What is net zero?

The term ‘net zero’ refers to a state where the amount of greenhouse gasses (GHGs) emitted into the atmosphere is balanced by the amount removed from it.

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Achieving net zero emissions typically involves: 

• Reducing emissions: This is done by adopting cleaner technologies, using renewable energy sources, and improving energy efficiency across sectors like industry, transportation, and agriculture.
• Carbon removal and offsetting: For emissions that cannot be eliminated, techniques like biochar production or carbon capture and sequestration are used to remove carbon from the atmosphere. Some entities balance out their own emissions by purchasing carbon credits to fund projects that reduce or remove emissions elsewhere.

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Net zero is also a target countries, cities, and corporations often set – typically aiming for around or before 2050 – in alignment with the Paris Agreement. The global goals of the agreement include limiting global warming to 1.5°C above pre-industrial levels.

Companies and any private target setters use net zero standard setting organisations like the Science Based Targets initiative (SBTi) and the Oxford Net Zero Principles to ensure the targets they set are good, timely, and achievable.

On the topic of net zero, it should be noted that the terms ‘net zero’ and ‘carbon neutral’ are often mistakenly used interchangeably. ‘Carbon neutral’ refers to when a company offsets the same amount of carbon emissions as they are responsible for. To be classified as a net zero company, however, a company must offset all of their carbon emissions – enough to no longer emit any GHGs at all.

Read more: ‘Carbon neutral vs net zero – what is the difference?’

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What is a net zero strategy?

A net zero strategy is a comprehensive plan that an organisation, country, or entity develops to reduce its GHG emissions to as close to zero as possible and balance out the remainder of their emissions through carbon removal. 

The overarching goal of a net zero strategy is to effectively contribute no additional emissions to the global atmosphere.

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A net zero strategy typically includes the following eight key elements: 

1. Emission reduction targets

A net zero strategy begins with setting specific, science-based targets for reducing emissions across the entire value chain (Scope 1, 2, and 3 emissions).

These targets are aligned with global climate goals, typically include both near-term (e.g. 2030) and long-term (e.g. 2050) goals, and often follow guidance from organisations like the Science Based Targets initiative (SBTi), which we will revisit later.

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2. Emission reduction across operations

Net zero strategies focus heavily on reducing emissions from direct operations (Scope 1) and purchased energy (Scope 2). They also address indirect emissions (Scope 3) from the company’s supply chain. Indirect emissions often account for the majority of a company’s carbon footprint, making them crucial to reduce.

A core example of emission reduction is switching from fossil fuels to renewable energy – e.g. solar, wind, or hydropower, or EV adoption. Transitioning to non-fossil energy allows companies to reduce their dependence on carbon-intensive power and minimise emissions from energy use.

Read more: ‘What are Scope 1, 2, and 3 emissions?’

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5. Carbon removal and offsetting

The primary goal of a net zero strategy is to reduce emissions as much as possible. However, every organisation has some degree of unavoidable emissions.

To counter these, companies use carbon removal techniques to remove carbon dioxide from the atmosphere. Companies also use carbon offsetting to fund projects that sequester emissions, enabling them to balance out their remaining emissions. 

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6. Stakeholder engagement and supply chain collaboration

To ensure the effectiveness of a net zero strategy, it is important to engage with a wide range of stakeholders, including suppliers, customers, and governments. Companies often work with suppliers to decarbonise their supply chains. They may also encourage customers to adopt more sustainable practices or use products designed to reduce carbon footprints.

Industry partnerships and other collaborative efforts can also help accelerate progress towards net zero goals.

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7. Reporting, monitoring, and accountability

A net zero strategy should always include clear mechanisms for tracking and measuring progress – e.g. regular emissions reporting and audits. This enables companies to compare with previous results and take action to improve their reductions over time.

Many companies use third-party verification to ensure that their emission reductions are accurate and in line with their targets. 

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8. Social and economic considerations

In addition to environmental goals, net zero strategies often take into account the social and economic impacts of transitioning to low-carbon operations.

This can include protecting jobs, supporting workers in affected industries and ensuring that the transition is just and equitable.

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Net zero strategies and the Science Based Targets initiative (SBTi)

Above, we mentioned the Science Based Targets initiative (SBTi). Net zero targets are often informed by guidance from organisations like the SBTi or the Oxford Offsetting Principles: global efforts that provide companies and organisations with a clear pathway to reduce their GHG emissions in line with climate science. 

