Carbon reporting helps increase transparency and accountability in global climate action. It improves awareness of the carbon footprint of the reporting entity (e.g. a company, bank, project, product or city) and reveals opportunities to reduce emissions and mitigate climate risks.
What is carbon reporting?
Carbon reporting is the process of calculating and disclosing the greenhouse gas (GHG) emissions of an organization. It involves carbon accounting (measuring the emissions resulting from an organization's operations and supply chains) and then reporting the results of the carbon accounting process.
The reported data and information can take different forms, depending on the type of carbon accounting and the reporting requirements and context; for example it could be a corporate GHG emissions inventory, or a product carbon footprint, or a bank's portfolio carbon footprint (financed emissions).
Carbon reporting can also include tracking, assessing and reporting on broader elements of climate change risks and impacts: for example, exposure to physical climate risks, regulatory risks or low-carbon and net-zero opportunities.
Where is carbon information reported?
As the climate crisis worsens and awareness of carbon risk grows, more and more boards, governments, customers and investors are requesting (or requiring) companies to report their GHG emissions. In many cases, this includes supply chain emissions.
Carbon reporting can be private (e.g. shared directly with stakeholders who requests the information) or public via a carbon disclosure platform.
Mandatory vs voluntary carbon reporting
Carbon reporting is already mandatory or set to be implemented in several jurisdictions, such as the UK, Australia, US, China and EU (explore the full carbon regulation map).
Meanwhile, voluntary carbon reporting is becoming a business norm. Over half of the world’s companies, in terms of global market capitalization, voluntarily disclose their emissions through CDP in response to requests from investors and purchasers, and many more publish their emissions data in annual sustainability reports.
What needs to be reported?
Generally, carbon reporting regulations and frameworks focus on corporate carbon footprints, involving corporate GHG inventories*.
However, there are other ways of slicing and reporting an organization’s emissions, which may be more relevant in different cases. For instance, a company might report its product carbon footprints, rather than its corporate carbon footprint, to purchasers or consumers who want to understand the embedded emissions in the products they buy.
In the case of corporate carbon reporting, the reporting requests, rules and mechanisms generally follow the Greenhouse Gas Protocol (GHG Protocol), which is the global standard-setter for carbon accounting and reporting.
Under the GHG Protocol Corporate Accounting and Reporting Standard, companies who are reporting their corporate-level GHG emissions inventory (their full corporate carbon footprint) need to include Scope 1, 2 and 3 emissions:
Scope 1 reporting — Direct emissions
Companies must account for and report their Scope 1 emissions. Companies may further categorize emissions data within Scope 1 in their reported inventories. For example, by business unit/facility, country or source type (stationary combustion, process, fugitive).
Scope 2 reporting — Electricity indirect emissions
Companies must account for and report their Scope 2 emissions. These emissions physically occur at the facility where electricity is generated.
Scope 3 reporting — Other indirect emissions
Companies should account for and report their Scope 3 emissions. These are usually the biggest source of a large company’s emissions, as well its carbon risks and opportunities. Under certain regulations and frameworks, Scope 3 reporting is mandatory (which includes upstream and downstream supply chain emissions).
*It should be noted that not all climate reporting involves reporting GHG emissions. ESG, sustainability and non-financial reporting can focus on direct (physical and transitional) climate-related risks and opportunities, in addition to (or instead of) the GHG emissions the company generates.
The challenges and opportunities of carbon reporting
The carbon accounting challenge
Carbon reporting demands the same rigor as financial reporting, but the underlying process of carbon accounting is challenging for companies to do accurately, exhaustively and regularly. Establishing operational boundaries and scopes tend to be a key challenge, as well as the actual emissions calculations. This is where carbon accounting software can help.
Accountability and reputational impact
Companies often fear that regulations requiring disclosure of energy use and carbon emissions will result in potential reputational damage.
💡 To improve their carbon reputation this, companies should:
- Set science-based emissions reduction targets in line with achieving net zero by 2050;
- Create a plan to achieve deep and rapid emissions cuts as well as long-term reductions aligned with net zero;
- Ensure they have a climate transition action plan to transition their business models and supply chains to a net-zero future;
- Regularly report progress against these plans.
The Scope 3 challenge
Scope 3 reporting is the most challenging, due to the difficulties involved in accounting for supply chain emissions. Relying on suppliers reporting their emissions data is a common barrier, and many companies lack visibility into their upstream and downstream supply chain and the provenance of goods.
