Sustainability and carbon footprints

In the race to net zero, international agreements such as the Paris Agreement have helped to accelerate the rise of Environmental, Social, and Governance (ESG) investing. The environmental ‘E’ pillar of ESG is increasingly viewed as aligning business activities with the low-carbon transition.

Despite criticism from the financial sector that there are too many frameworks measuring ESG performance, one clear metric appears in all major frameworks:

The greenhouse gas emissions (GHG emissions) of a company.

This can also be described as the carbon footprint  of a company, and is defined as the amount of emissions  produced by a company’s activities. A carbon footprint is typically measured in kilograms of carbon dioxide equivalent (kg CO2-eq). This unit system allows for all greenhouse gases to be included, while accounting for their varying global warming potentials. For instance, emitting 1kg of methane is equivalent to emitting 25kg of carbon dioxide and is therefore equal to 25kg CO2-eq.

Challenges arising when measuring a company’s carbon footprint can vary based on the type of activities the company engages in and the size of its supply chain. Companies must consider activities that both directly and indirectly contribute to the release of carbon dioxide and other greenhouse gases. 

Direct emissions come from sources owned or controlled by the company, while indirect emissions result from activities outside the company's direct control, such as purchased energy or emissions across the value chain.

The Greenhouse Gas Protocol was established in 1998 to standardise this process and allow for comparability. Since then, it has published multiple standards for different entities and has gained worldwide recognition.

Understanding carbon emissions 

Carbon emissions describe the release of carbon dioxide, in addition to other greenhouse gases, into the atmosphere through activities such as burning fossil fuels and environmentally harmful processes. These emissions are categorised into three scopes based on their origin and the level of control companies have over them.

Scope 1 emissions

Scope 1 emissions are direct GHG  emissions that stem from sources owned or controlled by the organisation, also known as 'owned or controlled sources'. These include both stationary and mobile sources that the organisation controls directly. Typical examples are company vehicles and vehicles owned or controlled by the company. 

Scope 1 emissions result from fuel combustion and fuel burning in company-owned equipment and vehicles. Additional sources include fugitive emissions from equipment leaks and process emissions from industrial or chemical processes.

Scope 2 emissions

Scope 2 emissions are indirect GHG  emissions that arise from the generation of purchased energy, including electricity, steam, heat, or cooling obtained from external providers. They can be calculated by converting direct energy purchases into greenhouse gas emissions. 

Transitioning to renewable energy sources is essential to reduce Scope 2 emissions, especially in regions where the grid relies heavily on fossil fuels. Many companies aim to achieve 100% renewable electricity use as a key milestone in decarbonising their operations.

Scope 3 emissions

Scope 3 emissions refer to other indirect emissions that a company is indirectly responsible for throughout its value chain. These emissions come from sources not owned or controlled by the organisation and are often called other indirect emissions. Scope 3 includes upstream emissions—from suppliers, raw materials, capital goods, and production processes—and downstream emissions covering product use, disposal, and other downstream activities. 

Scope 3 sources include leased assets, sold products, waste generated, waste disposal, employee commuting, and air travel. Emissions from the production processes, raw materials, and capital goods used in the company's operations are also included. Identifying emission hotspots and chain emissions within the value chain is crucial for prioritising reduction efforts. In addition, selecting suppliers with lower carbon footprints can help reduce Scope 3 emissions. 

Scope 3 emissions often make up the majority of a company's total emissions,making them critical for understanding the full impact of the company's emissions. For a detailed guide on Scope 3 carbon accounting, please find our whitepaper here. 

Sustainable supply chain management

Clear, regular, and consistent reporting of Scope 1, 2, and 3 emissions is critical for sustainable supply management. KEY ESG’s reporting software streamlines these processes, providing all the necessary insights and tools to streamlinesustainability reporting and manage your carbon emissions. 

