Carbon Accounting 101: The Ultimate Guide

Carbon Accounting is the modern language of climate change. It’s how companies share their climate story transparently and accurately. 

Measuring and reporting the carbon footprints of companies, countries, and events through Greenhouse Gas (GHG) accounting gives stakeholders insight into their climate impact and holds them accountable for their emissions.

From a business perspective, measuring emissions through carbon accounting has become essential for climate risk mitigation, building a decarbonization strategy, and increasingly for compliance. Regulations in the EU, US, and over 45 other jurisdictions now require companies to measure and report their carbon footprint.

Our Carbon Accounting 101 Guide is the ultimate resource for learning what carbon accounting is and how to conduct an emissions inventory or refine your processes for collecting, calculating, and reporting GHG emissions data.

What is Carbon Accounting?

Carbon accounting, also known as greenhouse gas accounting or an emissions inventory, is how companies measure the amount of emissions they produce over a given time period.

It’s essential for measuring a company's emissions and identifying their sources across the business. It also helps companies assess climate risks, build ESG strategies, and track progress toward emissions-reduction goals. 

Creating an emissions inventory involves quantifying all designated greenhouse gases such as carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), and fluorinated gases (F-gases), which include hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF₆), and nitrogen trifluoride (NF₃), and converting them into a CO₂ equivalent (CO₂e) value for comparative measurement.

GHG accounting is also integral to complying with the growing demand from regulators, investors, and large buying organizations for accurate emissions data. As larger companies work to manage emissions in their value chain (known as Scope 3 emissions), they increasingly look to their supply chain and ask suppliers to measure and report their carbon footprint. 

Five Reasons Carbon Accounting is Essential for Your Businesses

As global efforts to mitigate climate change accelerate, investors and regulators want better climate information to inform decisions. Accurate and up-to-date carbon footprints are becoming an essential part of doing business for the following five reasons:

1. Commercial reasons

Larger companies are increasingly asking suppliers to share climate data to help them meet goals, assess risks, and meet regulatory requirements. Every year, more than 10,000 companies are asked to share emissions data through questionnaires or through sustainability reporting frameworks like CDP and EcoVadis.

For example:

• Microsoft's Supplier Code of Conduct requires suppliers, on request, to disclose their emissions, cut emissions from the goods and services they deliver to Microsoft by at least 55% by 2030, and move to 100% carbon-free electricity for that work by the same year.
• Salesforce writes climate terms directly into supplier contracts through its Sustainability Exhibit, which requires suppliers to set a science-based target and publicly disclose their Scope 1, 2, and 3 emissions. 
• Walmart's Project Gigaton has drawn in more than 5,900 suppliers, representing around 75% of its sales, to report emissions reductions through Walmart's portal or through CDP.

And hundreds of other large purchasing organizations.

2. Regulatory compliance

Dozens of countries now have emissions reporting regulations. 45 countries and regions require companies to calculate and report their carbon footprint in line with the International Sustainability Standards Board (ISSB) rules. Other jurisdictions, like California and the EU, have their own emissions-reporting standards, but they are also interoperable with the ISSB standards.

The EU has narrowed CSRD to companies with over 1,000 employees and €450 million in turnover, with first reports due in 2028 for around 4,000 EU companies and 2029 for non-EU groups, including around 400 US companies.

In the US, California’s SB 253 will require approximately 2,000 companies with more than $1 billion in revenue that do business in the state to report their Scope 1 and 2 emissions on November 10th 2026, and Scope 3 the year after.

3. Climate risk assessment

Understanding your emissions footprint enables data-informed assessment of your company's exposure to physical climate risks, such as extreme weather events, rising sea levels, wildfires, etc.

Additionally, this visibility helps your company comply with climate risk disclosure regulations and identify the parts of your business most at risk from changing consumer trends, low-carbon technological advancements, and market changes, also known as transition risks.

Detailed carbon accounting can help your company build strategies to mitigate these risks and exploit opportunities.

4. Sustainability and ESG reporting

Whether through mandatory disclosure or voluntary reporting, if you report on sustainability performance and carbon footprint, tracking progress toward your carbon goals is essential.

Companies that misstate their carbon footprint or progress toward climate targets through inaccurate reporting risk greenwashing. Greenwashing is not only a brand reputation risk. It is also increasingly a litigation risk, with firms like Fiat Chrysler agreeing to pay $9.5 million for greenwashing their emissions. Examples like this strengthen the case for accurate, comprehensive collection, calculation, and reporting of emissions data.

