred to the next supplier along the chain.

To explain, supplier one in a value chain will measure and record direct emissions from operations – the extraction of raw materials. These emissions are then transferred to supplier two. Supplier two will record emissions from operations – the manufacturing of products from raw materials. Supplier two will assign transferred emissions and emissions used onsite to the various products. This is similar to the standard accounting practice that assigns the cost of materials and overheads to the finished products. The total emissions used to make and distribute products are then transferred to the next supplier in the value chain. In a method similar to how value-added taxes work, the E-liability approach also solves a counting problem in carbon accounting protocols.

The carbon footprint of a product or service is therefore tracked from the raw materials right until its arrival at the customer’s gate. Just as an organization tracks costs occurred from the sourcing, manufacturing, and distribution of products, the carbon footprint of these processes is also tracked via E-liability.

Once more, the E-liability approach does not demand expensive and complicated software systems to run. Information technology, such as blockchain, combined with existing inventory and cost accounting systems can provide an audit trail for E-liability transactions. Emission data for each service/product will automatically aggregate into company-level accounts, just as in financial reporting. The data can be presented in a format similar to a financial balance sheet, making it easy for independent analysts to verify.

Through the E-liability method, every player in the value chain is encouraged to make changes to reduce GHG emissions. Plus, the end user will see not only their purchase price but also the volume of greenhouse gas emissions emitted during every production stage.

THE NEW SCOPE: ACCOUNTING FOR SCOPE 4 EMISSIONS

There’s growing interest in the adoption of a fourth scope, to calculate and report emissions avoided by using a brand’s products or services. The impacts of which can have either positive or negative climatic effects.

Scope 4 emissions have not yet been standardized in reporting, but it’s expected that guidance on scope 4 reporting will be released in the future. Methodologies have yet to be agreed upon, but the GHG protocol is recommending a consequential approach over an attributional approach to estimate the comparative impacts.

ISO 14000: Sustainable business design using environmental management systems (EMS)

ISO 14000 gives the framework, requirements, and standards for the implementation of an effective company-wide environmental management system (EMS). ISO 14000 is in high demand as corporate CEOs, business leaders, and green teams recognize the seriousness of sustainability for business viability, but struggle to take action.

According to Stanford Social Innovation Review, 90% of CEOs know sustainability is vital for their company’s success in today’s changing business landscape. Supporting these findings, a Harvard Business Review reports 99% of large company CEOs want to address sustainability issues as a must for the future success of their organization. Like SSIR and HBR, the Green Business Benchmark° sees the leaders that seek a sustainable business world.

Yet, despite this preference for responsible business design, only 60% of CEOs have a sustainability strategy in place and report feeling powerless to drive a sustainable cause. By providing guidance and an actionable roadmap, third-party green business certification is the solution to these woes.

Regain your power, and use this article alongside the ISO 14000 family of standards to approach sustainability with an actionable manual to get things done. In this article, we’ll run through the key frameworks, concepts, and terminology for understanding and implementing ISO 14000, before giving you access to our implementation checklist. We then detail the limitations of these standards, and how they’re overcome by supplementing ISO 14000 with other green business certification directives, like the Green Business Benchmark°.

Click on the links below to navigate through this article:

What is ISO 14000?

ISO 14000 references a family of standards structured to help organizations design, implement, and optimize an environmental management system (EMS), to reduce harm to nature from business operations. The ISO 14000 standards address a need to standardize EMSs on a global scale, meaning comparisons between organizations can be made.

WHAT IS ISO?

Based in Geneva, Switzerland, the International Organization for Standardization (ISO) is a governing body that’s created international standards for a wide range of industrial and commercial applications. Today, there are over 22,600 different types of ISO standards, spanning many industries. To name a few, the most common standards are:

• ISO 9001:2015 – Used for general organizational Quality Management Systems (QMS). It’s recommended these standards are used in conjunction with ISO 14000.
• ISO 14001:2015 – A set of standards under the ISO 14000 series. ISO 14001 provides step-by-step guidance on how to institute an effective EMS.
• ISO 45001:2015 – An international standard for health and safety in the workplace.

Out of these 22,600 standards, 350 are related to environmental management systems (but not all EMS-related standards are under the ISO 14000 series).

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The implementation of any ISO standard is voluntary. Yet most businesses recognize the benefits of following the rules and guidance given, which is why ISO has global recognition and esteem.