Reporting on Scope 1, 2, and 3 emissions

From a regulatory perspective, ESG frameworks typically require companies to report on Scope 1 and 2 emissions before mandating Scope 3 disclosures. Regulatory requirements often mandate emissions reporting for Scope 1 and 2, with a growing emphasis on comprehensive Scope 3 disclosures to meet legal obligations and investor expectations. This is because Scope 1 and 2 emissions are easier to measure, given that the reporting company has more control over the associated activities. 

Emissions reporting is crucial for compliance and transparency, and companies are expected to develop comprehensive strategies that address all emission scopes to achieve meaningful reduction targets. 

For Scope 1 and 2, emissions are often calculated based on direct energy purchases, such as gas and electricity, using available activity data to estimate associated greenhouse gases.

In contrast, the complete measurement of Scope 3 emissions involves extensively assessing a company’s supply chain and upstream and downstream activities. Furthermore, unlike the primary data available for Scope 1 and 2 measurements, Scope 3 measurements often rely on estimates and third-party data sources. 

However, according to research from the Carbon Trust, Scope 3 emissions typically account for anywhere between 65% and 95% of a company’s carbon footprint.

KEY ESG's approach

As shown in Figure 1, each emission scope has been further divided into sub-categories based on typical sources of emissions. These sub-categories form the basis of the carbon footprint measurement tool created by KEY ESG, which is available in our Carbon Accounting Platform. This tool helps companies measure and report on their emissions. Leveraging our technology improves data accuracy, simplifies sustainable supply chain management and reduces emissions more effectively.

Dividing data entries according to these sub-categories makes it easier for companies to enter relevant activity data. Tracking energy use across operations and understanding what emissions the company creates directly and indirectly are essential to identifying reduction opportunities and managing emissions efficiently. Our software then automatically converts this data to produce final emission values. 

Companies that have not yet begun to measure their emissions must take this first step soon, regardless of how imperfect the first round of measurements may be. From there, our software will show how measurement processes can be improved, emissions hotspots can be identified, and appropriate actions can be taken to reduce emissions, such as adopting electric vehicles for company fleets.

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Figure 1 is a diagram taken from the GHG PRotocol website. It represents the different possible sources of a company’s carbon footprint. KEY ESG software uses this exact category structure and methodology in its Scope 1, 2 and 3 carbon calculations. 

Challenges when measuring your carbon footprint

Measuring the carbon footprint of a company comes with several challenges. Listed below are three of the most common difficulties faced when measuring emissions in practice:

1. Measuring your carbon footprint for a shared office space

This is an issue for any company that occupies only part of a building. Shared workspaces have become more common in the post-COVID working environment, but utility bills for gas and electricity are usually presented for the entire building or floor.

GHG Protocol guidance suggests breaking this down to the appropriate subsection applicable to the reporting company based on the share of floor space occupied by the company.

2. Measuring your carbon footprint across different countries:

A kWh of electricity generated in one country does not produce the same amount of greenhouse gases as a kWh of electricity generated in another. This is because electricity is generated from different energy sources, each with its unique emission intensity (e.g., coal vs. wind).

Our software uses country/region-specific emission factors to solve this issue. The GHG Protocol describes this method as a ‘location-based method’. It reveals the level of clean electricity in different parts of the world.

3. Measuring your carbon footprint when working from home

Working from home is an increasingly important component of Scope 3 emissions, as the practice has become far more common in a post-COVID world. The challenges of measuring these emissions emerge when calculating what would have occurred without the employee working from home.

Assumptions included in the model developed by KEY ESG (regarding equipment power usage, working hours, heating, cooling, etc.) are based on research examining typical employee behaviour. However, these can be edited if direct information is otherwise known.

Take the first step in tackling your carbon footprint with KEY ESG

To learn more about how KEY ESG can help you measure your carbon footprint, explore the resources on our Learning and Insights page.

Our expert team is only a call or an email away and can guide you through integrating with our platform to monitor, reduce and optimise your carbon footprint. 

Ready to simplify managing your carbon emissions? Get in touch or request a free demo today!