5. Competitive advantage

Consumers, investors, and other stakeholders prefer low-carbon products and services. Companies that create a detailed carbon footprint can identify the most carbon-intensive parts of their business and find opportunities for energy and cost savings. Transparently sharing your efforts to track and reduce your carbon footprint can differentiate your products and services.

Which Companies Should Account for Their Carbon Footprint

Every company with large customers, investors, or revenue in regulated markets will eventually be asked for its emissions data. That means pretty much every company will eventually have to conduct carbon accounting. But these are the companies that need a carbon footprint today:

• Companies subject to disclosure laws: US companies with more than $1 billion in revenue doing business in California must report Scope 1 and 2 emissions under SB 253, and large companies with significant EU revenue fall under the CSRD. Dozens of other companies also fall under the jurisdiction of an ISSB-aligned rule.
• Suppliers to large buyers: Companies selling to Microsoft, Salesforce, Walmart, and other major buyers increasingly receive emissions data requests in questionnaires and contracts, regardless of their own size.
• Private equity firms and their portfolio companies: Investors who measure portfolio emissions understand their climate risk exposure better, and portfolio companies with a footprint are better prepared for exits and investor scrutiny.
• Energy-intensive manufacturers: High energy use makes emissions both a cost and a compliance issue, and measuring them shows where savings are.

How To Measure Your Company’s Greenhouse Gas Emissions

Now that you know why you need to measure your company's carbon footprint, here are four simple steps for how it gets done. First, align your carbon accounting process with a carbon accounting standard.

Step 1: Use A GHG Reporting Standard

To keep your GHG accounting comparable, consistent, and accurate, use a recognized reporting standard. The GHG Protocol is the gold standard for carbon accounting and has been the most widely used standard since its inception in 2001. It is currently used by 97% of the S&P 500 to measure their emissions.

The Greenhouse Gas Protocol

The World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) created the Greenhouse Gas Protocol (GHG Protocol) in 2001. 

They created the GHG Protocol Corporate Accounting and Reporting Standard to help companies, cities, and countries track progress toward climate goals and ensure carbon footprints are measured with relevance, completeness, consistency, transparency, and accuracy. They divide emissions into three main scopes:

• Scope 1: Direct emissions that are created in company-controlled vehicles and facilities
• Scope 2: Indirect emissions created from the purchase of electricity, steam, heating, and cooling
• Scope 3: The 15 categories of upstream and downstream indirect emissions from across a company’s value chain

The GHG Protocol is the primary resource for companies and nations to measure carbon emissions and underpins most climate disclosure regulations. Despite the GHG Protocol being the most recognized, there are other GHG accounting standards that can be used to supplement reporting:

• The Partnership for Carbon Accounting Financials (PCAF) was created specifically to deal with complex “financed emissions.” These are covered under Scope 3 Category 15: investment activities in the GHG Protocol, but are complex, so they need more in-depth guidance. PCAF worked with the GHG Protocol to extend its existing carbon accounting standard. PCAF also has standards for facilitated emissions (emissions from financial transactions) and insurance-specific emissions.
• The French environmental agency created the Bilan Carbone Method to help companies report their emissions. Although very similar to the GHG Protocol, it differs in key areas: Companies using the Bilan Method cannot exclude Scope 3, whereas the GHG Protocol allows it. Also, under the Bilan Carbone, companies must include all facilities and create a decarbonization plan, but under the GHG Protocol, this is optional. Although it is used extensively in France, it is rarely used in other countries.
• ISO 14064 was first published in 2006 and was developed to align with the GHG Protocol. While the GHG Protocol gives detailed guidance on how to account for emissions, ISO 14064 sets out the requirements an inventory must meet to be independently verified. The standard has three parts: Part 1 covers organization-level emissions inventories, Part 2 covers emission reduction projects, and Part 3 covers verification and validation of GHG statements.

The biggest news in the standards world is the merging of the ISO and GHG Protocol standards. In July 2026, the GHG Protocol and ISO confirmed plans to combine the GHG Protocol's corporate, Scope 2, and Scope 3 standards with ISO 14064-1 into a single, co-branded corporate standard. A public consultation is planned for Q2 2027, and publication is targeted for late 2028. Until then, existing GHG Protocol and ISO standards remain in effect.

Step 2: Defining Organizational Boundaries

Defining your company's organizational boundaries helps ensure you count only the right emissions and avoid double counting. The GHG Protocol defines two distinct approaches to setting organizational boundaries: the equity share and control approach:

Control Approach: In the control approach, a company takes 100% ownership of emissions from operations it fully controls. When using the control approach, companies decide to use either financial or operational control:

• Operational Control: Operational control refers to when a company has full control over introducing and implementing policies within the operation.
• Financial Control: Financial control refers to a company's ability to direct financial and operational policies to gain economic benefits.