WHAT IS ISO 14000?

ISO standards are identified using multiples of 1000 (the family), and any number after refers to the specific standard (e.g. 45001, 9001, 14001). (:date indicates the date the standards were released.)

14000 is a family of standards designed to help an organization set up, maintain, and optimize an EMS. The most popular standard in this family is ISO 14001:2015 Environmental Management Systems. For more information about ISO 14001, read: ISO 14001 Certification Guide to Set up a Comprehensive Environmental Management System.

Other standards under ISO 14000 build on ISO 14001:2015. Below we’ve listed the core standards in the ISO 14000 family:

• ISO 14004:2016 – Guidance Standard: Offers additional insight and specialized standards for implementing an EMS.
• ISO 14015:1996 – Environmental Management — Guidelines for Environmental Due Diligence Assessment: Provides guidance on how to conduct an environmental due diligence (EDD) assessment through a systematic process of identifying environmental aspects, issues, and conditions as well as determining their business consequences.
• ISO 14031:2021 – Environmental Management – Environmental Performance Evaluation – Guidelines: Provides guidance for the design and use of environmental performance evaluation (EPE) within an organization.
• ISO 14040:2006 – Environmental Management – Life Cycle Assessment – Principles and Framework: Describes the principles and framework for conducting a life cycle assessment (LCA), which includes defining the goal and scope of the LCA, LCA inventory analysis, reporting, and critical review.
• ISO 14050:2020 – Environmental Management – Vocabulary: This document defines the terms used in environmental management systems and other tools that support sustainable development – management systems, auditing (+ other assessment types), communications, carbon footprint studies, greenhouse gas mitigation, and adaptation to climate change.

Understanding the fundamental frameworks, concepts, and terminology used in ISO 14000

After reading the following section of this article, you’ll understand the fundamental concepts of ISO 14000.

ISO 14000 FRAMEWORKS

Environmental management system (EMS)

An environmental management system aims to reduce the negative impacts a business has on the environment by integrating policy, procedures, and processes for measuring, analyzing, and reporting an organization’s impact on the natural world. Progress is continuously monitored using a cycle of continuous improvement, otherwise known as the Plan-Do-Act-Check cycle (explained later in this article).

The ISO 14000 standards use a systematic approach to environmental management. By utilizing a continuous cycle of data collection, analysis, and improvement, information is collated to build success over the long term. Any EMS created under the ISO 14000 standards contributes to sustainable development by:

• Protecting the environment.
• Mitigating the adverse environmental impacts caused by operations.
• Meeting compliance obligations.
• Adopting a life cycle perspective to prevent environmental harm from product and service design, manufacture, distribution, consumption, and disposal. With this approach, environmental impacts aren’t shifted elsewhere in the life cycle.
• Strengthening a brand’s market position which in turn bolsters an organization’s profit line.
• Providing third-party verification that business efforts are sincere for effective communication with key stakeholders.

Later in this article, you’re presented with a checklist that will help you implement an effective EMS under the ISO 14000 family of standards.

Plan-Do-Check-Act model

The Plan-Do-Check-Act (PDCA) cycle is fundamental to any EMS under ISO 14000. This cycle ensures the EMS is continuously improved upon.

The PDCA cycle is a lean business management framework established in the 1950s by Dr. William Edwards Deming. PDCA helps identify why some products or processes don’t work as hoped. Today, the PDCA cycle is a popular strategy tool applicable to many organizational settings.

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The cycle is made up of four phases, as described below:

• Plan: Clear objectives are established, and an outline of the processes involved is defined. During this stage, business operations and processes to be improved are defined, along with what you want to achieve. Required changes are suggested, and a plan of action for these changes is determined.
• Do: The plan of action is implemented. During this stage, the causes of the undesired operational and process elements are determined.
• Check: This is a key step in the PDCA cycle. During this stage, you’ll observe the effectiveness of the implemented actions. Opportunities for improvement are identified. It’s here that you might perform an internal audit on the systems involved.
• Act: Based on what was observed in the previous step, corrective action is taken to improve and optimize EMS performance.

Continuous improvement

The PDCA model employs the concept of continuous improvement. Continuous improvement describes the ongoing advancement of products and services through incremental and breakthrough changes over time.

When adopting a continuous improvement approach, current performance is analyzed, areas for improvement are then identified, and actions are then taken to make the changes required. Once action items are implemented, performance is once again reviewed to make additional advancements.

