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Climate accounting

On the way to climate neutrality

Estimated reading time: 15 minutes
What is this post about?

In a world increasingly affected by the consequences of climate change, carbon accounting or carbon footprint is becoming increasingly important as a tool for measuring the greenhouse gas emissions of companies, cities and countries. In order to communicate the Corporate Carbon Footprint (CCP) transparently to outsiders, stakeholders or customers, the method of greenhouse gas accounting is becoming increasingly important.

But how is the greenhouse gas balance actually defined? What steps are involved in creating a CO2 balance and what advantages does a company have with certified climate accounting?

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Image Greenhouse gas balance
Icon Greenhouse gas balance

Definition of greenhouse gas balance

For the sake of simplicity, the greenhouse gas balance is used in this article as a synonym for the terms climate balance, CO2 balance, corporate carbon footprint (CCF) and carbon footprint. The greenhouse gas balance (GHG balance) describes the carbon footprint that a company causes through all of its emissions as part of its business activities. In addition to the direct emissions that arise from its own production, the indirect emissions that arise from the supply chain and the use of products are also taken into account.

In addition to CO2, the greenhouse gas balance also takes into account other gases (such as methane CH4, nitrous oxide N2O, etc.). After conversion into tons of CO2 equivalents (CO2e, CO2-eq), all emissions for the corporate carbon footprint are summarized in a balance.

The greenhouse gas balance, climate targets and concrete measures to achieve climate neutrality are communicated internally and externally to employees, partners and other stakeholders through the annual report. The tasks of planning, controlling and monitoring a company's path to climate neutrality are summarized under the term climate management.

Image Benefits of climate accounting
Icon image Benefits of climate accounting

Benefits of greenhouse gas accounting

A carbon footprint enables companies to quantify and evaluate their emissions. This enables targeted measures to be taken to reduce emissions, which in turn contributes to combating climate change. In addition, successful emission reduction can also represent a competitive advantage, as more and more customers and investors are paying attention to sustainability and environmental awareness.

Internally, companies are given the opportunity to save costs along their own supply chain. This can be, for example, energy costs during production or by closing raw material cycles. With the help of carbon footprinting, a company also expands its understanding of both the basis of CO2 emissions and its own impact on the environment. This means that future investment decisions can also take CO2 costs into account.

Externally, companies gain the opportunity to demonstrate their climate management measures in a credible and transparent manner. This informs customers, partners and investors about the contribution the company is making to protecting the climate.

In addition, companies meet the requirements of their customers and those of the legislature (see the requirements for sustainability reporting).

Image Goal of climate accounting
Icon Goal of climate accounting

Aim of climate accounting

The aim of climate accounting is to reduce or compensate for the total greenhouse gas emissions caused by an organization in the accounting period in the medium to long term so that climate neutrality is achieved. In this context, climate neutrality means that there is a balance between all CO2 emissions (sources) and the absorption of CO2 from the atmosphere (sinks).

In other words: A company is climate neutral if it does not release any climate-damaging greenhouse gases or if the greenhouse gases emitted are compensated for by certified climate projects.

Image Emissions of a climate balance
Icon Emissions of a climate balance

Scope 1 to 3 emissions of a climate balance

When using the Green House Gas (GHG) Protocol, the most common standard for creating climate balance sheets, emissions are divided into three areas of application: Scope 1, Scope 2 and Scope 3. This looks at where the greenhouse gases are released (directly by the company or indirectly along the supply chain) and how the emissions can be determined.

Scope 1: Includes the direct release of greenhouse gases in the company itself, such as through the combustion of fossil fuels. These emissions can be determined very precisely using accounting data.

Scope 2: Includes the indirect release of greenhouse gases, which are generated, for example, by the production of purchased electricity, heat or cold. These emissions can also be determined very precisely using invoices from suppliers, among other things.

Scope 3: Includes the indirect release of greenhouse gases that are generated in the upstream and downstream supply chain. Examples of this are the production and disposal of purchased goods and the commuting of employees. These emissions are divided into 15 categories and each is assigned to an upstream and downstream process. Determining these emissions is very complicated because not all processes along the value chain are fully known.

