Top 5 Challenges in Carbon Accounting (and How to Solve Them)

 
Following the passing of climate reporting legislation by the Federal Parliament on the 9th September 2024, the Australian Accounting Standards Board (AASB) published the voluntary AASB S1 and mandatory AASB S2 Standards. Since then, many companies have taken their initial steps towards compliance with AASB S2, with carbon accounting being a key component of this process. 

Akin to financial accounting, carbon accounting involves the measuring, managing, and reporting of specific metrics to provide insights into an organisation’s environmental performance. By measuring carbon emissions, companies can understand and manage their carbon footprint. 

Carbon accounting and the development of a greenhouse gas (GHG) inventory is a new undertaking for many organisations that can present a number of challenges. Through our GHG assessment work  with a wide cross section of companies, we have identified five common challenges that organisations face when starting their carbon accounting journey. Below, we outline these challenges and offer actionable solutions to help businesses navigate them effectively. 

Challenge 1: Who has the bandwidth?

In many organisations, carbon accounting responsibilities are assigned to existing teams, such as Finance or Safety, Health, Environment, and Quality (SHEQ), rather than a dedicated Sustainability or ESG team. These teams are often stretched thin, leaving limited capacity to handle additional responsibilities.. 

Tips for addressing limited bandwidth: 

• Review the Greenhouse Gas Protocol to understand the core knowledge and skills needed for carbon accounting.  
• Conduct a skills assessment of your current workforce to identify existing capabilities.
• Create an upskilling programme to build internal expertise and effectively distribute carbon accounting responsibilities across teams. 
  

Challenge 2: A tug-of-war between sustainability and bottom line.

In some organisations, leadership embraces carbon accounting as part of their commitment to sustainability. In others, competing commercial priorities lead to resistance, with resources allocated to carbon accounting deprioritised. 

Tips for balancing sustainability with commercial priorities: 

• Launch a focused pilot project for carbon accounting within a single department. 
• Measure and document tangible outcomes, including cost savings and improved compliance. 
• Use successful pilot results to demonstrate business value and build support for wider implementation. 

Challenge 3: Can you keep up?

While carbon accounting has existed for decades, the rapid evolution of climate regulations and reporting requirements presents a challenge. The global body for sustainability standards, International Financial Reporting Standards (IFRS) released IFRS S1 and IFRS S2 in June 2023. Before that in 2022, the European Union introduced its Corporate Sustainability Reporting Directive (CSRD), and the United States Securities and Exchange Commission (SEC) proposed new rules requiring listed companies to disclose their carbon footprint. 

Global stock exchanges such as Singapore, Japan, and Hong Kong, have also updated their listing rules to mandate ESG disclosures, including climate-related metrics. For businesses that are operating in different regions, it can be a struggle to stay informed about new rules and their implications. 

Tips for managing regulatory changes: 

• Assign a dedicated team member to monitor updates from key regulatory bodies.
• Create a system to track and analyse new sustainability regulations and reporting requirements. 
• Maintain a centralised database of current compliance requirements across all operating regions.

Challenge 4: We have the data (somewhere in a PDF…)

A common refrain among organisations is, ‘We have the data!’. However, much of this data is often spread across functions in embedded in unstructured formats, such as PDF forms, making it difficult and time-consuming to extract and process. 

Tips for improving data accessibility: 

• Audit your current data storage systems to identify where critical information is held and ensure accessibility. 
• Implement structured data collection methods to avoid reliance on PDFs and unstructured formats.
• Invest in automation tools to streamline data extraction and standardise formatting processes.

Challenge 5: Bringing order to data chaos

For organisations operating with multiple entities – nationally or globally – data collation becomes complex. Activity data are often scattered within each entity, requiring coordination among various stakeholders to ensure completeness. 

Tips for managing complex data across multiple entities:

• Develop a comprehensive asset register to track all potential emission sources.
• Create a centralised directory for data collection and storage.  
• Establish clear protocols for data collection and reporting across all business entities. 

Get started on your carbon game plan today!

Carbon accounting is more than just a compliance exercise – it is a critical step towards a sustainable future. By addressing these common challenges, organisations can establish a strong foundation for accurate carbon reporting and demonstrate their commitment to reducing their environmental impacts. The Automic ESG team are experts in carbon accounting and can support your business in this journey. Contact us for a consultation or for further information.