Life cycle assessment

A life cycle assessment is a methodology used to evaluate the environmental impacts associated with all life cycle stages of a commercial product or service. This means environmental impacts from cradle (the extraction of raw materials), to gate (the moment the product or service enters the use stage), and to grave (product or service end-of-life).

The National Risk Management Research Laboratory of the EPA states the LCA assesses the environmental impacts associated with a product, process, or service, by:

1. Compiling an inventory of relevant energy and material inputs, and output waste that enters the environment;
2. Evaluating the potential environmental impacts associated with identified inputs and releases;
3. Interpreting the results to help you make more informed decisions.

LCA is covered under ISO 14040 and 14044. According to these standards, there are four phases to an LCA.

• Phase one – Goal and scope definition: Define the goal to be achieved under the stated limitations (scope).
• Phase two – Inventory analysis: Create an inventory of flows from and to nature for a product system. E.g. raw material and energy use, atmospheric emissions, water emissions, and waste. It’s recommended to start with a flow model – this is a flow diagram that includes the activities that are going to be assessed in the supply chain and gives a clear picture of the technical system boundaries.
• Phase three – Impact assessment: Identify the environmental and human health effects from the elementary flows determined during the inventory analysis.
• Phase four – Interpretation: A systematic technique is applied to identify, quantify, check, and evaluate information from the results of the life cycle inventory and impact assessment. From this analysis, a set of conclusions and recommendations for the study are drawn.

Life cycle assessments are complex, and therefore delving into the specific details of how to perform one goes beyond the scope of this article. Refer to the standards ISO 14040:2006 Environmental management – Life Cycle Assessment – Principles and Framework and 14044:2006 Environmental Management Life Cycle Assessment Requirements and Guidelines for more information.

Material flow analysis (MFA)

Material flow analysis is a systematic assessment of the flows and stock of materials within a system that’s both defined in space and time. System boundaries are drawn such that materials and stocks that enter the system, stay in the system and move into system processes.

By materials, we’re referring to raw materials such as wood, metals, or chemical compounds. The core element of MFA is that inputs must be balanced by system outputs, and any discrepancies are then explained by losses or stockpiles. Hence MFA is often applied to identify process waste and system inefficiencies. Typically material flows are analyzed for years, meaning long-term patterns can be studied.

Environmental Input/Output (EIOT) analysis

An Environmental Input-Output (EIOT) analysis approach serves to expand environmental impact reduction targets and strategies to include the entire supply chain or whole product life cycle. The model was first construed in 1936 by the U.S. economist Leontif. Leontif constructed a linear model of the U.S. economy that related the production inputs of goods and services of one industry, to the production of outputs from other industries via an I/O table.

In summary, the I/O table accounts for all material flows between sectors in the economy. The principles of I/O tables can specifically be used for environmental assessments, with the use case extending to include undesirable outputs that impact the environment, such as emission data. In these cases, the analysis is referred to as an environmental input-output assessment.

Leontief stated:

“The total amount of that particular types of pollution generated by the economic system as a whole, equal the sum total of the amounts produced by all its separate sectors” – Lenotief 1970, Environmental Repercussions and the Economic Structure: An Input-Output Approach

With this in mind, environmental input/output analysis can quantify and analyze the environmental impacts of economic activities. It involves identifying the environmental inputs (e.g. raw materials, energy) and outputs (e.g. emissions, waste) associated with the production and consumption of goods and services. This idea can be applied to a business scope too, as in the example below.

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In this table, the rows represent different inputs and outputs associated with a hypothetical furniture business.

The table shows the environmental impact of producing one unit of furniture product. The business emits 5kg of air pollution, 1kg of water pollution, and 10kg of waste. The business also uses 20kWh of energy to power its operations and another 120kWh of energy to distribute products.

The matrix can be used to identify which inputs or processes have the largest environmental impact and where improvements can be made to reduce that impact.

ISO 14000 CONCEPTS

Environmental aspects

An environmental aspect is an element of an organization’s activities, products, or services that can interact with the environment to give either positive or negative effects.

Drawing maps and flow diagrams of all relevant activities and material flows can help identify potential environmental aspects. Initial surveys of environmental aspects are often qualitative and provide opportunities to prioritize areas in need of attention.

Environmental impact analysis

Environmental impact analysis details the severity of the environmental aspects drawn, with an understanding that the impacts can be local or global, positive or negative. To explain further, let’s run through an example.

