What is Carbon Accounting?
At its core, carbon accounting is the process of measuring the greenhouse gas (GHG) emissions an organisation creates directly and indirectly. Think of it as your climate balance sheet: a clear record of where emissions come from across your operations, supply chain, and energy use.
Although the practice feels modern, its roots go back to the 1990s, when governments and businesses needed standardised ways to track emissions under the Kyoto Protocol. That’s when frameworks like the Greenhouse Gas Protocol (GHGP) were developed (which have since become the global standard).
You might also hear carbon accounting described as:
- GHG reporting
- Emissions measurement
- Carbon footprinting
- Sustainability reporting
- Environmental impact assessment
Different terms, same goal: clarity, transparency, and an accurate foundation for action.
How does Carbon Accounting work?
Carbon accounting isn’t guesswork. It relies on real operational data and recognised calculation methods to build a trustworthy picture of your emissions.
1. What data does it rely on?
Depending on your business, you may gather data such as:
- Energy consumption (electricity, gas, fuel)
- Business travel (flights, mileage, accommodation)
- Waste volumes and disposal methods
- Water usage
- Procurement data: materials, goods, manufacturing inputs
- Transport and logistics information
- Supplier-reported emissions
For SMEs, the biggest challenge is often that this data is scattered across teams, invoices, and suppliers, which is exactly why structured accounting (and having a smart measurement platform like Flotilla’s behind you), really matters.
2. How is it calculated?
Once your data is collected, it’s converted into emissions using emission factors, which are standardised multipliers set by reputable bodies (e.g. DEFRA, EPA, or GHGP).
In simple terms:
Raw data × emission factor = your carbon impact
For example:
If you purchased 10,000 kWh of electricity, and the emission factor for your energy mix is X, the calculation estimates how much CO₂e (carbon dioxide equivalent) that equates to.
This ensures every measurement is consistent, comparable, and aligned to global standards.
3. What are the main carbon accounting methods?
There are four primary calculation approaches used across the industry:
Activity-based method
Uses real operational data (e.g. litres of fuel, kWh of energy).This is the most accurate, and the gold standard where good data exists.
Spend-based method
Uses financial data (e.g. £ spent on goods or services) and applies average emission factors.
Useful when activity data isn’t available, especially for Scope 3.
Hybrid method
Combines activity and spend-based data.
Balances practicality and accuracy, common in SME reporting.
Supplier-specific method
Uses emissions directly reported by suppliers.
This is the most precise approach for Scope 3, (although not always available).
Scope 1, 2, and 3 emissions: what’s the difference?
To make reporting clear and universal, emissions are grouped into three scopes:
Scope 1: Direct emissions
Emissions your company produces directly.
Examples: onsite fuel combustion, company vehicles, manufacturing processes.
Scope 2: Indirect energy emissions
Emissions from the energy you buy.
Examples: purchased electricity, heating, or cooling.
Scope 3: Value-chain emissions
All other indirect emissions across your supply chain.
Examples include: purchased goods, distribution, waste, business travel, employee commuting.
For many businesses, Scope 3 often represents the largest share of emissions. It’s also the hardest to measure, which is why having the right carbon accounting platform and partner is so important!
What to do with your data and insights?
Carbon accounting isn’t just a reporting requirement. It’s also a smart decision-making tool, and one which can give you a competitive advantage.
Once you understand your emissions, you can:
- Identify hotspots i.e. the areas driving the biggest impact.
- Set reduction targets grounded in real data.
- Engage your suppliers to improve practices across the value chain.
- Prioritise investments in low-carbon tools, energy efficiency, or alternative materials.
- Communicate transparently with customers, investors, and employees.
- Track progress over time to show what’s working, and what needs attention.
Good carbon accounting doesn’t stop at measurement; it becomes the engine for continuous improvement.
Why Should SMEs Use Carbon Accounting?
Large corporations often lead the conversation, but SMEs have just as much to gain (and arguably much more!).
Here’s why it matters for smaller businesses:
1. Stay competitive in modern supply chains
Big companies increasingly require emissions data from suppliers. Having robust carbon accounting keeps you in the room.
2. Reduce costs through smarter operations
Emissions hotspots often reveal inefficiencies such as waste, excess travel, outdated equipment. Cutting carbon often cuts costs.
3. Meet customer expectations
Consumers are more climate-aware than ever. Transparency builds trust.
4. Prepare for future regulation
Climate reporting requirements are expanding globally. Early adopters stay ahead of the curve, and save themselves future business headaches.
5. Build a culture of purpose
Teams feel proud to work for organisations contributing to genuine progress, not just talking about it.
6. Unlock funding opportunities
Investors and grant bodies increasingly look for credible emissions data.
In short: carbon accounting helps SMEs move from intention to impact, with clarity, confidence, and measurable progress