The aim of the SBTi is to help companies and organisations set targets consistent with limiting global temperature rise to well below 2°C above pre-industrial levels, with efforts to limit it to 1.5°C, as outlined in the Paris Agreement.

The SBTi plays a crucial role in relation to net zero strategies. It offers a framework for companies and organisations to set science-based targets that align with achieving net zero by 2050.

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The SBTi informs companies on net zero through:

• Net zero standard: The SBTi developed the world’s first corporate net zero standard to ensure companies commit to reducing emissions at the necessary pace and scale to limit global warming to 1.5°C.
• Deep emission reductions: Focusing on making deep cuts in emissions across the entire value chain, the SBTi ensures that the majority of emissions are eliminated before relying on carbon removal or offsets for residual emissions.
• Clear target setting: Companies aligned with the SBTi’s net zero standard must set both near-term (2030) targets to drive immediate action and long-term targets (2050) to map out the pathway to net zero.
• Credibility and accountability: By aligning with the SBTi, companies are held accountable for making real, science-backed progress. This helps prevent greenwashing and keep net zero strategies transparent, measurable, and verifiable.
• Alignment with national and global goals: Countries set their own net zero targets. The SBTi helps companies align their corporate net zero ambitions with broader national and global climate goals.
• Industry-specific pathways: By providing sector-specific guidance, the SBTi enables companies across sectors to develop net zero strategies that are realistic and achievable for their specific context.

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In short, the SBTi is a helpful way for companies and organisations to create credible, science-based net zero strategies. It ensures net zero targets are not only ambitious, but also achievable and aligned with the latest climate science.

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Ensuring a net zero future

Alongside guidance from organisations like the Science Based Targets initiative (SBTi), net zero strategies are vital in addressing and preventing the worst impacts of climate change and creating a more sustainable, resilient, and low-carbon economy.

When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is no longer enough to stay within the goals set forward in The Paris Agreement. 

To truly reach net zero, companies must offset any remaining greenhouse gas emissions through effective carbon removal. Although this can be challenging, understanding and accessing reliable carbon removal options is key to meeting these climate commitments.

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Understanding carbon offsets

When discussing carbon offsets, it’s essential to distinguish between two primary categories: carbon avoidance and carbon removal.

Carbon avoidance projects aim to reduce future emissions. Examples include protecting forests from deforestation, developing renewable energy sources like wind or solar, and introducing energy-efficient technologies such as clean cookstoves. These initiatives are beneficial, but they don’t actually remove existing greenhouse gases (GHGs) from the atmosphere; they only prevent additional emissions from occurring. As a result, the net emissions remain the same, and no negative emissions are generated.

Carbon removal methods, on the other hand, actively extract GHGs from the atmosphere, resulting in negative emissions. This can include technologies like Direct Air Capture (DAC) or nature-based solutions like reforestation.

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Key Differences between avoidance and removal:

• Carbon Avoidance prevents future emissions, while Carbon Removal extracts existing CO₂ from the atmosphere.
• Carbon avoidance helps slow down the accumulation of CO₂, whereas carbon removal actively reduces the total atmospheric concentration of CO₂.
• Both are crucial for addressing climate change, but removal is particularly important for long-term goals like reaching net zero and reversing global warming.

The critical advantage of removal methods is that they address existing emissions, making them more effective for companies aiming to achieve Net Zero. This is the the only pathway to stall warming, as they tackle previous and current emissions that are already warming the climate.

On the other hand, recent news has highlighted issues with avoidance-based credits for lacking quality, integrity, and additionality. This clouds the overall integrity of these types of programs due to inability to measure baselines and prove their additionality. With these issues in mind, companies that hope to avoid future risk and remain ahead of the curve must invest solely in removals.

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Taxonomy of carbon credits.

The difference between the majority of carbon credits is whether they remove or avoid carbon. However, carbon removal credits actually differ in many different ways. The variations in method, storage location and type, and climate all affect the way and length of time carbon is stored, or their risk of re-releasing that carbon back to the atmosphere.

