By Sustainability Core Advisors
In an era marked by growing concern over climate change, businesses across the globe are facing increasing pressure to reduce their carbon footprints and align their operations with sustainability goals. As governments, investors, and consumers call for greater environmental responsibility, carbon output accounting is emerging as a new sustainable business standard.
Companies in the U.S. may be behind some in Europe and elsewhere in terms of carbon tracking because there is currently no nationwide carbon tax. However, the Securities and Exchange Commission (SEC) is considering regulations that would require companies to report their carbon emissions. Also, some states have begun to pursue this issue.
That’s why the practice of tracking, reporting, and reducing the carbon emissions associated with business operations has become a critical aspect of corporate strategy. As such, it influences everything from supply chain decisions to marketing and financial reporting. Sustainability Core Advisors helps clients in various industries tackle this important topic.
What is Carbon Output Accounting?
Carbon output accounting is the process of measuring, reporting, and managing the greenhouse gas (GHG) emissions a company generates as part of its operations. This includes direct emissions from sources owned or controlled by the company (scope 1 emissions), indirect emissions from the generation of purchased electricity or other forms of energy (scope 2 emissions), and emissions from the entire value chain (scope 3 emissions). Scope 3 emissions — often the largest and most difficult to measure — include emissions from activities such as product use, waste disposal, and employee travel.
Carbon output accounting is part of a broader trend of environmental, social, and governance (ESG) reporting. It allows businesses to quantify their environmental impact, assess risks, and identify opportunities for reducing emissions. As global climate targets and regulations evolve, the importance of carbon output accounting will continue to grow, influencing everything from investment decisions to regulatory compliance.
Why Carbon Output Accounting Is Becoming a Business Standard
1. Regulatory Pressure
Governments around the world are increasingly introducing policies that require businesses to disclose their carbon emissions. In Europe, the European Union’s Green Deal aims to make Europe the first climate-neutral continent by 2050, with interim targets for 2030. The EU has already implemented mandatory carbon reporting requirements for large companies under the Non-Financial Reporting Directive (NFRD), which was replaced in 2024 by the Corporate Sustainability Reporting Directive (CSRD) by 2024.
In the United States, in addition to the aforementioned proposed SEC regulation for reporting carbon emissions, various state-level regulations are pushing businesses to comply with carbon reporting. One example is California’s cap-and-trade program and its mandatory climate-related disclosure requirements.
With governments imposing stricter rules and carbon pricing mechanisms becoming more widespread, businesses that fail to monitor and reduce their carbon emissions may face higher costs, penalties, or a loss of market access. Compliance with carbon output accounting can thus mitigate risks and ensure a smoother path through an increasingly regulated landscape.
2. Investor Demands
Investment trends have shifted toward sustainability, and institutional investors are paying closer attention to how companies manage their carbon output. The rise of sustainable finance has led to the creation of various indices, funds, and investment products that focus on low-carbon or carbon-neutral portfolios. For example, the Glasgow Financial Alliance for Net Zero (GFANZ) includes financial institutions committed to supporting the transition to net-zero emissions by 2050.
Investors now recognize that climate risks can materially affect a company’s financial performance. Carbon-intensive industries may face higher costs due to carbon taxes, regulatory changes, or supply chain disruptions, while companies that are proactive in reducing emissions may benefit from cost savings, brand loyalty, and long-term competitiveness. Carbon output accounting enables investors to assess these risks and make informed decisions about where to allocate capital.
3. Consumer Preferences
Today’s consumers are more environmentally conscious than ever before. Studies show that people are increasingly making purchasing decisions based on the sustainability practices of businesses. In fact, a report by McKinsey found that 70% of consumers are willing to pay more for sustainable products and services. Much of this consumer preference is being driven by the growing influence of Millennials and Generation Z. This consumer demand for sustainability is forcing companies to demonstrate their commitment to reducing their environmental impact.
Carbon output accounting offers businesses a transparent way to measure and report their environmental efforts. By quantifying and publicly disclosing emissions, companies can show customers that they are taking meaningful steps toward sustainability. This can enhance brand reputation, increase customer loyalty, and create a competitive advantage in markets where environmental responsibility is highly valued.