Equity Share Approach: Under this approach, the reporting company accounts for GHG emissions based on its equity share in the operation. For example, if an asset manager owns a 30% equity stake in a company, it will account for 30% of the company’s carbon footprint as their own emissions.

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When selecting which method best suits your company's needs, some things to consider include:

• Why are you measuring emissions? If the goal is a decarbonization strategy, operational control is usually the right fit, because it covers the operations you can actually change. If the goal is assessing climate-related financial risk, financial control or equity share line your emissions up with your financial exposure.
• Who will use the results? Investors and lenders expect emissions to follow the same boundary as your financial statements, which points to financial control. For customers, supply chain requests, and internal reduction targets, operational control is more common.
• How is your company structured? Companies that own and run their own facilities, such as manufacturers and energy producers, typically use operational control. Companies with joint ventures, partial ownership stakes, or large investment portfolios often use equity share or financial control, so that emissions reflect what they own.

Step 3: Collect Data Using a GHG Emissions Calculation Methodology

Once you have defined your boundaries, you can begin collecting data and calculating emissions. The following is an example of data collection and calculation for each scope using widely accepted methodologies:

Emissions Factors in Carbon Accounting

Emissions data typically can't be collected directly. Therefore, companies collect activity data (miles traveled in a car or plane, money spent on raw materials, or liters of fuel used, for example) and then calculate emissions using emissions factors.

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Thousands of emissions factors exist for geographic and activity-specific actions that produce emissions. The following is an example of activity data, emissions factors, and resultant emissions:

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With so many emissions factors to keep track of today, the most accurate way to measure emissions is through a software solution that embeds specific emissions factors into its calculation methodology and offers spend- and activity-based calculations.

Want to know the best method for your company to conduct carbon accounting DIY Excel, software, or software and a consultant? 👉 Find out here.

Step 4: Get Carbon Accounting Auditing & Assurance

To ensure your emissions are measured and reported accurately, your company should have a trusted third party audit its carbon footprint. This type of data assurance falls under two main categories:

• Limited Assurance: Less stringent, limited assurance ensures companies use the correct calculation methodologies and emissions factors to arrive at their total emissions.
• Reasonable Assurance: Requires more extensive testing of underlying data and controls and provides a positive opinion that emissions are fairly stated, rather than limited assurance's statement that nothing came to the auditor's attention suggesting they are misstated.

Assurance is an important part of compliance under many global climate reporting regulations. California’s SB 253, for example, will require companies to start with limited assurance in 2027 for Scope 1 and 2, before enforcing reasonable assurance measures in 2030.

Compliance is just one reason your business should audit its carbon footprint. As greenwashing litigation becomes more common, assured GHG emissions data reduces this risk.

What To Do With Your GHG Emissions Report  

Once you have your first carbon footprint there are several ways to report and share the results. The following are a few ideas of some actions you can take to share your results and bolster your company's sustainability narrative with accurate and transparent data:

• Share with Commercial Partners: It's no secret that ESG and climate data requests are running rampant in supply chain communications. If they aren't already, you can expect your customers to request your emissions data soon. Share this data with companies in your value chain to signal your commitment to sustainability and to help them gain visibility over their own extended carbon impact.
• Write a Sustainability or ESG Report: Compile an annual report aligned to common climate reporting standards, like the ISSB, to transparently share the results of your carbon footprint and other sustainability performance metrics. This can help you comply with future regulations and respond to future customer requests for information.
• Join Emission Pledges: Align your company’s decarbonization goals with a net-zero business group, like the We Mean Business Coalition, or get your net-zero goals validated by the Science-Based Targets Initiative (SBTi).
• Share on Social: Highlight your company's commitment and progress on climate and sustainability on social media platforms. Communicating your sustainability commitments and crucailly progress toward them is a good way of building consumer trust.