Consider the distribution of goods along a value chain using diesel-powered lorries. The burning of fossil fuels to power vehicles releases carbon dioxide into the atmosphere and sulfur dioxide. The burning of fossil fuels by company-owned vehicles is an environmental aspect. The environmental impact of this can be defined both locally and globally:

1. Local impacts: Sulphur dioxide emissions contribute to acid rain, which affects the local real.
2. Global impacts: Carbon dioxide contributes to human-induced climate change, and the effects are global.

ISO 14000 TERMINOLOGY

Success factors

Success factors refer to the internal and external components that can influence the success of an EMS. This is dependent particularly on the commitment from all levels and functions of the organization. Top management must address risks and opportunities, while also integrating effective environmental management into the organization’s business processes, strategic direction, and decision-making, and aligning the needs of the environmental system with other business priorities.

It must be noted that the adoption of an international standard does not guarantee positive environmental outcomes. The level of detail and complexity of an EMS will vary depending on the context of the organization, the scope of its environmental management system, compliance obligations, and the nature of its activities, products, and services.

Management system

A set of business processes and policies designed to achieve a given objective, and all the interrelated and interacting elements involved. A management system will have a defined structure, with allocated roles and responsibilities, and a means of evaluating performance and improvement.

An environmental management system, as referred to in ISO 14001, refers to a management system used to manage environmental aspects, fulfill environmental compliance obligations, and address environmental risks while seeking opportunities to improve an organization’s environmental performance.

Environmental policy

An environmental policy is a written statement that outlines the aims of an organization to reduce negative operational impacts on the environment. Having a defined environmental policy is essential for successfully implementing ISO 14001 standards.

Objective

Results to be achieved. An environmental objective must be consistent with the environmental policy.

Environmental targets

An environmental target is a detailed performance requirement. Targets are set to deliver on the given environmental objectives. For instance, let’s say the environmental objective is to reach carbon neutrality by 2030. Targets under this objective are:

• To reduce the employee commute by allowing 75% of the workforce to work from home under a hybrid working model;
• To reduce business-related air travel by 50%;
• To upgrade company petrol vehicles to electric vehicles;
• To install new and improved building insulation for every business site;
• To install smart thermostats for every business site;
• To offset the remaining business emissions.

As you can see, a single business objective can have multiple associated business targets.

Audit

A systematic, independent, and documented process to objectively infer the extent to which specified standards have been met. An audit can be conducted internally by the organization in question, or by an external third party.

Conformity and non-conformity

Conformity describes the degree to which a requirement is fulfilled. Non-conformity describes the degree to which a requirement is not fulfilled. There are two types of conformity, minor and major:

1. Minor non-conformity: The problem rarely happens, is easy to detect, and/or doesn’t cause significant failure.
2. Major non-conformity: The problem frequently happens, is difficult to detect, and/or causes significant failure

Corrective action

Action is taken to address a non-conformity and to prevent re-occurrence.

ISO 14000 checklist: Implementing an effective EMS under the ISO 14000 family of standards

Our ISO 14000 checklist is structured as detailed below. Click on the link to navigate through this checklist.

THE PLAN PHASE OF AN EMS UNDER ISO 14000

The first phase to establish an EMS under ISO 14000 is the PLAN phase, of which there are eight steps.

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Step #1 – Define the context of the organization:

• Define the needs and expectations of interested particles.
• Define the scope of the environmental management system. Note that an EMS must identify every environmental impact caused by the business – good and bad – meaning the scope of an EMS must extend across the entire organization.

Step #2 – Identify leadership roles:

• Assign organizational roles, responsibilities, and authorities.
• Outline the environmental policy.

Step #3 – Identify stakeholders and their requirements:

Stakeholders are individuals or groups who may gain or experience losses or harm as a result of company operations. This can include employees, customers, governments, nongovernmental organizations, or shareholders.

• Engage stakeholders by holding focus group meetings, online discussions, meetings in local communities (e.g. town halls), engaging in stakeholder and expert panel discussions or an external review panel, and getting involved in relevant partnerships.