Short-term vs. long-term carbon removal

Removals can be further categorised based on their permanence—whether the removed CO₂ is stored for the short term or the long term. Long-term removal methods, which often have a permanence of hundreds to thousands of years, are essential for tackling the long-lasting impact of existing emissions. These methods are more aligned with emerging regulations and the Science Based Targets initiative (SBTi), which increasingly require the use of long-term removals to substantiate Net Zero claims.

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Why shift towards permanent carbon removal solutions?

The Oxford Offsetting Principles emphasise the need to transition gradually but steadily towards permanent carbon removal solutions.

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“An immediate transition to 100% carbon removals is not necessary, nor is it currently feasible, but organisations must commit to gradually increase the percentage of carbon removal offsets they procure with a view to exclusively sourcing [permanent] carbon removals by mid-century.”- Oxford Offsetting Principles

This transition involves two key shifts:

1. From avoidance to removal: Avoidance methods, while useful, do not contribute to negative emissions and are becoming less favoured as regulations tighten. As we move forward, the focus should increasingly be on removal strategies that directly counterbalance emissions.
2. From short-term to long-term removal: Long-term solutions provide a more reliable and permanent solution to GHGs, ensuring that emissions are not only offset but effectively neutralised for the foreseeable future.

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Challenges and the path forward

Transitioning from avoidance to removal, and from short-term to long-term removal, is challenging and cannot happen overnight. The carbon market must rapidly scale up removal technologies to meet the growing demand for permanent solutions. At the same time, companies must be proactive in aligning their carbon offset strategies with upcoming regulations, which are not expected to allow the use of avoidance credits for Net Zero claims.

The key takeaway is that while avoidance projects have played a role in reducing potential future emissions, they do not address the urgent need to remove existing GHGs from the atmosphere. For a credible path to Net Zero, the focus must shift towards removal methods, particularly those that offer long-term permanence. This approach will ensure that companies not only meet regulatory requirements but also contribute meaningfully to the fight against climate change.

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What is the difference between carbon neutral and net zero?

Intuitively, it might seem like the terms ‘net zero’ and ‘carbon neutral’ mean the same thing. They are often (mistakenly) used interchangeably, when in reality they refer to different concepts.

Both net zero and carbon neutrality refer to a state where carbon emissions have been neutralised, and rely on the use of high-quality to varying degrees.

However, it is important to note that carbon neutrality does not put any limits on GHG emission outputs and requires a far higher capacity for offsetting, whereas net zero typically refers to more rigorous emissions reduction efforts, with the aim of achieving a future where few residual emissions exist. But, both rely on solid efforts to measure, understand, and take action on organisational GHG emissions.

What does it mean?

• Net zero: Net zero refers to reducing all GHG emissions as much as possible – up to 90% – and tackling the remaining emissions with durable carbon removal.
• Carbon neutral: Achieving carbon neutrality involves offsetting GHG emissions, focusing mainly on carbon dioxide emissions. More achievable in the short-term compared to net zero.

What kinds of emissions does it cover?

• Net zero: Involves eliminating then offsetting all GHG emissions, including Scopes 1, 2, and 3 (the entire value chain).
• Carbon neutral: Focuses on compensating for CO2 emissions through reduction or removal initiatives, typically covering Scopes 1 and 2 emissions.

How does it work?

• Net zero: Requires a fundamental reduction in emissions through changes in technology, energy efficiency, and processes across all sectors and actively removing carbon from the atmosphere using technologies such as carbon capture and storage, or enhancing natural processes like afforestation and reforestation.
• Carbon Neutral: Focuses on reducing carbon emissions and compensating for the remaining emissions through offsets.

What are the relevant standards and certifications?

• Net zero: Science Based Targets Initiative's Net Zero Standard, Oxford Offsetting Principles for Net Zero Aligned Offsetting
• Carbon neutral: PAS 2060
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Carbon neutral vs net zero – which approach is better?

Net zero and carbon neutrality both have their strengths and weaknesses, and which approach is more appropriate depends on the circumstances of the individual case.

Below, we will take a closer look at the advantages and limitations of each approach.
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Net zero: advantages and limitations

Advantages:

• Comprehensive approach: Net zero encompasses all GHG emissions – not just carbon dioxide emissions. This makes it a more holistic approach to climate change mitigation.
• Encourages innovation: Because it requires significant changes and innovations in technology, business practices, and lifestyle, net zero is a driving force for long-term sustainability. 
• Aligns with climate goals: Net zero aligns closely with global climate goals – e.g. the Paris Agreement, which aims to limit global warming to well below 2°C.