Challenges of Carbon Accounting

Despite the importance of carbon accounting as the table stakes of doing business today, few companies actually measure their full carbon footprint. The reasons companies drag their feet on measuring their full carbon footprint are multifaceted. However, we typically hear any combination of the following factors:

• Limited Access to Data: Collecting data for GHG accounting is difficult. It can be siloed in different parts of your business operations or supply chain. The finance department may have business travel data and energy bills, while procurement has supply chain data, and human resources has data on employee behaviors, such as commuting or work-from-home impact. Strong data governance strategies are key to reducing the complexities of collecting your emissions data.
• Double Counting: Double counting can occur in carbon accounting when company activities are misinterpreted or misattributed to the wrong scope. Companies can avoid double counting by reviewing each category for duplication errors.
• Poorly Defined Boundaries: To avoid double-counting, companies need to clearly define their organizational boundaries. This can be challenging because there are multiple methods, e.g., the equity share approach, financial control, and operational control. The key here is to lock into one approach early on and clearly define the boundary.
• High Cost: With so much data to collect and the advanced education needed to calculate it, carbon accounting may be cost-prohibitive for some companies to do internally. However, modern GHG accounting software platforms supported by consultants can significantly reduce these costs and eliminate cost-related objections with lightweight, fast automated calculations.

How Carbon Accounting Software Simplifies GHG Calculations

Manual data collection and calculation can be daunting, especially when first getting started. Adding in all the data and determining which emissions factor to use often requires specialized expertise. Your software solution should ideally simplify carbon accounting. However, with so many platforms on the market today, there are a few key things to keep top of mind when selecting a vendor:

• All-Scopes Emissions Tracking: Ensure your software provides comprehensive coverage of Scope 1, Scope 2, and, crucially, Scope 3 emissions to give you a full picture of your carbon footprint.
• Product-Level Emissions Calculations: The ability to calculate emissions down to the product level gives you a much more granular view of where your emissions come from and is the next level of carbon accounting. This will become more important for building strategies, working with suppliers, and meeting new regulations, like the European Battery Regulation that requires companies to measure and record the footprint of battery products using a product passport.
• An Audit Trail: As more companies face greenwashing accusations and regulations that require assurance measures, your software platform should provide fully auditable data trails that streamline the assurance process.
• User-Friendly Interface: Your emissions software should be accessible to all team members, regardless of their technical expertise, with a user-friendly interface given the many data inputs from across your company. Most importantly, your software should ideally be supported by experts who can walk you through complex climate calculations.

Good.Lab Can Simplify Your Company's Carbon Accounting

As you can see, carbon accounting involves a lot. However, it is no longer optional but an integral part of assessing risk, decarbonizing, and meeting new climate reporting regulations. It may seem daunting, but it doesn’t have to be. Carbon accounting experts, equipped with right-sized software tools, can streamline the process. If you need support with your carbon accounting journey, let's talk!

Carbon Accounting FAQs

• What is GHG accounting?
  GHG accounting or carbon accounting refers to the process of measuring the amount of greenhouse gases emitted by an entity, such as a company, government, product, or individual, over a specific period, usually a year. It is an integral part of assessing a company's carbon footprint, exposure to climate risks, and progress on decarbonization.‍
• Is carbon accounting mandatory?‍
  Currently, for most companies, GHG accounting is voluntary. However, GHG accounting and reporting of emissions is mandatory for some companies in regions such as EU member states, The UK, Japan, and others. Currently, in the US, at least 2,000 companies will be expected to conduct carbon accounting and report emissions under California’s SB 253 by 2026.‍
• Is carbon accounting complicated?‍
  Carbon accounting is much more difficult than traditional financial accounting. Data comes in many different forms and must be calculated using different emissions factors.‍
• What are the main greenhouse gases included in carbon accounting?‍
  The main greenhouse gases included are carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), and fluorinated gases (F-gases), which include hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF₆), and nitrogen trifluoride (NF₃). These are usually expressed as a CO2 equivalent  (CO_2e).‍
• ‍What are Scope 1, Scope 2, and Scope 3 emissions?‍
  Scope 1 emissions are direct emissions from owned or controlled sources.
  Scope 2 emissions are indirect emissions from the generation of purchased energy.
  Scope 3 emissions are all indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.‍
• ‍Why is Scope 3 the most difficult to measure?‍‍
  Scope 3 emissions are so difficult to measure because they come from sources not owned by the company, tied up in complex value chains. This means data is not always available and is often inaccurate. Due to its complexity, companies often make industry-average estimates of their Scope 3 emissions based on spending data.‍
• How do organizations measure their GHG emissions?
  ‍Organizations measure their GHG emissions by identifying emission sources, collecting activity data (such as fuel consumption and miles traveled), researching appropriate emission factors, and applying calculation methodologies as per established protocols like the Greenhouse Gas Protocol. They can simplify this whole process by using a software-based GHG calculator.‍
• What is a carbon footprint?‍
  A carbon footprint is the total amount of greenhouse gases emitted by an individual, organization, event, or product, expressed as a carbon dioxide equivalent.