Step #4: Plan your EMS:

• Identify environmental aspects. Draw maps and flow diagrams of all relevant activities and material flows to identify and list potential environmental aspects.
• Define action steps to address risks and opportunities.
• Develop a process for identifying compliance requirements.
• Document the environmental objectives of your EMS and define targets to achieve them.
• Document environmental aspects. This should include descriptions and flowcharts or existing processes, and production data (e.g. raw material consumption, production volume, secondary products and waste, noise, and transportation).
• Set appropriate limits to identify environmental aspects. E.g. is the focus on internal processes only, or should aspects include the upstream and downstream value chain impacts?
• Evaluate the environmental impacts. Analyze the severity of identified environmental aspects, which is done by defining the cause and scope.some text
  • Define the environmental impact scope. Impacts can be local, regional, or global.
  • Identify the cause of environmental impacts. Utilize an environmental input-output (EIOT) analysis approach, material flow analysis (MFL), and Life Cycle Assessments (LCA) information.

Step #5 – Create a system to support your EMS:

• Gather resources. What resources does your EMS need? For example, software for tracking developments and changes, and AI to collate business data in real time.
• Promote awareness and communicate. Ensure employees understand why establishing an EMS is important, and what they can do to support developments. Create awareness of the problems and solutions, and communicate organizational changes to be made.
• Document everything. You need to ensure the environmental performance of your organization is assessed, keeping data and supportive documentation at hand. Developments and sustainable changes need to be recorded to keep an audit trail. Ensure you have an effective document management system for secure storage and easy access.
• Ensure competence. Confirm you and your team understand what’s required and how to fulfill their role. Hold training sessions, meetings, and easy access to relevant resources to aid understanding.

Step #6: Propose environmental improvements:
Examples of proposed environmental improvements include:

• Product and process changes;
• Changes to raw materials and auxiliaries;
• Changes in technology and practices;
• Implementing measures for waste reduction;
• Instituting a reuse and recycling scheme;
• Energy conservation techniques e.g. insulation installation, implementing a controllable thermostat, and switching to LED lights;
• Land restoration and biodiversity precautionary actions.

Step #7 – Make a priority list of improvement actions:

Select measures for improvement, and create an action plan which should specify the below:

• A schedule for the implementation of measures;
• Assignments of responsibility;
• An employee training plan, including the introduction of new equipment, and new operating instructions.
• A system to document the effectiveness of chosen measures.

Step #8 – Set environmental objectives and targets:

• Define and document your environmental objectives, and the associated environmental targets. Remember, a single objective can have multiple targets that span across departments. Make sure organizational departments understand what’s required of them.

THE DO PHASE OF AN EMS UNDER ISO 14000

The DO phase, otherwise referred to as the implementation phase, involves the execution of your plan, of which there are five steps.

• Step #1 – Implement your plan: Focus on the implementation of priority measures to improve environmental performance.
• Step #2 – Set up procedures: You need to set up procedures to implement, monitor, control, and document progress.
• Step #3 – Create an emergency response system: Identify risk factors and make sure you have a clear mitigation system in place. Plan and implement a process to determine preventive action to minimize the risk of an accident that will result in a negative environmental impact.
• Step #4 – Document everything: Ensure you have clearly defined, documented, and communicated your implementation procedures for purposes of training and compliance contingency.
• Step #5 – Set a clear environmental statement: An environmental statement will form the foundations of determining new objectives and related action plans for environmental programs.

THE CHECK PHASE OF AN EMS UNDER ISO 14000

After implementing the most basic elements of an EMS, you need to be able to observe how it functions and make the corrections and optimization adjustments needed. There are five steps in this CHECK stage.

• Step #1 – Monitor, measure, analyze, and evaluate: This step is pretty self-explanatory. You need to understand how your business is performing after the EMS has been implemented. Results from this analysis need to be compared to data before EMS implementation to determine the system’s effectiveness. Collate the required quantitative and qualitative information to obtain this benchmark and to verify whether environmental performance is improved.
• Step #2 – Check progress against environmental objectives: Ensure your EMS and associated actions and projects sit within compliance rules and regulations, and your company policies. Your EMS initiatives must meet the environmental objectives set.
• Step #3 – Conduct an internal audit: You can assess your EMS based on ISO 14000 requirements internally to identify areas where you’re not hitting your targets. The purpose of the internal audit is to uncover weaknesses and discrepancies and to examine whether the adopted systems and procedures work as intended. Obtain audit evidence and judge your system objectively, and decipher the extent to which the audit criteria are fulfilled.
• Step #4 – Create an audit report: Create a list of follow-up measures drawn from the results of the internal audit. The purpose of this report is to complete a dialogue on any potential challenges your company might face as you focus on sustainability. Your aim is to turn these challenges into opportunities.
• Step #5 – Management review: This could tie in with the previous step, but it’s important to have a distinguished review of the EMS conducted by management, to make sure that everything is functioning as targeted. The audit report is the underlying document of this management review.

