Forthcoming regulations by the Hong Kong Stock Exchange (HKEX), which mandate companies to disclose their carbon emissions, have greatly heightened the significance of carbon accounting for businesses. This article aims to provide an overview of the implications of these regulations for your company, the advantages of adopting carbon accounting practices, the components involved in carbon accounting, and steps to embark on your carbon accounting venture.
What the proposed regulations mean for business
The Hong Kong Stock Exchange’s forthcoming regulations will require all listed companies to disclose their carbon emissions in their ESG reports in line with the International Sustainability Standards Board (ISSB) Climate Standard. These regulations encompass the disclosure of emissions from companies’ value chains, known as “Scope 3” emissions, which can contribute up to 80-90 percent of a company’s total emissions. The proposed changes to climate-related disclosures were released in April this year and will be effective from January 2024. Given the limited timeline for companies to comply with the new regulations, companies will want to get ahead by getting organised now.
What is carbon accounting?
Carbon accounting entails the measurement, quantification, and monitoring of an organisation’s or entity’s greenhouse gas emissions. It encompasses the collection of data relating to different activities and operations that contribute to emissions, such as energy usage, transportation, waste management, and production processes. In essence, carbon accounting involves the translation of business activities into quantifiable carbon emissions through mathematical calculations.
Benefits of carbon accounting
Driven by upcoming regulations such as the HKEX rules and various governmental rulings worldwide (including TCFD, ISSB, and upcoming SEC rulings), carbon accounting is becoming a global requirement. These frameworks and rulings will establish standardised and comprehensive carbon accounting practices, enhancing transparency, comparability, and accountability in emissions reporting. This will enable better decision-making, risk assessment, and goal-setting for businesses. Additionally, they create urgency and responsibility for companies to measure, manage, and reduce their carbon footprint to meet regulatory and stakeholder expectations. By conducting carbon accounting, businesses ensure compliance, avoid penalties, and mitigate legal risks. It also positions them favourably for future regulatory developments by proactively addressing emissions and maintaining accurate data.
Beyond meeting compliance and regulatory requirements, carbon accounting also offers several other benefits to your organisations, including:
- Cost savings: Through comprehensive carbon accounting, businesses can identify inefficiencies and areas for improvement within their operations. This insight enables them to implement energy-efficient measures, reduce waste, and optimise resource utilisation. By adopting sustainable practices and actively reducing emissions, businesses can achieve significant cost savings over time.
- Enhanced reputation and branding: Consumers increasingly prioritise environmentally responsible and sustainable companies. By engaging in carbon accounting and actively reducing their carbon footprint, businesses can enhance their reputation and stand out in the market. Demonstrating a commitment to sustainability attracts environmentally conscious consumers and fosters brand loyalty, providing a competitive advantage.
- Investor confidence: Investors now consider environmental, social, and governance (ESG) factors when making investment decisions. Carbon accounting empowers businesses to provide transparent and credible information about their environmental performance. By aligning with the expectations of socially responsible investors, companies with strong ESG performance and robust carbon accounting practices can attract investment and boost investor confidence.
- Risk management: Climate change poses significant risks to businesses, including physical, regulatory, and reputational risks. Carbon accounting helps identify and assess these risks, allowing businesses to develop appropriate strategies for mitigation and adaptation. Proactively managing carbon emissions reduces exposure to climate-related risks, safeguarding the company’s long-term viability.
- Competitive advantage: Companies that prioritise sustainability and actively manage their carbon footprint gain a competitive edge in the marketplace. Consumers, clients, and partners increasingly seek environmentally responsible business partners. Carbon accounting showcases a commitment to sustainability and sets businesses apart from the competition, providing a clear advantage.
Implementing carbon accounting practices offers numerous benefits to businesses. By identifying cost-saving opportunities, enhancing reputation, attracting investors, managing risks, and gaining a competitive advantage, companies can thrive in an evolving business landscape. Embracing sustainability through carbon accounting is not only a responsible choice but also a strategic one that paves the way for long-term success.
What carbon accounting involves
In simple terms, carbon accounting involves assessing your business’s carbon footprint and converting the results into CO2e (carbon dioxide equivalent). CO2e is a standardised unit that accounts for the warming effect of different greenhouse gases based on their global warming potential (GWP). For instance, one metric ton (MT) of methane has a warming effect 29.8 times greater than that of CO2 over the same period, making it equivalent to 29.8 metric tons of CO2e.
Here’s how to get started with carbon accounting:
1) Identify the sources of your company’s carbon emissions
These are broken-up into three types of emissions, or Scope 1-3 emissions:
Scope 1 emissions — the direct greenhouse (GHG) emissions that occur from sources that are controlled or owned by your company (for example, emissions associated with fuel combustion in boilers, furnaces, and vehicles).
Scope 2 emissions — the indirect GHG emissions associated with the purchase of electricity, steam, heat, or cooling.
Scope 3 emissions — all indirect emissions that come from activities that occur in your company’s supply chain, but are not directly controlled by your company. These sources include the use of purchased goods and services, fuel- and energy-related activities, employee business travel, waste generated from operations, transport-related activities, and the use of leased assets. On average, Scope 3 emissions account for over 80-90 percent of an organisation’s emissions so this will be the biggest source of emissions and will require the most time to identify.
2) Measure your company’s carbon emissions
Once the sources of emissions within your organisation have been identified, you can proceed with calculating your carbon footprint. Traditionally, this involved manual calculations using a carbon accounting spreadsheet. However, with the advent of purpose-built carbon management software, the process can now be significantly automated. A robust solution enables you to effortlessly upload data on your expenditure (such as procurement spend, utility bills, and fuel receipts) or integrate with your existing finance applications. The software then takes the financial value of the goods or services you have purchased and multiplies it by an emission factor, which represents the amount of emissions generated per unit of financial value. This calculation provides an estimate of the emissions produced. By automating this process, the software automatically determines your company’s total emissions and presents a visual representation of your carbon footprint.
How Alaya Consulting can help you
Carbon accounting may seem complex and overwhelming, but with the right ally, it becomes much simpler and more accessible. Alaya Consulting offers a wealth of expertise in ESG reporting, pre-assurance, ratings upgrades, and sustainability training for your business. As a trusted advisor in the ESG field, we have a proven track record of assisting organisations in adopting sustainable practices. In addition, our partnership with Avarni, an advanced carbon management platform utilising artificial intelligence and data analytics, enables us to accurately measure, monitor, and forecast your business’s Scope 1-3 carbon emissions. Get in touch with us today to learn how we can aid your business in meeting its ESG reporting requirements, implementing effective emission reduction strategies, and driving sustainability initiatives within your organisation.
About Avarni
Avarni is a carbon emissions management platform that enables organisations to move from net zero commitment to action as quickly as possible. Driven by AI and the power of a global supplier network, Avarni improves measurement, hotspot identification, and planning, to help companies quickly understand and address their emissions exposure. Countless industry leaders leverage Avarni, including 5B, City of London, Jacobs, KPMG, Point B, Schneider Electric Sustainability Business, and WNS. Avarni has analysed over $300 billion in corporate spending data and examined the equivalent of 150 million tonnes of CO2e emissions within supply chains.