In order to obtain a complete overview of a company's greenhouse gas emissions, it is necessary to include all scopes.

Graphic climate balance

Reporting standards for climate accounting

For a company's carbon footprint, it is a fundamental requirement to align with established and widespread climate certification standards. It should be noted that there are several official climate certifications. These differ in terms of their validity period, scope and objectives, among other things. The best-known recognized climate certifications include ISO 14064, PAS2050 and the current Gold Standard, the Greenhouse Gas Protocol (GHG).

The choice of reporting standard depends on various factors, such as the size and type of company, the geographical location and the goals of the carbon footprint.

Some of the best-known standards are:

  • Icon GHG

    Greenhouse Gas Protocol (GHG)

    The GHG standard is one of the internationally recognized climate standards and is currently referred to as the gold standard in climate accounting. The GHG standard is designed to support companies in both recording and reporting their climate accounting. The GHG defines the three scopes that are relevant for climate accounting and provides recommendations for measuring and calculating greenhouse gas emissions. The GHG standard is used by many companies, governments and NGOs worldwide.

  • Icon ISO 14064

    ISO 14064

    ISO 14064 is a standard for recording greenhouse gas emissions and conducting carbon footprint assessments. It consists of three parts: The first part contains instructions for the quantitative recording and reporting of GHG emissions. The second part contains the guidelines for the verification of greenhouse gas emissions and the third part provides instructions for the validation of services and projects for reducing emissions. ISO 14064 is one of the internationally recognized standards for carbon footprint assessment and is used by numerous companies and governments worldwide.

  • Icon ISO 14067

    ISO 14067

    ISO 14067 sets the basis for calculating the Product Carbon Footprint (PCF), i.e. the CO2 footprint at the product level. ISO 14067 thus offers companies the opportunity to use a suitable basis for determining, accounting for and verifying the GHG emissions that arise during the production of a service or product. This ISO standard is largely based on existing ISO standards and the PAS (Publicly Available Specification) 2050. This makes ISO 14067 one of the internationally recognized standards for calculating a carbon footprint.

  • Icon PAS

    PAS (Publicly Available Specification) 2050

    PAS 2050 is a British standard that covers the assessment of GHG emissions from services and products. PAS 2050 provides guidance for calculating the PCF, which captures greenhouse gas emissions of a product or service over its life cycle. PAS 2050 is used by governments and companies worldwide and is particularly relevant for companies involved in the manufacture or sale of products.

  • Icon CARS

    Corporate Accounting and Reporting Standard (CARS)

    The CARS standard is one of the newer climate standards developed by the Global Reporting Initiative (GRI). The CARS provides instructions for recording, reporting and verifying greenhouse gas emissions and other sustainability indicators. The CARS standard was developed with the aim of helping companies meet the requirements of international reporting standards such as ISO 14064 and the GHG Protocol.

Procedure for creating a corporate carbon footprint
Preparation of a climate balance sheet

Several steps are necessary to create a carbon footprint. These can vary depending on the company and its objectives, but in most cases a congruent general part is completed. The basic procedure for creating a corporate carbon footprint is shown below:

  • 1. Objectives and framework definition

    Decision on which business areas, emission types and geographical regions are included in the carbon footprint.

  • 2. Data collection

    All relevant greenhouse gas emissions depending on scope and category that are relevant for the climate balance must be recorded.

  • 3. Emissions calculation

    Calculating greenhouse gas emissions using different methods, emission factors and IT tools.

  • 4. Development of the climate strategy

    Prioritization of emission categories within a matrix.

  • 5. Review and verification

    Verification by internal or external auditors whether the completeness and accuracy of the reporting corresponds to templates.

  • 6. Internal and external communication

    Communication of the balance sheet, strategy including objectives and selected measures internally and externally.

