Climate accounting, Scopes 1, 2, and 3, why we do recommend you start somewhere with climate accounting?

There are many terms and new commitments to deal with when we start talking climate and how we run businesses, but most importantly; it should not scare us. Why? The worst thing we can do is to do nothing at all, whereas the opposite of doing something is, in our perspective, a good solution and gives us an opportunity to learn together. 

It can quickly become political with climate accounting, scopes, carbon footprint, etc. Therefore, we’ll try to answer briefly, and direct as keeping the article updated when improved information appears.

What is a carbon footprint, CO2 and CO2-neutral?

What are scopes 1,2 and 3, as well as direct and indirect CO2 emissions?

What is a Climate Account? Why we do recommend you start somewhere with climate accounting?

 

What is a Carbon Footprint?

Visual side fact; What does Carbon Footprint have to do with the “GreenHouse Effect”?

Carbon footprint – CO2 emissions, the dear child has many names. 

CO2 is what we call carbon dioxide. Carbon footprints are; the amount of carbon dioxide released into the atmosphere as a result of the activities of a particular person, organization, or society. A petrol car that drives produces and distributes CO2, the fuel used to drive the vehicle creates greenhouse gases, i.e. CO2. 

GreenHouse Effect, greenhouse gases are released when humans burn fossil fuels such as oil, natural gas, and coal to provide energy for daily activities. these gases rise into the atmosphere and insulate the earth, causing the temperature to rise.

Visual Explanation:


Burning fossil fuels adds greenhouse gases to the atmosphere, trapping heat and causing the Earth to warm.

When are you CO2 neutral? And what does it mean to be CO2 neutral?

CO2-neutral opnås ved at balancere sit udslip med sit absobering af CO2. Med andre ord lukker man ikke mere CO2 ud end man absobere eller kan fjerne. Absobering eller fjernelse sker ofte gennem kompensation (nogle køber eks. skov) da vores største CO2 absobering rescourcer er skov, jord og havet. 

CO2-neutral is achieved by balancing its emissions with its absorption of CO2. In other words, you do not release more CO2 than you can absorb or remove. Absorption or removal is often done through compensation (some buy e.g. forest) as our biggest CO2 absorption resources are forests, land, and the sea. 

 

Is Denmark CO2 neutral?

No, unfortunately not yet, but a lot of work is being prioritized to achieve it! Denmark emits almost the same amount of greenhouse gases in 2021 as in 1990, see more here: https://www.dst.dk/da/Statistik/temaer/klima 

Denmark has reduced by 40% since 1990 and the goal is to reduce by 70% from 1990 to 2030. This was adopted in Denmark’s Climate Act 2021.

What is climate accounting? 

Also known as a CO2 account?

With a climate account, you calculate your company’s emissions of greenhouse gases over a defined period – typically one year. It gives you an overview of the CO2e emissions that are connected to different areas of consumption in your company.

A climate report can be used to create an overview of your company’s direct and indirect emissions. 

 

How do you make a climate report?

Here is a concrete “Easy guide to the climate legislation” issued by Dansk Erhverv, EY, and Global Compact Network Denmark:

https://globalcompact.dk/wp-content/uploads/2020/08/klimaguide.pdf pages 8-12 you will find step by step guide with examples for preparing the accounts. 



Who must do the CO2 accounting?

This question has several points to provide clarity. 

Who will deal with climate accounting now? Who will think of that soon? Why do we warmly encourage you to begin?

In 2018, this EU legislation entered into force where:

Who should report?

Reporting must scope:

(NFRD) The directive on non-financial reporting, companies in the EU such as:

Banks, insurance companies, and listed companies) 


Has more than 500 employees

How they handle:

Environment

Social – how employees are treated, how they plan to respect human rights

Prevent bribery or corruption

Promote diversity.

 

The future of reporting will include:

1 January 2024 companies covered by the directive on non-financial reporting.

1 January 2025, large companies not currently covered by the directive on non-financial reporting.

1 January 2026, listed SMEs, small and non-complex credit institutions and captive insurance companies

Companies in the EU that meet two of the following three criteria:

More than 250 employees

A turnover of more than €40 million.

Total assets of €20 million.

The format and exact criteria for reporting are still under development. If reporting will have to contain:

Same requirements as NFRD requirements above

impact the company has on people and the environment

What significant impact the company has on people and the environment

The company’s long-term sustainability goals and progress towards these goals

How do I start with my climate account?

Minimum knowledge before you can start on your climate accounting include:

  • What is the Greenhouse Gas Protocol?
  • What are scopes 1, 2, and 3?

 

What is the Greenhouse Gas Protocol?

The GHG Protocol is a globally standardized framework for measuring and managing greenhouse gas emissions, where the protocol proposes that climate accounting must include emissions associated with three different areas, Scope 1, 2, and 3.

 

Greenhouse gases included in the Greenhouse Gas Protocol:

 
  • Carbon dioxide (CO2)
 
  • Methane (CH4)
 
  • Nitrous oxide (N2O)
 
  • Hydrofluorocarbon (HFCs)
 
  • Perfluorocarbon (PFCs)
 
  • Sulfur hexafluoride (SF6)

 

What are scopes 1, 2, and 3? 

A distinction is made between greenhouse gases that the individual company itself emits from the company’s premises and machinery (e.g. through the burning of petrol, diesel, or natural gas) – called “Scope 1” – Direct emissions.

 

What is scope 2?

emissions associated with the production of the energy the company buys (e.g. electricity and district heating) – called “Scope 2” – These are called indirect emissions, from electricity or district heating purchased and used by the company.

What does Scope 3 contain?

“Scope 3”. – Other indirect emissions, from the company’s activities, arise from sources that the company itself does not own or can control. This includes emissions related to the entire value chain both:

  • Upstream; emissions related to the supply chain
  • Downstream, emissions associated with the use and disposal of products.

Activities that fall under scope 3 emissions include, but are not limited to:

Upstream

 
  • Transport and distribution, employee commuting, business travel
  • Waste management (waste generated in operation)
  • Production of goods, services, fuels, and purchased goods, services
 

Downstream

 
  • Transport, and distribution
  • Processing and use of the sold products
  • End-of-life treatment of sold products
  • Operation of leased assets
  • Activities in investments and franchises
 

 

Why we warmly encourage you to start?

As we feel and see in the news and media, the focus on pollution, climate, and temperatures rising is a big player. Investors and major business partners are asking about the company’s sustainability, which has rubbed off on consumers. If you can show transparently what you do for the environment and why it makes sense for you to work with a green transition for a healthier future, you help your future investors, partners, and customers to make a decision that justifies to them why they choose you! At the same time, we also believe that it inspires the culture in a company, where green transition becomes a development for the company, culture, and unity.

It’s all about the first step (in showing Brand responsibility), together we learn along the way. 

In other words:

Quote by Robert Baden-Powell back in 1941: 

“Leave this world a little better than you found it”. 

 

Our questions for you:

What advantages do you think implementing climate accounting in our companies will bring in the future?

How can we motivate companies to transparently show their climate accounts?

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