ecoHQ is publishing a four-part blog series on the critical components of Corporate Sustainability – Net Zero, ESG and Carbon Footprint Consulting.
In Part 1, Part 2 and Part 3 , we laid down the basics of the Net Zero promise and ESG reporting. In this last part, we explore what carbon footprint consulting has to offer the ESG conversation.
Carbon Footprint – a subset of ‘Ecological Footprint’ – refers to the net release of greenhouse gases by human action. These emissions measured include CO2 and fluorinated gases.
Source: Sustainability Illustrated
Carbon Footprint Consulting assesses an organisation’s ESG vulnerability using carbon emissions as the metric. Data on carbon emissions can be integrated into ESG reporting, helping businesses strategise their net-zero projects to account for carbon mitigation laws. This metric also helps measure sustainability at the company or project level.
Conventionally, Carbon Footprinting involved only the Carbon Market, i.e., Carbon Emissions, Offset and Registries.
However, in the modern business ecosystem, it’s important to also understand other protocols and frameworks closely related to carbon emissions, namely GHG Protocol and Life Cycle Assessment. These have a direct impact on ESG initiatives.
Let’s look at 3 frameworks of Carbon Footprinting for a better understanding of its use in ESG reporting:
Carbon Offset & Certified Carbon Registries
Carbon Offset allows companies and individuals to fund carbon negative programs that will remove an equal amount of carbon emissions to the amount that the sponsoring entity generates.
This is a convenient way to redirect funds towards sustainable businesses.
1 carbon offset = 1 metric ton of avoided or captured carbon
Carbon offsetting is a popular and increasingly used attempt to restore environmental balance by going carbon neutral.
But how do organisations track how much carbon emissions they’ve offset? That’s where Carbon Registries come in.
Carbon Registries have 3 main functions:
- To track available offsets.
- To issue credits based on defined protocol.
- To monitor the retirement of credits (once each credit’s benefits are claimed).
Source: The Carbon Offsetting Process, Credible Carbon
- Registries track the owner of a particular credit to audit it.
- Assign a serial number and display the information on a public ledger.
- When purchased by an entity (company or individual), the registry retires that credit upon purchase to avoid duplication.
Carbon Offset and Carbon Registries are part of the global carbon market. In 2021, global carbon markets grew exponentially by 164% to a record US$851 billion, indicating their popularity and applicability.
Carbon markets allow corporations to balance the addition and removal of carbon emissions, getting them nearer to net zero.
Greenhouse Gas (GHG) Protocol
The GHG Protocol establishes standards and tools for businesses, governments, industry associations and NGOs to map and manage greenhouse gas emissions (including GHGs other than CO2).
It also guides and trains them in maintaining the standards across the value chain. The framework is the culmination of a 20-year partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
GHG Protocol covers emissions from private and public sectors and provides actions to mitigate sustainability risks. Partnering with PCAF, GHG Protocol introduced the Global GHG Accounting and Reporting Standard in response to the demand for a standardised financed emissions report in 2021.
To improve transparency and ensure its utility for different types of organisations, GHG accounting defines three scopes:
- Scope 1: Direct GHG Emissions
Scope 1 includes emissions let out via sources owned or controlled by the company—for example, chemical effluents released from clothes manufacturing.
- Scope 2: Electricity Indirect GHG Emissions
This scope includes GHG emissions produced from the generation of purchased electricity consumed by the company. These emissions occur at the facility where the electricity is generated.
- Scope 3: Other Indirect GHG Emissions
Scope 3 is an optional reporting category. It provides for measuring and reporting all other indirect GHG emissions. For example, extraction of raw materials or transportation of purchased fuels.
Scopes 1 and 2 are designed so that two or more companies can’t account for emissions in the same scope to avoid double counting.
- Life Cycle Assessment (LCA)
ESG and Carbon Footprinting opens up opportunities to create value across a company’s value chain. Life Cycle Assessment helps measure this value by evaluating the end-to-end environmental, social and economic impact of a product, process or service.
Source: Enhancing the value of LCA, Deloitte
LCA considers how raw materials were sourced and transformed into finished products, the consumption of resources during production or delivery, the amount of energy used, the type of materials involved, waste management and more – throughout the value chain.
Sometimes used interchangeably with footprinting, LCA differs in the way it analyses several complex environmental metrics compared to just one metric in carbon footprinting.
Sustainability in Business: The Bottom Line
Corporations and countries have set ambitious net zero targets, aiming to achieve them in the next few decades. ESG Reporting and Carbon Footprint Consulting are at the forefront of enabling organisations to achieve these targets.
However, they face a fair share of sustainability reporting challenges that affect investor decisions adversely.
For starters, sustainability disclosures are voluntary, meaning each company can use its own reporting standard to present its ESG performance.
Second, no globally standardised frameworks measure carbon emissions and footprints uniformly. As Barclays points out, a company could score differently on two ESG reporting frameworks.
Differences in measurement arising out of non-standardised disclosures contribute to 56% of discrepancies in ratings across agencies.
– Aggregate Confusion: The Diversion of ESG Ratings
While companies could fall back on Carbon Footprint Consulting, the practice of carbon offsetting has shortcomings, too. If a carbon offset project (such as green cover restoration) fails due to unforeseen factors (like natural fires), it releases the stored carbon with it. Carbon Registries do have a backup—allocate a % of credits as a buffer—but there’s no saying if this buffer will cover the failed credits.
Until the world comes together to figure out a standardised sustainable solution, companies will have to make the best of ESG reporting and Carbon Footprint Consulting to drive their net zero strategies in the right direction, balancing their overall performance.
Read Part 1, Part 2 and Part 3 of the Sustainability Framework series.
For more information on building sustainable communities and businesses, check out ecoHQ’s insights on the Sustainability industry.
The article was strategised by Deepa Sai
Ayesha is a freelance writer and editor with 5+ years of experience building brands online. She works extensively with B2B businesses in SaaS (Sales, Marketing & Ecommerce) and Sustainability. Previously a social media manager, she now loves writing long-form articles backed by meticulous research. Connect with her on LinkedIn.
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