THE ACT PHASE OF AN EMS UNDER ISO 14000

As mentioned, every EMS system under ISO 14000 utilizes the principles of continuous improvement so organizations can optimize all aspects of the system. There are three main target areas for continuous improvement, which are actioned during the ACT phase of the PDCA cycle. There are five steps in this phase.

• Step #1 – Consider the scope of your EMS for expansion: Does the scope of the EMS need to be expanded to include more of the organization? What departments are currently included?
• Step #2 – Improve business processes and functions that do not conform: Look for non-conformity, take action to eliminate the cause, and implement corrective actions.
• Step #3 – Evaluate your current environmental policy: A top task for management. Determine whether the current environmental policy should be revised.
• Step #4 – Further optimize your EMS: Think about the structure and the organization of your current EMS, and how effectively your EMS deals with environmental issues. How can your EMS be made more efficient and effective?
• Step #5 – Make sure your EMS is addressing the entire value chain: In reaction to the UN’s Sustainable Development Goals (SDGs), especially SDG 12 on responsible consumption and production, it’s vital your EMS considers business impacts across the entire value chain, thinking about the upstream and downstream sustainability of a product or service.

THE ISO 14000 CERTIFICATION PROCESS

As you cycle between the PDCA cycle of continuous improvement, when you feel your business is ready, you must seek ISO 14000 certification from a third-party vendor. Below we detail the steps involved in this process:

• Step #1 – Conduct an initial assessment: You’re advised to carry out an internal audit before requesting an external audit assessment. The internal audit assessment will help your business decipher where you’re currently at. An initial assessment request can then be made, whereby an independent certification auditor will evaluate your organization’s existing environmental management system, identify areas for improvement, and increase a business’s readiness to obtain ISO 14000 certification.
• Step #2 – Document operations: Businesses need to have a well-documented audit trail. This means environmental policies, objectives, targets, and identified environmental impacts and aspects must be transparently reported. Every improvement initiative must be documented, along with KPIs and benchmark data to track results.
• Step #3 – Obtain third-party certification verification: Certification auditors will visit your business onsite to ensure what’s been reported matches reality. Certification auditors are from a third-party agency not related to ISO but will specialize in ISO 14000 certification procedures. These auditors will interview employees as part of the certification process.
• Step #4 – Non-conformity resolution: The certification process could identify non-conformities. Minor non-conformities must be addressed within 60 days of the audit date.
• Step #5 – Attaining and retaining certification: After applying the corrective actions with proper documentation and/or the certifying body has ascertained the organization meets ISO 14000 standards, the business can obtain certification. Certification is valid for 3 years, although the certified site will undergo bi-annual and annual external audits as affirmation that the certification still applies.

Key takeaways for achieving ISO 14000 certification

Pulling the above information from our ISO 14000 checklist together, below we’ve summarized 5 key takeaways on how an organization can obtain ISO 14000 certification:

• Prepare and plan well: Money, time, and effort need to be optimized with a clearly defined ISO 14000 plan, and the right resources must be prepared.
• Review the ISO 14000 standards: Our ISO 14000 checklist gives a good actionable review of ISO 14000 requirements. Be sure to follow this checklist, while also downloading and reading through the ISO 14000 certification standards.
• Communicate and train your team: You need to make sure your team is on board with the changes your business makes to adhere to ISO 14000. Make sure your employees understand what goals your business is trying to achieve and what processes are involved to improve your organization’s EMS. Develop employee training programs to help your team understand the ISO 14000 framework, why it’s important, what actions and changes are to be made, and how to deal with non-conformances.
• Perform an internal audit: Internal audits are a great way to establish whether your organization is meeting the requirements laid out in the ISO 14000 family of standards. Any non-conformities can be identified before third-party certification is requested.
• Get certified: Work with the independent ISO auditors to ensure your EMS systems are up to scratch. Choose a notable third-party certification body.

The business benefits of ISO 14000

Why should your business obtain ISO 14000 certification? We discuss the key business benefits of following ISO 14000 standards.