Limitations: 

• Complexity and cost: Due to the need for systemic changes and potentially new technologies, achieving net zero is more complex and potentially more expensive than achieving carbon neutrality.
• Longer time frame: Net zero often requires a longer timeline to achieve, as it involves significant reductions in emissions across all operations. 

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Carbon neutrality: advantages and limitations

Advantages:

• Feasibility: Carbon neutrality is often easier to achieve in the short term because it allows for offsetting emissions rather than requiring immediate and deep cuts in emissions.
• Flexibility: Carbon neutrality provides flexibility for organisations that are unable to make drastic changes to their processes immediately.

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Limitations:

• Lacks guidance for reductions: Carbon neutrality does not give parameters for deep emission cuts. Thus, companies may rely heavily on low-quality offsets, which can sometimes be seen as a way to ‘buy’ environmental responsibility without making significant internal changes.
• Potential for greenwashing: Due to its lack of a robust methodology, companies may be accused of greenwashing for relying on the cheapest, fastest way to neutrality without ‘doing the work.’ 

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Which approach is better?

As mentioned above, the choice between net zero and carbon neutrality depends on the specific circumstances and objectives of the entity considering them.

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Net Zero:
Net zero is the preferred long-term commitment to sustainability that aligns with global climate targets, emphasising transparency and scientifically backed methodologies. It is best suited for organisations with the resources and capability to invest in innovative technologies and processes. Achieving net zero often carries a stronger public commitment, reflecting leadership in sustainability and enhancing brand reputation.

Carbon Neutral:
Carbon neutrality is a practical starting point for organisations, offering immediate, short-term reductions and valuable experience as long as genuine efforts are made. It is particularly suited for smaller entities or those with limited resources. While carbon neutrality still demonstrates responsibility and can positively impact public perception, it is increasingly seen as a stepping stone rather than a final goal.

However, carbon neutrality has fallen out of use as a claim due to anti-greenwashing regulations in the Nordics and EU. These policies such as the Green Claims Directive point to the weaknesses of carbon neutrality, including having no requirement for deep emission cuts or potentially incentivising the cheapest, quickest way to neutrality. This undermines integrity in offsetting and makes it more confusing for consumers to know what is a green product. Yet, aiming for neutrality is a great way to get started, gain experience alongside genuine efforts and pushes for transparency.

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Why is reaching net zero so important?

Reaching net zero is crucial for several reasons. If global emissions continue unabated at current rates, we are set to exceed 2°C of global warming, with severe consequences for society and the environment.

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The primary goal of reaching net zero is to limit global warming to well below 2°C, with efforts to limit the increase to 1.5°C. Achieving this goal is essential to prevent the most severe impacts of climate change, such as extreme weather events, rising sea levels, and loss of biodiversity.

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Tackling this crisis requires a multi-pronged approach, beginning with emissions reductions across Scopes 1, 2, and 3 where relevant, followed by carbon removal via thoroughly vetted credits.

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Carbon removal: A vital step on the road to net zero

Carbon removal technologies play a crucial role in achieving net zero emissions by actively removing carbon dioxide from the atmosphere. From afforestation to direct air capture, these technologies offer diverse pathways to sequester carbon and offset emissions.

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Among other things, carbon removal:

• Addresses residual emissions by capturing and storing an equivalent amount of carbon dioxide from the atmosphere
• Compensates for historical emissions that have accumulated over time
• Enhances natural carbon sinks through practices like reforestation, afforestation, and improved land management
• Bridges the transition to low-carbon economies by allowing time to develop and implement more sustainable technologies and practices

And much, much more.

Net zero targets have the potential to increase global carbon removal capacity, alongside reduction efforts. Multiple frameworks and certifications exist to guide and validate companies’ net zero claims. However, it’s crucial that companies do not overlook the need for high-integrity carbon removals alongside emission reduction.

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What is a life-cycle assessment?

A life-cycle assessment (LCA) – sometimes called a cradle-to-grave analysis – is a systematic review of all the environmental impacts associated with a product throughout its lifespan.

