Analytical carbon accounting: turning carbon footprint into strategic tool

The term “carbon accounting” refers very broadly to the methods used to integrate the issue of climate change into corporate CSR strategies and policies (by Morgane Le Breton, Franck Aggeri. The construction of carbon accounting: history, uses and perspectives). But carbon accounting is very often used to describe more precisely all the methods used to count, quantify and classify the greenhouse gas (GHG) emissions of a company, a community, or an association over a given perimeter.

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Carbon accounting therefore allows a company to assess the greenhouse gas emissions generated by its activity and that of its value chain and therefore to assess its dependence on carbon.

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However, it is possible to distinguish between two types of carbon accounting: general carbon accounting and analytical carbon accounting.

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The first, the general one, offers a general vision of GHG emissions and meets the regulatory requirements to which companies are subject. The second, analytics, makes it possible to enter into the details of emissions, item by item, entity by entity, subsidiary by subsidiaries, in order to build a targeted and effective action plan behind them.

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Explanations.

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1. Carbon accounting and financial accounting

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We talk about carbon accounting because it is very similar to financial accounting, with standards, a methodology, and data to be collected and then communicated. Like financial accounting with the General Accounting Plan, Sami is at the origin of the General Carbon Plan, now managed by the Association for the Low-Carbon Transition (ABC), an operational guide for implementing carbon accounting frameworks that is now a reference in France.

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And as in financial accounting, we can distinguish general carbon accounting from analytical carbon accounting.

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2. What is general carbon accounting?

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General carbon accounting gives a general view of the dependence on carbon of the entity under analysis (company or community for example).

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It thus seeks to measure an entity's GHG emissions in order to then be able to reduce them and respond to the major problem of global warming. This is what is commonly called a carbon footprint.

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For this purpose, several carbon accounting tools or methodologies have been developed, like the GHG Protocol and the ISO 14069 standard.

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The carbon footprint makes it possible to record each incoming and outgoing flow of carbon and then to classify them by Scopes (scopes 1, 2 and 3), by categories and by emission stations according to the nomenclature.

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General carbon accounting, via the carbon footprint, fulfills several objectives, with two distinct aims.

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• External sight

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The carbon footprint is first and foremost a regulatory reporting tool. It makes it possible to communicate the greenhouse gas emissions generated by the company's activities and by its value chain and can meet increasingly ambitious European regulations.

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The new European extra-financial reporting directive, The CSRD, provides for reporting on greenhouse gas emissions for companies with more than 250 employees.

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Moreover, beyond regulatory issues, general carbon accounting also allows reporting to stakeholders. More and more companies are therefore asking their suppliers to provide their carbon footprint or integrating the carbon footprint criterion into their tenders, thus requiring a carbon footprint to be carried out. This is the case of SNCF, which has included a price per ton carbon in all its tenders since the beginning of 2023. More and more investment funds are also requiring portfolio companies to calculate their carbon footprint.

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• Internal sight

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The carbon footprint as a reporting tool is not only useful externally, it is also useful internally.

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Why? Because it allows, as we said, to have a global vision of the company's greenhouse gas emissions and its value chain. In reality, the carbon footprint shows the company's degree of dependence on carbon. And in a world where the carbon constraint is and will become stronger and stronger, this information is essential.

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Thanks to general carbon accounting, the company has tools to analyze the financial risks associated with the low-carbon transition to which it is exposed.

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“Exposure to this risk is how carbon intensive the business is. The more dependent the company is, the more it will be exposed to regulations, for example carbon taxes. And to calculate this dependence, the carbon footprint is a valuable tool. It is a way of measuring these risks and limiting them.”

Guillaume Colin, Head of Expertise at Sami.

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Moreover, general carbon accounting is the starting point for any company climate strategy. The carbon footprint in fact makes it possible to identify the main sources of emissions of the company. Is it about travel? Locals? Or even purchases of raw materials? Without a complete carbon footprint (scopes 1, 2 and 3), it is very difficult to answer these questions precisely. However, general carbon accounting only allows for limited analysis. This is where analytical carbon accounting comes in.

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3. Analytical carbon accounting

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Where general carbon accounting provides a general view of carbon dependence, analytical accounting allows a detailed view of each emission item, by products, by suppliers, by site or even by subsidiary. 

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It should be noted right away that analytical carbon accounting is a sub-part of general carbon accounting. In other words, there is only an analytical approach if there has previously been a general approach. We start from the global carbon footprint and then go into detail.

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Unlike the general approach, this analytical approach does not aim at external reporting. The objective here is to be able, internally, to detail the sources of emissions: station by station, site by site, subsidiaries by subsidiaries, etc.

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And we can use this analysis as follows: within a single subsidiary, what are the products or suppliers for which GHG emissions are the most important? And within this same subsidiary, for a single product, which raw materials emit the most? Or, on only one of the company's sites, which emission item is the most important? For example, if it comes to travel, what type of travel is the most emitter?

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The challenge is to have a better understanding of the source of its emissions and thus to be able to build an effective action plan behind it by targeting actions where the reduction potential is the greatest. General carbon accounting can allow a company to realize, for example, that the emissions associated with its production sites are significant. But she won't be able to go any further. Whereas with analytical accounting, she will be able to determine which sites are causing problems and why. On one site, it may be the trips of employees, on another site, energy-related emissions.

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The level of detail can be quite extensive. But for that, It is necessary to categorize the activities of the company and therefore the data collected during the carbon assessment. How do you define this categorization? Two things are important:

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• the structure of the company: does it have several sites? From several subsidiaries? Several countries where it is present? The objective is to organize its carbon accounting according to this structure.
• corporate governance: is there a manager for each site? For each subsidiary? Who is driving the subject of climate strategy? These elements also make it possible to structure the categorization of emissions at an early stage.