ISO 14000 CERTIFICATION OFFERS AN EFFECTIVE RISK-REDUCTION STRATEGY

ISO 14000 standards give a proactive approach to environmental management. This is an effective risk mitigation strategy as opposed to the alternative – the organization responds to a negative environmental effect as it happens, termed a reactive approach.

For instance, by abiding by ISO 14000 requirements, a business minimizes exposure to regulatory and environmental liability fines. That is, ISO 14000 standards meet and exceed government-set environmental legislation and requirements. A business completely avoids compliance breaches and the negative consequences that follow.

ISO 14000 LEVERAGES FINANCIAL INCENTIVES

Federal, state, and local US governments offer tax incentives for companies that choose to adopt and implement environmentally responsible standard operating procedures. These incentives include Emission Reduction credits (ERCs); Capped Allowance Systems; taxes on business emissions, and subsidies for pollution control.

ISO 14000 HELPS ATTRACT AND RETAIN TOP TALENT

~40% of millennials have taken a job because of a company’s sustainability credentials and would take a pay cut to work for an environmentally responsible business. ISO 14000 certification showcases this commitment to attracting and retaining a solid talent base. On top of this, 89% of executives state that operating toward a higher purpose delivers superior employee satisfaction.

ISO 14000 IMPROVES BUSINESS BRAND IMAGE AND PUBLIC RELATIONS

According to a report by cone communications:

• 76% of Americans expect companies to take action against climate change;
• 73% of companies would stop purchasing from a company that shows disinterest in taking positive steps that tackle our climate crisis.

On top of this, 66% of consumers overall would spend more for a product if it had improved sustainability credentials.

People are demanding better. There’s a shift from a demand for good products to a demand for good companies, with 83% of consumers paying as much attention to the company as they do the product.

Hence, people view sustainability as a plus. That is, companies that demonstrate noble green and social values establish a popular and positive brand reputation. ISO 14000 certification gives third-party validation that a business’s sustainability claims and commitment are accurate, transparent, and trustworthy (avoiding corporate greenwash).

ISO 14000 GIVES ORGANIZATIONS A COMPETITIVE EDGE

A 2011 MIT Management (Sloan School) survey questioned ~3,000 executives and found that two-thirds believed sustainability is necessary to viably compete in today’s market. With this in mind, a 2021 Morningstar U.S. Sustainability Leaders Index report found that companies with better sustainability performance returned a 33.3% higher return over one year, beating the broader US market by more than 8%.

ISO 14000 limitations

One of the main advantages of using the ISO 14000 family of standards is their adaptability to any sector of the economy and enterprise size. The standards were set up in an attempt to deliver a globally-recognized and universal language for environmental management. However, concerns have been raised around the ability of ISO 14000 to meet this aim, due to specific limitations.

The benefits and limitations of the ISO 14000 family of standards are addressed in the table below, as adapted from Family ISO 14000 Standards as a Tool of Achieving Environmental Sustainability of Enterprises (Anzhelika Karaeva 2023).

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Overcoming the limitations of ISO 14000 with Green Business Bureau certification

The Green Business Bureau certification program addresses the limitations of the ISO 14000 family of standards, to make it easier for organizations to implement green operations without expensive, long, and arduous audit processes.

GBB has taken the complexity out of business sustainability with the mind that impactful changes can be made based on common sense, e.g. recycling waste, switching to LED light bulbs, and implementing a controllable thermostat onsight. GBB initiatives range from these easy wins to initiatives that require more investment and effort. Yet, a business is supported to take action from day one by focusing on the low-hanging fruit as they work toward larger green goals. Momentum remains high as sustainable action is prioritized over endless reports and costly consultations.

“I’ll be 100% transparent, I’m the president of the Green Business Bureau, a company obsessed with taking the cost and complexity out of sustainability. We believe every business should have an economic path to become more sustainable and environmentally friendly. We need to work together to create a green and socially responsible business world.

Our mission is simple: Disrupt the traditional Sustainability and ESG industry. Companies have spent billions on ESG consulting, vendors, data collection, ratings, and reports. Shouldn’t we be spending that money and time on actions and change?” – Bill Zujewski, President of the Green Business Bureau, Sustainability: It’s About the Actions, Not Just the Carbon and ESG Data

Referring to the above, the main limitations of ISO 14000 are:

• Limitation #1: High costs;
• Limitation #2: A large investment of time;
• Limitation #3: A failure to take into account the characteristics of different industries;
• Limitation #4: Standards are poorly adapted for small to medium-sized industries.