From raw material extraction through production, use, and disposal, an LCA covers every stage of a product’s life. This assessment helps to understand the overall environmental footprint and identify opportunities for improvement.

Some of the benefits of an LCA are:

• Improved environmental awareness
• Better decision making, driven by informed product design, policy making, and strategy development
• Optimised sustainability efforts
• Compliance with environmental regulations and standards

Knowing more about your environmental impact can benefit your company across the board. This is particularly the case for departments that are able to take immediate action based on an LCA, including marketing and sales, product development, supply chain management, and executive management.

Cradle-to-grave: the 5 stages of a product life cycle

There are five stages of a product life cycle in LCA:

1. Raw material extraction
2. Manufacturing and processing of raw materials
3. Distribution and transportation of products
4. Use and maintenance of products by consumers
5. End-of-life (disposal or recycling of the product or its components)

The 4 phases of a life-cycle assessment

As defined in the ISO standard 14044, a life-cycle assessment consists of four key phases:

1. Definition of goal and scope

The first phase of an LCA is about defining the purpose of the study and its boundaries – in other words, what you want to analyse and how deep you want to go with your analysis.

This involves answering the following questions:

• What are you assessing? Define your functional unit (e.g. 1 kg of product) to standardise comparisons.
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• What is the purpose of the assessment? Are you looking to design greener products, do you want to have environmental information available, or is it about following regulations?
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• How extensive will your assessment be? Decide how much primary data you want to collect, and from which point on you will use secondary data.
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• Which guidelines and methods will you follow? For example, if you are looking to obtain certain environmental labels, you may need to follow industry-specific LCA standards.

2. Inventory analysis

Phase two, the inventory analysis, is the data collection phase of the life-cycle assessment. This phase involves quantifying the environmental inputs (raw materials, energy) and outputs (emissions, waste) of your product.

For each stage of the product’s life cycle, data must be collected on:

• Raw materials
• Energy
• Water
• Emissions to air, water, or land

3. Impact assessment

Phase three involves evaluating potential environmental impacts using data from phase two. An impact assessment, or life-cycle impact assessment (LCIA), typically includes:

1. Selection of Impact Categories: Identify relevant environmental issues like global warming, ozone depletion, acidification, eutrophication, human toxicity, and eco-toxicity.
2. Classification: Assign LCI data (inputs and outputs) to the selected categories, e.g., CO2 emissions to global warming and NOₓ emissions to acidification.
3. Characterisation: Quantify contributions to each category, converting different emissions into a common unit, like CO2 equivalents for global warming.
4. Evaluation and Interpretation: Analyse results to identify significant impacts and prioritise improvements, considering assessment limitations and reliability.

4. Interpretation

In the final phase of an LCA, results must be interpreted to ensure they're clear and actionable. This process involves reviewing findings, making sure data is complete and consistent, and drawing meaningful conclusions. While you can interpret results as you go, the most reliable insights come from thoroughly analysed data.

Reaching Net Zero: beyond emission reduction

A life-cycle assessment offers a detailed view of a product’s environmental impact, guiding companies in making informed decisions to reduce these impacts. While reducing emissions is crucial for achieving net-zero goals, it's becoming clear that reduction alone may not suffice to meet the targets set by the Paris Agreement.

To truly reach net zero, companies must offset any remaining greenhouse gas emissions through effective carbon removal. Although this can be challenging, understanding and accessing reliable carbon removal options is key to meeting these climate commitments.

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What is carbon accounting?

Carbon accounting is an important subcategory of greenhouse gas (GHG) accounting. Specifically focusing on measuring and tracking carbon dioxide emissions, carbon accounting allows companies to quantify their emissions, understand their environmental impact, and set goals for reducing their carbon footprint.

The most commonly used approach to calculate carbon emissions – and all GHG emissions – is the Greenhouse Gas Protocol, which classifies emissions into three categories known as ‘Scopes’:

• Scope 1: All emissions produced as a direct result of the company’s operations.
• Scope 2: Indirect emissions resulting from the generation of electricity, heating, cool, etc. purchased and consumed by the company.
• Scope 3: Indirect emissions that occur in the company’s supply chain as a consequence of the company’s activities, but from sources that are not owned or controlled by the company.

