Understanding and managing your company’s carbon footprint isn’t just a regulatory box to tick – it’s a cornerstone of responsible and progressive operations. Carbon accounting, in essence, is the practice of measuring and managing greenhouse gas (GHG) emissions, empowering businesses to pinpoint emission sources, set meaningful reduction targets, and craft effective sustainability strategies. Carbon accounting isn’t just for big corporations – although large companies are often the focus of carbon reporting regulations, small and medium-sized enterprises (SMEs) are increasingly being affected as well. Many major organisations, such as the NHS, are now requiring their supply chain to report on carbon emissions, meaning that SMEs who fail to provide carbon reports risk losing valuable contracts, making carbon accounting an essential practice for businesses of all sizes.

Here we provide an overview of Carbon Accounting for SMEs.

What does Scope 1, Scope 2 and Scope 3 mean in Carbon Accounting?
Carbon accounting is akin to financial accounting but focuses on environmental impact. It involves quantifying the GHG emissions your organisation produces, both directly and indirectly. These emissions are typically grouped into three categories, known as scopes:

• Scope 1 in Carbon Accounting: Direct emissions from sources you own or control, like company vehicles or on-site fuel combustion.
• Scope 2 in Carbon Accounting: Indirect emissions from the electricity, steam, heating, and cooling you purchase and use.
• Scope 3 in Carbon Accounting: All other indirect emissions that occur throughout your value chain, including those from suppliers and customers.

What are the UK regulations on Carbon Emissions reporting?
In the UK, the Streamlined Energy and Carbon Reporting (SECR) framework mandates that large companies disclose their energy use and carbon emissions. This includes quoted companies, large unquoted companies, and large limited liability partnerships (LLPs). The SECR framework aims to increase transparency and encourage energy efficiency improvements.

What business sectors is Carbon Accounting for?
Carbon accounting is relevant to businesses across all industries, but the level of importance and complexity varies depending on factors such as size, industry type, supply chain structure, and regulatory obligations. Whether driven by regulations, investor expectations, cost savings, or competitive positioning, understanding and managing your company’s emissions is quickly becoming the norm.

How will Carbon Accounting benefit my business?
Embracing carbon accounting offers a range of valuable benefits, from regulatory compliance and cost savings to improved sustainability and a stronger competitive edge:

• Regulatory compliance: With environmental regulations tightening – such as the UK’s commitment to net-zero emissions by 2050 – monitoring your emissions ensures compliance with legal standards.
• Investor appeal: Investors are increasingly considering environmental, social, and governance (ESG) factors. Transparent carbon accounting can enhance your company’s attractiveness to potential investors.
• Operational efficiency: Identifying emission hotspots can lead to more efficient resource utilisation, cost savings, and improved operational performance.

Carbon Accounting advice
As a fairly new initiative, businesses are just starting out with Carbon Accounting but are already seeing the benefits. If you’re interested in learning more about how your business could benefit, and how we can support you, get in touch with our innovation lead at LWA, Matt Jones, on 0161 905 1801 in our South Manchester office, or email mail@lwaltd.com with ‘Carbon Accounting’ in the subject field.

Les Leavitt, Leavitt Walmsley Associates Chartered Certified Accountants
lwaltd.com