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Finally, unlike general carbon accounting, which meets regulatory challenges and is therefore very standardized, with classifications that must be respected according to regulatory provisions (taking into account scope 3, emission items, etc.), analytical accounting and its nomenclature are specific to each company. As we have seen, this depends on its structure, its governance but also on its sector of activity. A few examples:

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• in the tertiary sector: the carbon footprint of these companies often reveal a preponderance of emissions from the purchase of services, employee travel, construction and the operation of premises. Categorization must therefore be prioritized over these programs.
• in the textile sector: again, as we know, the majority of emissions from a company in this sector come from raw materials and product manufacturing. The categorization should therefore be fine on the origin of raw materials, on suppliers, on manufacturing processes in order to allow analyses between products, between suppliers, between raw materials, etc...
• in the industrial sector: scope 1 and 2 emissions (direct and indirect emissions related to energy) are higher than in other sectors. Purchases of raw materials also represent high emissions. It will be useful to further analyze energy consumption, by factories or by products depending on suppliers or raw materials.

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4. Example

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Let's take the example (anonymized) of a company for which we carried out its 2022 carbon footprint.

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• General carbon accounting

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Here is a summary of his shows.

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And a summary of the shows, post by post.

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This approach allows companies to perfectly meet regulatory challenges through comprehensive and accurate emissions reporting.

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• Analytical carbon accounting

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Now let's get into the more detailed analysis of emissions. Where the first graph gave a global vision of emissions, it is first possible to have a vision by employee and according to the company's sites.

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This graph allows us to analyze carbon intensity per employee and per site and gives us initial interesting information. Carbon intensity is thus nearly 3 times higher at the Le Havre and Pierrelatte sites than in St-Cloud, more than 2.5 times higher in Lyon than in St-Cloud. To reduce emissions quickly and effectively, the action plan will therefore focus primarily on these sites. In addition, another interesting element: although travel represents the most important source of emissions on all sites except that of St-Cloud, locals also appear to be an important source on the Pierrelatte and Dunkerque sites. Again, this allows the company to target measures to reduce emissions from locals as a priority on these two sites.

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And it is possible to go into even more detail. On travel, for example, the first graph of the global distribution of emissions tells us that this is the first emission item at the company level with 36% of total emissions. This is initial information but the analytical approach will allow us to go further.

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Thus, we can first determine the employee intensity on this emission item and by company site.

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The carbon intensity/employee for travel is therefore very high at the Le Havre and Lyon sites. And to a lesser extent on those of Cherbourg, Pierrelatte and Dunkerque. This will justify actions targeted at the mobility of employees on these specific sites. And you can still zoom in on this travel station.

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Another example of zooming in on a particular program station: the locals. In the first graph, emissions linked to premises were significant in Pierrelatte and Dunkerque. Going into detail, we realize that this is linked to the recent construction of a building in Dunkerque but that it is the operation of the site that is a problem for Pierrelatte.

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This granularity on emissions per site and per employee can be found in other companies by subsidiary, by entity, by product, by supplier, etc...

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5. Sami, precursor of analytical accounting

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Since the launch of our platform in 2020, we have been relying on a vision of the carbon footprint as an essential tool in the company's climate strategy. And that is why we have developed software that allows this analytical approach.

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Because in order to have this analytical accounting, you must first be able to associate the right data with the right emission categories and at the right level of detail desired. As soon as the data is collected, it is therefore necessary to be able to assign the emissions to the right station and then to this or that supplier, this or that subsidiary or this or that factory. In short, the software allows you to create your own nomenclature for the company thanks to:

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• more than 300 possible program categories in order to personalize and better categorize programs. There are major categories such as travel, inputs, digital, catering or even freight. But in each of these categories, it is possible to go into detail. For example, for freight, you can choose upstream, internal or downstream freight. Then if it is road, sea, air or rail freight. And if it is road freight, with what type of vehicle.

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• the possible creation of what we call “dimensions” and “tags” in order to precisely associate, within a category, programs with the distribution structure that has been chosen by the company.

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Dimensions are large distribution families: subsidiaries, countries of origin, countries of origin, suppliers, location, raw materials, etc... And within these large families, tags are created. For example, for location, the tags will be St-Cloud, Dunkerque, Lyon and all the other sites of the company if we use the example developed in chapter 3. This is what will allow us to obtain the overall emissions by site and the distribution of these emissions on each of the sites.

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• Finally, the creation of custom analysis indicators : economic carbon intensity (in relation to your turnover), employee intensity, intensity per product sold, intensity by weight, intensity per subsidiary, etc...

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These are all these tools that will build your own analytical carbon accounting and then allow you to best analyze the results. Before building your action plan to reduce these emissions.

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The analytical approach therefore makes it possible to guide and target your action plan. But in its very form, it is a tool for monitoring and reporting climate strategy. Since the work of distributing and assigning emissions will then make it possible to define objectives by entity, by subsidiary, by country, by product or even by site and to monitor, on a case-by-case basis, the evolution of the trajectories. This is what our platform also allows.

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Conclusion

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This is not a question of opposing general carbon accounting and analytical carbon accounting. It's not one or the other, it's both. Because they are complementary. The general approach allows you to comply, to have a global vision of your emissions, and to also compare yourself with other companies in the same sector. But because the carbon footprint is not a goal and it must be a tool in the service of a company's strategy to reduce emissions, analytical accounting is becoming necessary. Because it is it that will allow the company to understand the structure of its emissions and thus make it possible to build an effective and ambitious reduction plan.