To summarize, we’ve detailed how the Green Business Bureau overcomes these limitations below:

• Overcoming limitation #1 of ISO 14000 – GBB is an affordable green business certification provider: The Green Business Bureau offers a low-cost means of obtaining green business certification by removing unnecessary high-cost processes – such as expensive consultants and reporting. Businesses can track progress in the Cloud using GBB’s EcoAssessment to internally benchmark their current performance using a scorecard-based approach. Goals are set using GBB’s EcoPlanner. Initiatives are simplified to: Have you done it: Yes or no? Our team of expert analysts will then work with you, to make sure you’re reporting your sustainability journey accurately.
• Overcoming limitation #2 of ISO 14000 – Completing the GBB assessment is a relatively quick process: The scorecard approach simplifies business sustainability into a set of actionable initiatives. Information on how to obtain each initiative is given in a way that avoids confusing jargon. Simply follow GBB’s EcoAssessment and EcoPlanner as a process, obtaining recognition for actions currently in place straight away. Filter initiatives to implement low-cost and low-effort ones first. This way, your business can make notable progress from day one.
• Overcoming limitation #3 of ISO 14000 – GBB has industry-specific green initiative packs: The GBB platform houses sustainability initiatives that are applicable across every industry, while also giving industry-specific initiative packs. This way, GBB certification meets the unique needs of different industries.
• Overcoming limitation #4 of ISO 14000 – GBB has plans tailored for small-medium-enterprise-sized organizations: At GBB, we want every organization – regardless of size and resource availability – to be able to attain green business certification. For this reason, GBB has three sets of plans – our small business plan, medium business plan, and enterprise business plan. Each plan is tailored to meet the unique needs of each business size.

Hence, GBB certification effectively mitigates the drawbacks of ISO 14000 certification, yet we recommend you use GBB alongside ISO 14000 if you have the resources available to do so. This is because the two systems complement each, as we explain.

The aim of ISO 14000 differs from that of GBB. ISO 14000 family of standards focus on how business systems are managed through the setup and maintenance of an EMS. Whereas GBB focuses on implementing specific initiatives which will support the targets and objectives outlined within your EMS. Plus, GBB takes a holistic approach to sustainability and accounts for an organization’s social performance alongside environmental performance. Hence, GBB should be used supplementary to ISO 14000.

ISO 14000 supports GBB certification, and GBB certification supports ISO 14000 certification.

And for organizations that haven’t the financial or time resources available, GBB acts as a stepping stone in helping businesses make meaningful sustainable changes today to create a solid foundation for ISO certification in the future.

For more information on how GBB certification can prepare you for ISO 14000, read: ISO 14001: How Green Business Bureau Certification Prepares a Company for ISO 14001 Certification.

HOW DO I GET CERTIFIED WITH THE GREEN BUSINESS BUREAU?

Before you sign up for the Green Business Bureau, you can request a free demo, and our member success team will walk you through the GBB platform, answer any questions you might have, and show you how GBB certification works.

When you’re ready, you can sign up and begin your EcoAssessment. Our EcoAssessment uses a scorecard approach to benchmark your organization’s current sustainability performance. From this assessment, you can identify areas for improvement, and using GBB’s EcoPlanner, set targets for improved sustainability performance.

Every initiative you complete, and your target sustainability goals are recorded in the Cloud on the GBB platform, meaning you have an audit trail of your sustainability journey. Once you’ve completed the prerequisites, you’ll receive your very own EcoProfile and clickable Green Seal of Approval. This seal comes as a physical copy, but also in a digital format to display on your website. On clicking the digital Green Seal, stakeholders are taken to your EcoProfile, where they can track your sustainability progress, and view what initiatives you’ve successfully implemented. Refer to Platinum-certified Green Business Bureau member, Impetus Digital’s EcoProfile below as an example.

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You’ll work with the Green Business Bureau team to verify your sustainability efforts. GBB will also help you communicate your commitment to the world via GBB’s marketing collaboration opportunities, such as member stories, social media shares, guest posting, and podcasts. You can also connect with and collaborate with other GBB members via GBB’s member directory.

So join the community of sustainable businesses working together to make a difference. Get certified and showcase your commitment to creating a brighter, sustainable business world.