First step
Objectives and framework definition

First, the company must clarify which goals it wants to pursue with the carbon footprint. This could involve, for example, identifying savings potential or communicating sustainability performance that must be implemented in order to meet legal requirements. The company must also define the framework (in technical terms: system boundaries) of the carbon footprint. This involves deciding which business areas, emission types and geographical regions should be included in the carbon footprint. The typical questions in this phase are:

  • Which parts of the company or subsidiaries are to be included?
  • Which direct emissions (Scope 1) and indirect emissions (Scope 2 and 3) along the value chain (upstream and downstream processes) are included in the balance sheet?
  • Which emission categories per scope are essential for the company?
  • When creating the carbon footprint for the first time: What is the first reporting year?
  • Who is responsible for the carbon footprint (also in the future) in the company? In other words, who is responsible for the climate goals and their achievement?
  • Which management systems are currently in use? (e.g. EMAS (Eco Management and Audit Scheme), ISO 14001, ISO 50001)
  • Which data sources are available and in what quality?
  • Which CO2 tool or software provider should be used for the CO2 calculation?

Second step
Data collection

In the second step, the data is collected. All relevant greenhouse gas emissions per scope and category that fall within the scope of the climate balance must be recorded. Depending on the company and industry, data collection can be very complex, as not all emissions can be measured directly. If no primary data is available, estimates and assumptions must be made.

The availability and quality of the data varies depending on the emission category. Here are three examples:

  • For emissions in the company's own fleet, the liters of fuel per vehicle for the reporting period may be available via the fuel cards in the financial or fleet management system, or "only" the kilometers driven per vehicle and vehicle type (combustion engine, hybrid, electric).
  • The emissions of the entire workforce caused by employees commuting (Scope 3 - Category 7: Employees commuting) are not recorded in a system and must be collected for the first time. The workforce can be surveyed for this purpose or estimates can be made.
  • Overall weightings are required to determine purchased goods and services (Scope 3 - Category 1). The quality of master data and process compliance in purchasing are very important here. Weights can be determined from the invoices and the composition of the materials can be determined by asking suppliers. GHG emissions are calculated together with the corresponding emission factors for the manufacture of the products.

Due to the availability and the varying quality of the data, it makes sense to set up suitable data and process management at this stage. Even if many companies already regularly prepare a carbon footprint, structured data management is still important. Collecting, checking and consolidating the data is particularly time-consuming when the balance is initially drawn up. At the same time, the processes should be documented as part of the data management so that the effort is reduced the next time the balance is drawn up. In addition, it is advisable to introduce a four-eyes principle for approving the data so that the balance can withstand subsequent auditing, among other things.

Third step
Emissions calculation

After data collection, the third step is to calculate greenhouse gas emissions. Various methods, emission factors and IT tools can be used here. To ensure comparability of the results, the calculation methods should correspond to the selected reporting standard.

Climate balances are increasingly being created in IT tools with stored emission factors. For emissions in Scope 1 and 2, the availability and quality of the emission factors is usually very good. However, depending on the category, the factors for Scope 3 are not available ad hoc or must be selected to suit the company. Care must be taken to ensure that factors are selected consistently in order to obtain a uniform calculation of greenhouse gas emissions in the same category. Here is an example of the GHG emission calculation:

Graphic emissions calculation

Fourth step
Development of the climate strategy

The development of the climate strategy in the fourth step is an essential building block for the introduction of holistic climate management. The climate strategy is developed by companies to achieve climate-related goals and aims to reduce annual greenhouse gas emissions, improve energy efficiency and adapt to climate change.

The emission categories are prioritized in a matrix in which the level of emissions is on one axis and the ability to influence them on the other. The possibility of influencing is very company-specific, as the following examples show:

  • A logistics service provider can focus on purchasing lower-emission vehicles in the medium to long term and thus directly influence its Scope 1 emissions.
  • A printing company can reduce Scope 3 emissions if more recycled material is used. However, the influence may be limited when it comes to implementing customer requirements.
  • A cement manufacturer can obtain the energy to produce cement from renewable energies, but the CO2 emissions from the chemical process cannot be influenced. These emissions can only be captured by carbon capture technologies or reduced by other methods.

