Transaction to Carbon for Businesses
Insights on the science behind the estimated carbon footprint for business
How does it work?
The methodology provides emissions associated with goods and services purchased by the company through the connection with transaction data; it builds on the spend-based method to calculate Scope 3 emissions as recommended in the Technical Guidance for Calculating Scope 3 emissions (WRI & wbcsd, 2013).. The methodology aligns the carbon intensity factors per business expenditure category with transactional data following the Open Standard Framework for Consumer Carbon Calculations based on payment transactions.
Carbon intensity factors are derived from country-specific Environmentally Extended Input-Output tables. The EEIO is a framework for allocating environmental burdens from the overall emissions and resource consumption generated by economic systems at a macro scale to the expenditures of final consumers. To provide carbon intensity factors for different expenditure categories at the business level, we apply a hybrid approach using process-based and spend-based methods to calculate the carbon footprint. There are different EEIOs available; the selection of the Global Multi Regional Input Output (GMRIO) from which the emission factors will be derived depends on the country of analysis, industry and sector coverage, assumptions, and the latest year available (Figure 1).
Figure 1. Characteristics of existing GMRIOs
The methodology is transaction agnostic and can process all transactions with the same performance criteria, regardless of complexity.
Can I use the estimated carbon footprint to report emissions?
Yes, this methodology provides a carbon intensity value based on averages per expense; it aims to engage businesses on their sustainability journey and help them be on the front line. It is tailored to capture a business strategy specific to your company. Thus, it actively tracks the emissions hotspots for internal efficiency assessments and discloses the environmental performance comprehensively to fulfill the current customer’s expectations. The methodology considers Scope 2 and Scope 3 emissions from the GHG Protocol, with an innovative emphasis on Categories 1-8 of Scope 3. This unique approach will help business owners go beyond the limits and obtain a detailed overview of their company’s environmental performance in a simple and automated manner.
It is important to note that scope 1 emissions are not covered; thus, if in need of full carbon reporting, then services from a carbon accounting agency are required.
Can this tool replace a carbon accounting tool?
It depends on your business and your needs. While you can use the methodology to understand your business, you will never have the chance to go into detail. It’s like filing your tax returns on the simple basis of your bank statements; you will miss some details for sure. However, for smaller businesses, this is already more than sufficient. For long-term and larger, more complex businesses, we would always recommend going one level deeper. It helps to identify even more opportunities to do your fair part of saving this beautiful planet.
Are emissions calculated for all business expenses?
The methodology provides insights on carbon intensity related to operating expenses: travel, office supplies, rent, maintenance and repairs, utilities, and insurance, among others. It does not consider capital expenses. In total, the tool considers 56 expense categories aggregated into seven metacategories:
- Administration: includes emissions associated with services the company requires to operate, including professional services (e.g., accounting, research, financial services), rentals for office and equipment, and maintenance of capital goods.
- Personnel: includes emissions associated with the transportation of employees between their homes and worksites, as well as emissions due to food consumption in company events and training-related activities.
- Business travel: includes emissions from the transportation of employees for business-related activities in vehicles owned or operated by third parties, such as aircraft, trains, buses, and passenger cars. It also includes emissions from leased vehicles, hotel stays, and food paid to the employee.
- Utilities: include emissions associated with recurrent water, energy, and broadband expenses.
- Miscellaneous: includes emissions associated with retail and wholesale merchants that provide diverse services and products that could not be mapped to a specific product/category.
- Equipment: includes cradle-to-gate emissions from the production of capital goods purchased or acquired by the company. Capital goods are final products that have an extended life and are used by the company to manufacture a product, provide a service, or sell, store, and deliver merchandise. In financial accounting, capital goods are treated as fixed assets or plant, property, and equipment (PP&E). Examples of capital goods include equipment, machinery, buildings, facilities, and vehicles.
- Materials: consolidate cradle-to-gate emissions from producing materials purchased or acquired by the company. The basic category system includes six materials which can be mapped with the Merchant Category Codes (MCC)
The number of subcategories depends on the taxonomy of the transactions. As shown in Figure 1, the number of carbon intensity factors depends on the GMRIO table and country.
Is it possible to refine my carbon footprint?
The methodology is versatile enough to capture your strategic decisions; it offers the possibility to refine the estimation when the company provides more details of the transactions. Refinements aim to increase the precision of emission estimates and improve the tailored solution. In this context, a refinement is “a set of procedures intended to ensure that the GHG estimations are accurate in the sense that they are systematically neither over- nor underestimated so far as can be judged and that uncertainties are reduced so far as possible.” Refinements capture the company’s characteristics and needs, profiling the business and offering specific content to trigger behavioral change through environmentally friendly business practices.
I am a Micro, Small Business. Is this a tool I can use?
Yes, micro, small, and medium-sized enterprises (MSMEs) are key stakeholders in the global fight against climate change. As the world grapples with the urgent imperative of mitigating greenhouse gas emissions, transitioning to renewable energy sources, and adopting sustainable practices, SMEs have risen to address these challenges. Currently, micro and small businesses are not required to do sustainability reporting, but implementing the new Corporate Sustainability Report Directives (CSRD) in Europe is increasing the pressure to comply with the regulatory requirements. In this regard, the methodology fulfills the needs of micro and small businesses, with scope 2 and scope 3 emissions challenged by financial constraints and with the need to report their environmental performance.
How accurate are the estimations?
As outlined in the technical guidelines for calculating Scope 3 emissions from the GHG protocol:
Even though the supplier-specific and hybrid methods are more specific to the individual supplier than the average-data and spend-based methods, they may not produce results that are a more accurate reflection of the product’s contribution to the reporting company’s scope 3 emissions. In fact, data collected from a supplier may actually be less accurate than industry-average data for a particular product. Accuracy derives from the granularity of the emissions data, the reliability of the supplier’s data sources, and which, if any, allocation techniques were used. The need to allocate the supplier’s emissions to the specific products it sells to the company can add a considerable degree of uncertainty, depending on the allocation methods used.
The spend-based method estimates emissions for goods and services by collecting data on the economic value of goods and services purchased and multiplying it by relevant secondary (e.g., industry average) emission factors (e.g., average emissions per monetary value of goods).