The corporate carbon footprint is the primary metric that exists to measure the progress of climate action and allows companies to understand the impact of their sources of greenhouse gas (GHG) emissions.
The corporate carbon footprint is colloquially known as a GHG emissions inventory and allows companies to manage the risks associated with climate change, identify key decarbonization opportunities, and quantify the reduction of the company’s climate impact over time.
The most widely used methodology in the world is the Greenhouse Gas Protocol (GHGP) Corporate Standard, which must be complemented with the GHGP Scope 2 Guidance, the GHGP Corporate Value Chain (Scope 3) Standard and the GHGP Scope 3 Guidance. There is also a set of ISO methodologies based on the GHGP suite, such as ISO 14064-1 and NCh 14064-1, together with other specific methodologies for the calculation of sectoral, city, project and product emissions, as well as for the audit of emissions inventories.
Why calculate the carbon footprint of companies?
By calculating the emissions of each source of GHG emissions it is possible to quantify the relative impact of each of them in order to focus decarbonization efforts. It is a critical step in climate action, and allows for monitoring emissions over time, benchmarking against key peers, and communicating progress to stakeholders.
Regionally and globally, various regulatory schemes oblige thousands of companies to report their climate performance annually, which in turn generates a ripple effect in their value chain. So, your company will most likely need to start thinking about what its climate action plan will be going forward to ensure its resilience in the new low-carbon economy.
Most of the world’s governments have committed to climate transition plans that will progressively permeate regional and global regulatory and legal frameworks that will have important consequences for companies, such as market, legal, technological and reputational risks, the financial impacts of which investors and shareholders increasingly demand to know. Thus, some financial market regulatory agencies, such as the Financial Market Commission (CMF) in Chile, the Securities Exchange Commission (SEC) in the United States, as well as the European Parliament and the United Kingdom have published new regulatory frameworks – some in the process of finalizing their final version – that allow investors and shareholders to know the current and future climate mitigation and adaptation measures of publicly traded companies.
What do the different scopes of a company's carbon footprint mean?
Scope 1 – Emissions produced by your own or controlled stationary and mobile sources, such as furnaces, boilers, generators, and vehicles. In addition, accidental GHG leaks are included, such as losses of refrigerants used in air conditioning systems, as well as GHGs produced by chemical or biological reactions, such as methane production in in-house bioreactors.
Scope 2 – Indirect emissions associated with purchased power generation. Emissions are produced directly at the place where the energy was generated, but your company must count these emissions as indirect since it is the end user. The most commonly purchased energy is electricity, and it is important to consider emission factors appropriate to both the area or region where the facilities are located, as well as the type of reporting method being used, which may be location or market-based.
Scope 3 – Other indirect emissions from the value chain should be included if material. Depending on the type of value chain, there are 15 categories that should be evaluated to identify those that are material, such as:
- Purchased goods and services
- Business travel
- Financed emissions (investments)
- Use of products
- Waste generated in operations
- Upstream and downstream transportation
- Leased assets
- Franchises
- Employee commuting
How is the corporate carbon footprint calculated?
We usually determine the carbon footprint of companies empirically by multiplying an activity data by the corresponding emission factor, which will give us the conversion of how many GHGs were produced by activities such as fuel burning, electricity consumption, maritime export of goods, or by an air trip to a neighboring state or country. These emission factors can be found in various free and paid sources, such as the IPCC, GHG Protocol, EPA, DEFRA, EIA, IEA, Ecoinvent, among others.
It is important to note that organizational carbon footprint is calculated in kilograms or metric tons of carbon dioxide equivalent (CO2e). To do this, the amount of each GHG must be multiplied by its corresponding Global Warming Potential (GWP), which is a factor published periodically by the Intergovernmental Panel on Climate Change (IPCC) that describes the impact that the radiative forcing (degree of damage to the atmosphere) of a given unit of GHG has in relation to a unit of carbon dioxide.
Example 1
The fictitious company Antimax generated 122,500 kilograms of CO2, 100 kilograms of methane (CH4) and 15 kilograms of nitrous oxide (N2O) during the year. Calculate the amount of CO2e.
The GWP of CO2 is 1, so 122,500 kilograms of CO2 were produced. The GWP of CH4 is about 28, so 2,800 kilograms of CO2e were produced. The GWP of N2O is 273, producing 4,095 kilograms of CO2e. Adding the contribution of the three GHGs, the total is 129,395 kilogram CO2e.
Example 2
How many GHG emissions are produced by burning 2,000 kWh of electricity consumed in Argentina during the year 2021?
If we look up the emission factor from the International Energy Agency (IEA) database, it is 0.29 kilogram CO2e per kWh of electricity consumed. By multiplying, we calculate the emissions to be 580 kilogram CO2e.
This process is repeated with all emissions sources scopes 1, 2 and 3 to create a GHG emissions inventory identifying the total CO2e emissions emitted during a company’s operations.
In general, the easiest emissions to calculate are Scope 1 and 2 emissions, while Scope 3 emissions are more difficult to determine. These usually represent the majority of a company’s carbon footprint, and therefore companies should prioritize the most relevant sources of GHG emissions. According to GHGP, Scope 3 emissions can be consolidated into 15 different categories grouped into emissions upstream and downstream of the value chain.
To calculate the carbon footprint of companies, Excel spreadsheets are available online or can be developed specifically for each company considering its emissions source profile. There are also numerous online platforms and software available, although their high cost is often a significant barrier to entry.
Corporate carbon footprint reporting
The carbon footprint of companies should include at least Scope 1 and 2 emissions. However, it is highly recommended that Scope 3 material emissions are identified and calculated. To determine their materiality, high-level calculations or key informant interviews can be conducted to determine which categories do not apply, and which are irrelevant and can be excluded from the inventory.
It is common to prepare an Inventory Management Plan (IMP), which describes the methodology and sources used, the mechanisms and procedures used to collect and review data, estimate and exclude emissions, carbon credits and market instruments, among others. The MIP can be written separately from the emissions report, or be part of it.
Company carbon footprint results are used as annual or quarterly metrics in reports such as sustainability reports, financial reports and integrated reports, and can also be disclosed on sectoral or international platforms, such as CDP.
Next Steps
Once your carbon emissions profile for a base year has been established, it is a good practice to verify the results using the services of an external entity of recognized experience and prestige. Then, it is possible to set science-based emission reduction targets according to the Science Based Targets Initiative (SBTi) criteria, analyze potential energy efficiency measures, develop abatement curves to understand the cost vs. emission reduction impact of potential measures, and then outline a decarbonization roadmap indicating the main levers, their approximate costs and impacts, and when they will be applied.