Examples of climate targets from different companies

In addition to selecting and prioritizing the relevant emission categories, it is also important to set the base year and the target year (e.g. 2030 in the medium term and 2050 in the long term) as well as the level of ambition. Three examples of climate targets are listed below.

In order to implement the climate strategy and the climate targets, effective reduction measures must be developed and implemented. The measures must be planned along the value chain and the company's key emission categories and meaningful KPIs must be defined for each measure. Examples of this could be:

  • Upstream Scope 3 emissions: travel policy, purchasing policy, reduction projects with suppliers
  • Site-specific emissions: energy efficiency, fleet strategy, own energy generation from renewable energies
  • Downstream Scope 3 emissions: via research and development measures to extend the product life cycle, in cooperation with customers, the return of products to a circular system

One of the biggest challenges is reducing Scope 3 emissions. There is a collection of "good" examples from practice, which can be read here.

  • Icon Unilever

    Unilever

    “Unilever has three principal targets that guide our actions:

    1. A Short-term Emissions Reduction Target: to reduce in absolute terms our operational (Scope 1 & 2) emissions by 70% by 2025 against a 2015 baseline.
    2. A Medium-term Emissions Reduction Target: to reduce in absolute terms our operational emissions (Scope 1 & 2) by 100% by 2030 against a 2015 baseline; and
    3. A Long-term Net Zero Value Chain Target: to achieve net zero emissions covering Scope 1, 2 and 3 emissions by 2039”
  • Icon Lidl

    Lidl

    "With the aim of reducing its operational emissions (Scope 1 and 2) by 55 percent by 2030 compared to 2019, the Schwarz Group is making a measurable contribution to limiting global warming to 1.5 degrees Celsius." [...] "The majority of the Schwarz Group's carbon footprint is due to the manufacture of products and thus to the upstream value chain. The group therefore wants to create incentives for suppliers to reduce emissions themselves and requires those suppliers who are responsible for 78% of product-related Scope 3 emissions to set their own climate targets by 2026 in accordance with the SBTi criteria."

  • Icon BMW Group

    BMW Group

    "We have set ourselves the highest reduction targets in the industry for 2030 - even more ambitious than the 1.5 degree target. We have already been able to reduce emissions per vehicle in production by more than 70% since 2006. Now the BMW Group's emissions (Scope 1 + 2) are to be reduced by a further 80% from 2019 to 2030. Compared to 2006, less than 10% of the original CO₂ emissions will then remain. The key lever here is production, which causes around 90% of the company's Scope 1 and Scope 2 emissions."

Fifth step
Review and verification

Checking and verifying the results is an important step in preparing a climate balance or corporate carbon footprint. Internal or external auditors can be used to check the accuracy and completeness of the reporting. Verification can vary depending on the reporting standard and is not mandatory in all cases.

Sixth step
Internal and external communication

In the final step, the balance sheet, the strategy including goals and selected measures are communicated internally and externally. The carbon footprint, which may be audited by an independent auditor, is communicated as part of the integrated reporting in the annual report alongside other sustainability aspects (see also CSRD guidelines) for external stakeholder groups (e.g. investors, customers, rating agencies). Of course, internal communication should take place at the same time to the company's employees and close partners in order to involve internal stakeholders in achieving the climate goals.

These six steps show the path to comprehensive climate management by way of example. Companies are thus able to make their positive contribution to sustainability and adaptation to climate change.

Success factors of a climate balance

Creating a carbon footprint can involve a variety of challenges. It is therefore important to be clear about the following success factors in advance:

1. Success factor 05

Management commitment

  • Management commitment

    Management commitment is an important factor in preparing a carbon footprint. If management recognizes the positive impact of carbon accounting on their own company and supports this topic, they are more likely to gain access to the accurate data sources for calculating the carbon footprint.

  • Clear goals, measures and responsibilities

    It is important that companies define clear goals, measures and responsibilities for climate management. As with other far-reaching changes, the path to climate neutrality can only be successful if it is firmly anchored in the company.