The goal of carbon accounting is to quantify the total carbon emissions that a company is responsible for – including emissions that are not produced directly in the company’s daily operations. Accounting for Scope 3 emissions can be particularly challenging, as companies must rely on getting accurate data from their suppliers.

‍Read more: What are Scope 1, 2, and 3 emissions?

What is a carbon accountant?

A carbon accountant is a professional who specialises in measuring, tracking, and reporting a company’s carbon emissions. A carbon accountant typically has a background in environmental science, engineering, sustainability, or a related field.

In their work, carbon accountants support environmental sustainability efforts, strategic planning, and regulatory compliance. This makes them a crucial asset for companies looking to achieve net-zero emissions.

Find a carbon accounting partner here.

How does carbon accounting work?

Carbon accounting: two different approaches

Like GHG accounting, carbon accounting is done using two methods: the spend-based method and the activity-based method. As both methods have their advantages and disadvantages, the Greenhouse Protocol recommends a hybrid approach.

The spend-based method

The spend-based method uses emission factors that are expressed as emissions per unit of currency spent. The method takes the financial value of a given company purchase and multiplies it by the amount of carbon dioxide it emits. This approach is less accurate than the activity-based method, but also less time-consuming and easier to implement.

Advantages and disadvantages of this method include:

➕ Easy to implement if financial data is available

➕ Covers a wide range of activities with one set of financial data

➖ Less accurate due to the use of average emission factors rather than specific data

➖ Emission factors might not reflect the specific suppliers or products purchased by the organisation

The activity-based method

The activity-based method uses data to retrieve information on how many units of specific materials a company has purchased. The method accounts for all the steps in the process that may have created a carbon footprint, including material sourcing, production, marketing, and much more.

Advantages and disadvantages of this method include:

➕ Provides a more precise and accurate measurement of emissions for specific activities

➕ Enables companies to make targeted emission reduction strategies

➖ Requires more detailed data on activities and processes

➖ Can be complex and time consuming to implement, particularly for large companies with many different sources of emissions

Most companies follow the hybrid model, using all of the activity-based data possible and supplementing with spend-based methods to estimate the rest. This allows them to gain a more comprehensive understanding of emissions and simultaneously support more effective decision making.

Why is carbon accounting important?

By enabling companies to account for all emissions – including their indirect emissions – carbon accounting provides companies with a clearer understanding of their emission levels and a better foundation for setting realistic and achievable targets.

From carbon accounting to carbon removal

Carbon accounting is essential to the foundation of any corporate sustainability strategy. When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is no longer enough to stay within the goals set forward in the Paris Agreement. In order to stay on track for global climate targets, companies need to be neutralising their residual CO2 emissions with an equivalent amount of verified carbon removal.

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What is GHG accounting?

Greenhouse gas (GHG) accounting refers to the process of measuring and monitoring the GHG emissions associated with a company or organisation. Using standardised measuring and reporting per agreed-upon protocols, companies are able to measure the quantity of GHG emissions resulting from their:

• Direct emissions: Emissions produced by the company, such as emissions from on-site combustion or production processes.
• Indirect emissions: Emissions resulting from the energy the company uses, the company’s supply chain, and the end-of-life stages of its products.

Greenhouse gas accounting helps to provide numerical data on greenhouse gas emissions. It provides companies with information which enables them to be held accountable for their emissions, making it possible for companies to take action when it comes to reducing their emissions.

What is the difference between GHG accounting and carbon accounting?

The term GHG accounting is often used interchangeably with carbon accounting, but the two are not completely synonymous.

GHG accounting encompasses all greenhouse gasses, including carbon dioxide. Carbon accounting is a subset of GHG accounting which specifically focuses on measuring and managing carbon dioxide emissions. This enables companies to more accurately account for all emissions within their value chain and serves as the foundation for crafting an impactful reduction and removal strategy.

Find a carbon accounting partner here.

How does GHG accounting work?

GHG accounting involves the following key steps:

1. Identification: Identifying sources of emissions within the company. Examples of these include stationary combustion, transportation, and fugitive emissions.
2. Calculation: Calculating emissions from each source using emission factors and activity data. To account for the different global warming potentials of various greenhouse gasses, emissions are typically reported in terms of carbon dioxide equivalents (CO₂e).
3. Tracking and reporting: Recording and reporting emissions in accordance with established standards and protocols – e.g. the Greenhouse Gas Protocol, ISO 14064, or national regulations. This includes accounting for Scope 1, 2, and 3 emissions.
4. Verification and validation: Ensuring the accuracy and reliability of the data and methods used for GHG accounting. This is often done through external verification or audits.

