Carbon Accounting: Will the Accountancy Profession catch up?

Accountancy practices are starting to recognise the importance of incorporating Greenhouse Gas (GHG) accounting services into their client offerings. Dr Peter Ellington Associate Professor in Accounting at the University of East Anglia, in the U.K. asserts that larger businesses are already legally obligated to measure and report their carbon emissions. Following this development, carbon accounting and carbon reduction plans are set to become a standard requirement for businesses of all sizes as the requirement filters through the economy

Dr. Ellington, who combines his academic role with being CEO of Triple Bottom Line Accounting (TBLA), stands as a thought leader believing in accountants' pivotal role in guiding businesses through transitioning toward a more sustainable future. TBLA, his small accountancy practice based at the University of East Anglia in Norfolk, England, is emerging as a role model for other small and medium practices (SMPs) to follow.

GHG accounting, in contrast to traditional accounting, involves estimating businesses' total emissions, categorising them, identifying their causes, and evaluating options for emission reduction. This process allows entities to develop GHG emission reduction plans that can be effectively managed going forward. Dr. Ellington advises that for accountancy practices to support their clients in meeting the needs of a net-zero economy they must first invest in training and knowledge expansion for their teams. After all, accounting for greenhouse gas emissions encompasses measurement and recording, development of reduction plans, target-setting, and the integration of these plans into client finances. This is a natural extension of the accountant's role as a trusted advisor.

Understanding GHG accounting metrics in line with the internationally accepted Greenhouse Gas Protocol is crucial. GHG emissions are divided into three scopes: fossil fuels burned as a direct result of business activity (Scope 1), emissions arising from energy purchased, such as electricity or heat (Scope 2), and emissions arising from all other business activity (Scope 3). Measuring Scope 3 emissions upstream and downstream in business value chains is challenging but vital as they often represent a significant portion of total emissions.

Businesses can drive decarbonisation by doing their carbon accounting, reducing their Scope 1 and 2 emissions along with responsible consumption that is aimed towards reducing Scope 3 emissions. Accounting for supply chain emissions (scope 3) is becoming easier because of the rapid development of GHG estimation tools that integrate with traditional cloud accounting systems.

The Carbon Accounting Alliance (CAA) stands at the forefront of the developing carbon accounting landscape. The organisation, led by Andrew Griffiths, Director of Policy and Partnerships at PlanetMark, and Emilien Hoet, Managing Director at ClimatePartner, fills a critical gap in advancing decarbonisation efforts.

The alliance has rapidly expanded its membership base to 317 member organisations across 37 countries despite being founded only in 2023. It has collectively measured over 70,000 company carbon footprints, with more individuals benefiting from the valuable insights offered within the community. It has made it its mission to define carbon accounting methodologies, determine qualifications for "carbon accountants", and influence policy to maximise opportunities for the industry. Of the 317 member organisations only a handful are Accountancy Practices, astonishing considering that carbon is effectively a currency that the accounting professional could easily assimilate into its skillsets.

In gathering together this new breed of "accountants" that deal exclusively with carbon, Griffiths emphasises the importance of scalability, impact-driven metrics, and industry-wide collaboration in addressing the climate crisis. "We should employ a scalable approach that's both robust and impactful when addressing the climate crisis. We can't just measure for measurements' sake. Our metrics should drive action, so they must be meaningful and conducive to interoperability. This is where the alliance comes in. We advocate for standardising methodologies and focusing on innovative solutions instead of competing on measurement approaches," he stresses.

The PlanetMark Director also highlights the significance of carbon accounting to the accounting profession. He stresses the need for financial accountants to acquire skills in carbon accounting to remain credible and competent in the shifting business landscape. "We've collaborated with the ICAEW [Institute of Chartered Accountants in England and Wales], ICAS [Institute of Chartered Accountants of Scotland], and ACCA [Association of Chartered Certified Accountants], among others, to expedite the establishment of professional qualifications and training programs to meet industry demands," Griffiths adds.

Dr. Ellington, echoing Griffiths' sentiments, states, "Small accountancy practices have a crucial role in business operations, given they build close relationships with their clients. Their agility and client rapport position them as leaders in advancing carbon accounting services. Moreover, with their personalised approach, small accountancy practices can provide tailored guidance to businesses regarding sustainability reporting, which is vital in enhancing operations and brand reputation."

The problem lies in the fact that traditionally, the accounting profession has been conservative. It has exhibited reluctance to adopt new practices like carbon accounting. Now is an ideal time for small accountancy practices to recognise themselves as drivers of change and embrace their role in combining financial management with sustainability.

Dr. Ellington, currently advising on sustainability education at the university degree level for the United Kingdom's Quality Assurance Agency (QAA), underlines the importance of embedding sustainability into accounting degrees and ensuring its constant review as knowledge evolves. "The current training and syllabi for accountants often overlook the urgency of climate change," he notes. "It emphasises financial principles like the GAAP [Generally Accepted Accounting Principles] but neglects environmental reports such as those by the IPCC [Intergovernmental Panel on Climate Change]. This knowledge gap in accountancy degrees, professional training, and with accountants more generally, leads to a lack of awareness and understanding among accountants regarding their role in addressing climate change."

In other words, a comprehensive education in sustainability and carbon accounting is needed and is the reason why the profession is falling behind. Accountants need to learn about greenhouse gases and their contributions to global warming. Take the transition from coal and oil to liquefied natural gas (LNG), for instance; it may reduce carbon dioxide emissions, it can also inadvertently increase methane emissions, which have a much higher global warming potential. Accountants must be aware of such nuances to provide effective client guidance.

Small accountancy practices, therefore, must seek education in sustainability and carbon accounting to fill such gaps. Utilising tools like spend estimators, which tie carbon emissions to financial data, is an excellent starting point. After all, it can be refined over time. Platforms like Trace emphasise the significance of including accountants in the sustainability conversation. Trace Co-Founder and Chief Product Officer Joanna Auburn states, "Accountants can help because the core principles for carbon accounting—relevance, completeness, consistency, transparency, and accuracy—are the bread and butter of our existing business model."

TBLA is emerging as a leader within the accountancy practice landscape as it challenges conventional practices with a commitment to sustainability. TBLA, established in 2009, operates as a purposeful B Corporation, placing sustainability at the core of its services for SMEs. It employs an educational approach to championing carbon accounting. Sustainability Director Fran Ellington leads the company's efforts in offering expertise in carbon literacy and net-zero strategies. Through Fran's guidance, TBLA can assist clients with their carbon accounting as a complement to their traditional accountancy services, helping them succeed in the new sustainable economy as it develops.

The company offers services that cover all aspects of financial management, from accounts and tax returns to management accounts and budgeting. However, it is their unique emphasis on preparing clients for a net-zero and sustainable future that distinguishes them. The firm sees automation of its processes as an opportunity to create the space for prioritising sustainability challenges and opportunities for its clients.

TBLA has the potential to establish branches across the U.K., ensuring that its innovative approach to integrating sustainability into financial services reaches a broader clientele. It is already experiencing exponential growth, with organisations recognising the paramount importance of finding an accounting partner adept at guiding them through the transition into the green economy.

It is significant to note that TBLA goes beyond participating in the green economy—it actively shapes it. The company's pioneering work sets a new standard for the industry, as it demonstrates that accounting can be a tool for both financial management and environmental stewardship. TBLA compels other practices to follow suit in the movement toward a green economy to remain relevant in a business environment becoming even more eco-conscious.