  • Employee engagement

    Involving employees in the carbon footprint process can help promote a culture of sustainability within a company. Employees can thus provide long-term support to the company in collecting data and identifying potential savings.

  • Data availability and quality

    Calculating greenhouse gas emissions is subject to uncertainty, as the measurement accuracy of data sources, data availability and the choice of calculation methods (especially CO2 factors) can negatively or positively influence the accuracy of the results. After a company has conducted a carbon footprint for the first time, the multitude of data sources for all relevant emission factors can be better organized and structured using newer and more accurate data collection and storage.

  • Use of IT tools

    The use of IT tools can significantly facilitate the recording and calculation of greenhouse gas emissions and improve the accuracy of the results.

Image CO2 balance calculator
Icon CO2 balance calculator

CO2 balance calculator

There are a variety of IT systems and software-as-a-service (SaaS) solutions on the German-speaking market that can support companies in both the creation and management of carbon footprints and in meeting extensive ESG (Environmental Social Governance) compliance requirements.

Some examples of paid CO2 calculators or ESG platforms for companies are:

CO2 footprint calculator:


ESG platforms:

There are other providers on the German-speaking market. The tools are evolving rapidly and consolidation on the market is to be expected. In addition to the smaller providers, the large ERP providers (e.g. SAP) have developed their own solutions or acquired them. Choosing the right IT system depends on the specific needs of the company, including the size of the company, the complexity of its emission sources and the resources available.

It is advisable to thoroughly research the available solutions before making a decision.

Image Path to climate neutrality
Icon Path to climate neutrality

Path to climate neutrality

Reduction comes before compensation! If all reduction measures have been exhausted, emissions compensation can be achieved temporarily through CO2 compensation. Within compensation, a distinction is made between emissions trading, regulated trading and voluntary compensation.

Emissions trading aims to permanently reduce companies' greenhouse gas emissions with the help of a certain number of emission rights. The emissions trading system can apply at both national and international level.

Regulated trading refers to the trading activity of a company that is controlled by regulatory measures or legal provisions. This type of CO2 compensation exists in various forms, for example the protection of consumers, the regulation of financial markets or trading practices and environmental protection are among regulated trading.

In contrast to regulated trading, voluntary compensation refers to the initiative of companies that goes beyond legal requirements and focuses on compensating for their own negative impacts on society and the environment. Companies that use voluntary compensation can, for example, support environmental projects or promote social initiatives.

However, offsetting emissions solely through compensation is not recommended. Even if the compensation route seems easier at first, this type of emission compensation without achieving CO2 reduction is just greenwashing for the company and will have a long-term negative impact on the public image and the environment. Constantly reviewing and improving your own reduction is a path that should be taken sooner or later. The sooner measures to reduce CO2 are introduced in a company, the better for the company's public image and the environment.

Our conclusion on climate accounting

A climate balance sheet shows a company many ways to sustainably reduce its own carbon footprint and to credibly communicate its efforts to the outside world. Climate balance sheet is also an important part of sustainability reporting, which must be communicated to the general public from 2025 for the previous year 2024.

The climate balance sheet of each individual company is also an important step on the way to a sustainable economy and society. Nevertheless, further efforts and innovations are still needed to overcome the various ecological, economic and social challenges and thus achieve the climate goals for 2050.

LEITWERK Consulting supports companies in the preparation of greenhouse gas balance sheets, the introduction of climate strategies and accompanies you in the implementation of measures to achieve your climate goals.

Sources:

LEITWERK Consulting Research and the following main sources:

  • World Business Council for Sustainable Development & World Resources Institute (2004): Green House Gas Protocol “A Corporate Accounting and Reporting Standard” . revised Edition
  • Science Based Targets (2021): Science Based Targets “SBTi Criteria and Recommendations” . TWG-INF-002 Version 5.0
  • EU Kommission (2022, 2023): CSRD “Corporate sustainability reporting”
  • Global Compact – Netzwerk Deutschland (2017, 2022): “Einführung Klimamanagement”
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LEITWERK contact Florian Kröger
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Florian Kröger
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