4. Operational Efficiency and Cost Savings
Carbon output accounting is not only about reducing emissions but also about improving operational efficiency. By tracking energy consumption, transportation logistics, and supply chain processes, businesses can identify areas where they can reduce waste, optimize energy use, and lower costs. For example, transitioning to renewable energy sources, implementing energy-efficient technologies, or rethinking supply chain logistics can all reduce carbon emissions while lowering operating expenses.
Furthermore, businesses that proactively reduce their carbon emissions may be eligible for tax incentives, grants, or subsidies. Governments worldwide are offering financial support to companies that invest in green technologies or adopt carbon-reducing practices. For example, the U.S. Inflation Reduction Act (IRA) provides tax credits for businesses that invest in clean energy infrastructure, electric vehicles, and carbon capture technologies.
5. Competitive Advantage
The global transition to a low-carbon economy presents new market opportunities for businesses that are at the forefront of sustainable practices. Companies that embrace carbon output accounting and actively reduce their emissions may be better positioned to capitalize on these opportunities. For example, the rise of electric vehicles (EVs) and renewable energy technologies presents an opportunity for businesses to innovate and create new products or services that cater to the growing demand for low-carbon solutions.
In some industries, such as manufacturing or technology, being able to prove a commitment to sustainability can provide a significant competitive edge. Customers and investors alike are seeking out companies that demonstrate leadership in reducing their carbon footprints, and those that fail to meet these expectations may fall behind in the marketplace.
How to Implement Carbon Output Accounting
For businesses looking to adopt carbon output accounting as a new standard, there are several steps to consider:
1. Understand the Three Scopes of Emissions
The first step in carbon output accounting is to understand the three primary scopes of emissions:
- Scope 1: Direct emissions from owned or controlled sources, such as company-owned vehicles, buildings, or industrial processes.
- Scope 2: Indirect emissions from the consumption of purchased electricity, steam, heating, or cooling.
- Scope 3: All other indirect emissions from the value chain, including emissions from suppliers, product use, waste disposal, and employee commuting.
2. Establish a Baseline and Set Goals
Once a company has a clear understanding of its carbon emissions, it should establish a baseline to track progress. This may involve conducting a carbon audit or using carbon footprint calculators to quantify emissions across various departments and activities. With this data, companies can set realistic goals for reducing their emissions over time. Many businesses set ambitious targets to achieve net-zero emissions by 2050, in line with the goals of the Paris Agreement.
3. Track Emissions and Report Progress
Tracking emissions is an ongoing process that requires regular monitoring and reporting. Many businesses use specialized software or third-party consulting firms to help track and report emissions data in line with international standards like the Greenhouse Gas Protocol or the Carbon Disclosure Project (CDP). Transparency is key to ensuring credibility, and businesses must be ready to share their carbon footprint data with stakeholders, including investors, regulators, and consumers.
4. Reduce Emissions and Engage Stakeholders
Reducing emissions requires a comprehensive strategy, which may include transitioning to renewable energy, improving energy efficiency, changing transportation methods, or adopting new technologies. Engaging employees, suppliers, and customers in these efforts can amplify the impact of carbon reduction initiatives. In many cases, collaboration across the value chain is essential to achieving meaningful reductions in emissions.
5. Offset Remaining Emissions
Even with the best efforts to reduce emissions, some companies may find it challenging to eliminate all carbon outputs. In such cases, businesses can consider carbon offsetting—investing in projects that capture or prevent the release of CO2, such as reforestation or renewable energy projects. While offsetting should not be seen as a substitute for reducing emissions, it can be a valuable tool for businesses striving to achieve net-zero goals.
The Future of Carbon Output Accounting
As climate change becomes an increasingly urgent global issue, carbon output accounting will likely become the norm for businesses across industries. The adoption of standardized accounting practices, such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI), is helping to create consistency and transparency in how businesses report their environmental impact.
In the future, carbon output accounting may become as integral to business operations as financial accounting. Companies that embrace this shift will not only mitigate risks but also unlock new opportunities for growth, innovation, and competitive advantage. As carbon reduction becomes a central component of business strategy, companies that lead the charge will be better positioned to thrive in a low-carbon economy.
Make Carbon Output Accounting Part of Your Business Sustainability Plan
Carbon output accounting is rapidly evolving from a niche practice to a business standard, driven by regulatory requirements, investor expectations, consumer preferences, and operational efficiencies. For more guidance on how to fit this discipline into your business planning, contact Sustainability Core Advisors.