Methods of GHG accounting

GHG accounting is done using two methods: the spend-based method and the activity-based method.

The spend-based method

The spend-based method uses emission factors that are expressed as emissions per unit of currency spent. The method works by multiplying the financial value of a company purchase by the amount of greenhouse gas and carbon dioxide it emits. This approach is easier and less time-consuming, but also less accurate than the activity-based method.

Advantages and disadvantages of the spend-based method include:

• Easy to implement if financial data is available
• Covers a wide range of activities with one set of financial data
• Less accurate, as this method uses average emission factors rather than specific data
• Emission factors might not reflect the specific suppliers or products purchased by the organisation

The activity-based method

The activity-based method uses data to retrieve information on how many units of specific materials have been purchased. The method accounts for all the steps in the process that may have created a carbon footprint. This includes material sourcing, production, marketing, and much more.

Advantages and disadvantages of the activity-based method include:

• Provides a more precise and accurate measurement of emissions for specific activities
• Allows for targeted emission reduction strategies
• Requires more detailed data on activities and processes
• Can be time consuming and complex to implement, especially for large companies with many different sources of emissions

As both methods have their advantages and disadvantages, many companies choose to use a hybrid approach, combining both methods to gain a more comprehensive understanding of emissions and support more effective decision making.

Why is GHG accounting important?

For companies striving to reach net-zero emissions, GHG accounting is important for numerous reasons. GHG accounting functions as a baseline measurement that provides companies with a clearer understanding of their emission levels – an essential factor for companies looking to set realistic and achievable net-zero targets.

Other reasons GHG accounting is an important element on the journey towards net zero include:

• Monitoring progress: GHG accounting enables companies to monitor their progress on the road towards net zero. By tracking emissions, companies can assess the effectiveness of their strategies and make adjustments as needed.
• Identifying reduction opportunities: By providing detailed information about emission sources, GHG accounting helps companies identify areas for improvement and opportunities for emission reduction – e.g. switching to renewable energy sources or improving energy efficiency.
• Transparency and reporting: Accurate GHG accounting enables companies to transparently report their emissions and progress towards net zero to investors, customers, and other stakeholders, helping to build credibility and trust.
• Compliance with regulations: GHG accounting helps companies comply with relevant regulations and reporting requirements surrounding greenhouse gas emissions.
• Risk management: Understanding emissions and their potential impact helps companies manage climate-related risks. This can include adjusting business strategies and investments to account for customer preferences or future climate policies.
• Access to sustainable financing: Accurate GHG accounting can help companies demonstrate their commitment to sustainability. This can help attract investors and financial institutions that favour companies with strong environmental performance.

The process of GHG accounting can also help drive companies to invest more in innovation within areas such as energy usage, supply chain management, and product design, moving towards a more sustainable future for companies across the globe.

Next steps

GHG accounting provides companies with a clearer understanding of their emission levels, allowing them to better focus their efforts towards the greatest reduction opportunities. When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is longer enough to stay within the goals set forward in The Paris Agreement. For a company to reach net zero, residual GHG emissions must be neutralised with an equivalent amount of carbon removal.

At Klimate.co, we provide access to high-quality, innovative, and verifiable carbon removal solutions. We strategically finance projects based on environmental responsibility as well as social and economic development – and we only work with companies that are already taking action to reduce their emissions.

Scope 1, 2, and 3 emissions: What are they, and what is their purpose?

The Greenhouse Gas Protocol – the world’s most widely used greenhouse gas accounting standard – categorises GHG emissions into three Scopes: 1, 2, and 3.

These three categories are used to classify greenhouse gas (GHG) emissions associated with a company’s activities, within both its own operations and its wider value chain.

By incorporating Scope 1, 2, and 3 emissions in their full emissions inventory, companies are able to achieve a more comprehensive understanding of their full value chain emissions. This enables them to better focus their efforts towards the greatest reduction opportunities.