According to CDP, over half of reporting companies leave out these emissions, despite a typical company’s supply chain emissions being 11.4x greater than its operational emissions, and despite impending Scope 3 reporting regulations.
💡 Companies can overcome the supplier reporting challenge by:
- Engaging with the CDP Supply Chain programme and requesting suppliers to disclose their emissions;
- Using the CarbonChain platform to fill in the data gap from source to shipment, and beyond.
Lack of standardization in carbon reporting and climate reporting
The existence of myriad carbon reporting frameworks and standards, and their respective guidelines, creates confusion for companies, as well as investors or customers who need to compare and benchmark corporate information and performance.
While the GHG Protocol is generally used for carbon emissions reporting, the broader climate reporting ecosystem lacks full harmonization.
However, there is a move towards standardization. For example, the ISSB (International Sustainability Standards Board) has incorporated the SASB (Sustainability Accounting Standards Board). For climate-related financial disclosures. Additionally, CDP has incorporated the ISBB climate standard and is aligned with the Task Force on Climate-related Financial Disclosures (TCFD).
Opportunities and benefits of carbon reporting
Companies who report their carbon emissions are also measuring and tracking them; this means they are more aware of their carbon-related risks, more able to set science-based targets to reduce their emissions and prove those reductions, and are better prepared for new and changing carbon regulation.
As purchasers, customers and investors set their own targets to lower their carbon footprints, companies can gain a competitive advantage by reporting their emissions as evidence of being the lower-carbon choice.
Carbon reporting ensures that climate claims such as ‘net zero’ and ‘carbon neutral’ are backed up by evidence, to avoid risks of greenwashing.
Carbon reporting with CarbonChain
Ready to meet your stakeholders’ requests and get ahead of regulation?
CarbonChain’s platform provides accurate and automated carbon accounting so you can fulfill your carbon reporting requirements, and fill the supply chain data gap.
Whether your company needs to report its corporate emissions inventory, product carbon footprints, or commodity trade emissions, get in touch.
Frequently Asked Questions (FAQs)
The UK SECR requires companies to report on their annual energy use, carbon emissions, and energy efficiency measures. The regulation applies to the following companies:
- All companies listed on the London Stock Exchange);
- Large unquoted companies
- Large limited liability partnerships (LLPs)
- Under the proposed Federal Supplier Climate Risks and Resilience Rule, major suppliers to the US federal government will be required to publicly disclose GHG emissions and climate-related financial risk through CDP and set science-based targets.
- Under the proposed US Securities and Exchange Commission (SEC) climate disclosure rules, publicly listed companies in the US will have to report their climate-related risks, emissions, and net-zero transition plan in line with the TCFD.
- Under the Corporate Sustainability Reporting Directive (CSRD), the EU requires all large companies and all listed companies to disclose ESG-related risks and opportunities.
- The EU Emissions Trading System (EU ETS) requires carbon reporting in the form of verified emissions reports, before surrendering a number of allowances corresponding to their emissions.
- The EU Carbon Border Adjustment Mechanism (EU CBAM) came into force on 17th May 2023. It will require importers of high-carbon commodities to report production emissions from October 2023, and to purchase certificates tied to the EU ETS carbon price equal to reported emissions from 1 January 2026.
Carbon reporting requirements determine what and how an organization or other entity should disclose and report their GHG emissions and related data. These requirements are typically set by governmental bodies or regulators. Requirements vary from one jurisdiction to another, and according to company size and industry, but typically they define an organization’s obligations around the following elements:
- The scope of carbon reporting (e.g. Scopes 1 and 2 or Scopes 1, 2 and 3)
- Which carbon reporting standard and framework to follow (e.g. GHG Protocol, CDP, sector-specific initiatives)
- Which platform or channel to report through (e.g. CDP)
- Verification of reported emissions data
- Frequency of reporting
Non-financial reporting is the reporting of information related to an organization’s environmental, social and governance (ESG) performance. It provides shareholders and other key stakeholders with insights into a company’s risks, impacts and opportunities beyond financial results. For example, a non-financial report may include information on: environmental impact and risks, including carbon emissions; corporate governance; social and labor practices.
Non-financial reporting is also known as sustainability reporting or CSR (corporate social responsibility) reporting.