Definitions of Scope 1, 2, and 3 emissions

In essence, Scope 1 emissions are direct emissions owned and controlled by the company, whereas Scopes 2 and 3 are indirect emissions from sources that are not owned or controlled by the company. Whilst the company does not own or control the sources of Scope 2 and 3 emissions, these emissions still occur as a result of the company’s activities.

Scope 1, 2, and 3 emissions are categorised as follows:

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Scope 1 emissions

Scope 1 emissions are direct greenhouse gas emissions which occur from sources that are directly owned or controlled by the company. These include emissions from sources such as fuel combustion, company vehicles, and fugitive emissions.

Example: Scope 1 emissions occur from burning fuel in the company’s fleet of vehicles (provided these vehicles are not electrically powered).

Scope 2 emissions

Scope 2 emissions are indirect emissions which occur as a result of the generation of electricity, heat, or steam that a company purchases or consumes. Scope 2 emissions occur at the facility where the energy is generated, but are still associated with the company’s activities.

Example: Scope 2 emissions are caused by the generation of the electricity used in the company’s buildings.

Scope 3 emissions

Scope 3 emissions are indirect emissions which occur as a result of the company’s activities, but from sources that are not owned or controlled by the company. These include investments, purchased goods and services, business travel, employee commuting, waste disposal.

Scope 3 emissions include all emissions not covered in Scope 1 or 2, and which are created by the company’s value chain.

Example: Scope 3 emissions occur when the company buys, uses, and disposes of products from suppliers.

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The role of Scope 1, 2, and 3 emissions in corporate sustainability

Understanding Scope 1, 2, and 3 is crucial for companies aiming to reduce their environmental impact and comply with global sustainability standards.

By understanding emissions across all Scopes, companies are able to comprehensively assess their environmental impact. This knowledge enables them to identify the most significant sources of emissions and develop targeted reduction strategies tailored to their specific operations and value chains. 

This is particularly important for companies aiming to achieve net-zero emissions. There are several reasons for this, which go beyond simply aligning with broader global sustainability goals.

These include:

• Accounting for all emissions: Net zero means balancing the amount of GHG emissions released into the atmosphere with an equivalent amount of emissions removed or offset. To achieve this, companies must account for all emissions within their value chain. This can be achieved through carbon accounting, which is used to accurately estimate all three scopes and serves as the foundation for crafting an impactful reduction and removal strategy. Find a carbon accounting partner here.
• Developing comprehensive reduction strategies: Reduction is essential on the road to net zero. Understanding emissions helps companies develop comprehensive reduction strategies that address both direct (Scope 1) and indirect (Scope 2 and 3) emissions.
• Minimising residual emissions: Understanding Scope 1, 2, and 3 emissions helps companies identify residual emissions that are challenging to eliminate entirely, but may be minimised through the right reduction and offsetting measures.
• Enhancing transparency and credibility: Transparent reporting of emissions data demonstrates the company’s willingness to be accountable for all emissions associated with its operations and activities. This enhances the credibility of the company’s net-zero commitment, helping to build trust with stakeholders and investors.

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You might also be interested in: What is GHG accounting, and how does it work?

Scope 3 emissions: How companies can make an impact

For many companies, Scope 3 emissions account for more than 70% of their carbon footprint. For example, the extraction and processing of raw materials often cause significant Scope 3 emissions for manufacturing companies.

Scope 3 emissions are typically more challenging to control, as many suppliers have considerable influence on how emissions are reduced through their own purchasing decisions. However, committing to tackling Scope 3 emissions is crucial for companies looking to achieve net zero emissions.

Addressing Scope 3 emissions can make a significant difference in advancing a company’s journey towards decarbonisation and corporate sustainability.

Getting started with carbon removal

Understanding emissions across all Scopes enables companies to comprehensively assess their environmental impact, identify the most significant sources of emissions, and develop targeted reduction strategies tailored to their specific operations and value chains.

When it comes to achieving net zero, reducing your emissions is an important and necessary step in the right direction. However, there is growing consensus that reduction is longer enough to stay within the goals set forward in The Paris Agreement. For your company to reach net zero, you must neutralise your residual GHG emissions with an equivalent amount of carbon removal.

At Klimate.co, we provide access to high-quality, innovative, and verifiable carbon removal solutions. We strategically finance projects based on environmental responsibility as well as social and economic development – and we only work with companies that are taking action to reduce their emissions.