Carbon counts: tackling emissions challenges

December 2025  |  FEATURE | RISK MANAGEMENT

Financier Worldwide Magazine

December 2025 Issue

Despite numerous challenges and significant resistance to environmental, social and governance (ESG) initiatives, many companies are actively addressing their harmful emissions. Increasingly, businesses are moving beyond the sole pursuit of profit maximisation and are instead prioritising sustainability. Governments have also recognised the importance of ESG-related disclosures and have introduced guidelines to support this shift. Although these disclosures are often voluntary, many organisations are treating them with seriousness and rigour. Sustainability and carbon accounting have become more central pillars of corporate finance strategy.

The strategic role of emissions data

Organisations across the globe are committing to net-zero emissions targets, with many implementing frameworks such as the Greenhouse Gas (GHG) Protocol. This protocol provides standards and tools to help entities track progress toward climate goals. In 2023, 97 percent of disclosing S&P 500 companies reported using the GHG Protocol in their submissions to CDP, the non-profit organisation that operates the global environmental disclosure system.

The GHG Protocol enables organisations to understand their climate impact, set reduction targets, comply with regulations and demonstrate progress to stakeholders, including customers, investors and governments. It categorises emissions into three scopes. Scope 1 refers to direct emissions from sources owned or controlled by the company, such as company vehicles or on-site boilers. Scope 2 covers indirect emissions from the generation of purchased energy, including electricity, heat and steam. Scope 3 includes all other indirect emissions across the value chain, such as those from purchased goods, transportation and waste disposal; it is generally the most complex, encompassing a wide range of upstream and downstream activities.

To comply with these scopes, companies must establish a robust GHG inventory. This involves collecting activity data – such as fuel use, electricity consumption and waste generation – and applying relevant emission factors to calculate scope 1, 2 and 3 emissions.

As carbon accounting becomes more embedded in corporate strategy, companies are beginning to explore its potential for driving innovation. By analysing emissions data, organisations can identify inefficiencies and uncover opportunities for process improvements, product redesign and supply chain optimisation. This data-driven approach not only supports environmental goals but also enhances operational resilience and cost effectiveness. In this way, carbon accounting is evolving into a tool for strategic transformation, enabling companies to reimagine their business models in line with sustainability imperatives.

Compliance with the GHG Protocol forms part of a broader effort to achieve net-zero emissions. While attitudes toward net zero vary – for example, 56 percent of Republicans and Republican-leaning individuals believe climate policies harm the economy, according to the Pew Research Center – momentum continues to build. According to Net Zero Tracker, 92 percent of global gross domestic product is now covered by net-zero commitments for 2050.

As a result, businesses face growing pressure to measure and disclose their GHG emissions accurately. This pressure comes from a range of stakeholders, and new regulations are being introduced across jurisdictions to strengthen carbon accounting. Although requirements vary in scope and strength, both the European Union (EU) and the UK have made significant progress in developing emissions reporting rules.

In the EU, the Corporate Sustainability Reporting Directive (CSRD) mandates large companies –  including certain non-EU firms operating within the EU – to report on sustainability issues, including GHG emissions. The European Sustainability Reporting Standards, developed under the CSRD, draw on frameworks such as the GHG Protocol to standardise emissions reporting. The EU’s Carbon Border Adjustment Mechanism (CBAM) also requires importers to document and pay for embedded GHG emissions in certain goods, effectively integrating carbon accounting into trade law. Additionally, the EU has introduced certification rules for carbon removals, establishing a framework for quantifying, monitoring and verifying these activities.

In the UK, the Climate Change Act 2008 sets legally binding targets for GHG reduction, including net zero by 2050. The Act mandates carbon budgets and national emissions reporting, with carbon accounting embedded in the concept of the “net UK carbon account”. The Carbon Accounting Regulations 2009 and the Carbon Accounting (Provision for 2020) Regulations 2022 detail how the UK accounts for emissions, offsets and credits. From January 2027, the UK CBAM will require importers to report embodied emissions in goods and register accordingly.

In the US, the Securities and Exchange Commission has introduced climate disclosure rules requiring large public companies to include climate-related information in their annual reports beginning in 2025. Companies with over $700m in publicly traded shares must report scope 1 and 2 emissions data in their 2025 year-end filings. California’s climate legislation also mandates scope 1 and 2 reporting for large companies, with scope 3 increasingly in focus.

Carbon accounting has gained prominence in recent years and now closely mirrors financial accounting. It tracks emissions across operations, energy use and supply chains, measuring and reporting the GHG emissions produced by a company’s activities. Just as financial accounting reflects economic performance, carbon accounting quantifies climate impact by aggregating all greenhouse gases released. These measurements are expressed in carbon dioxide equivalent, a universal metric that enables comparison across different greenhouse gases. It is important to distinguish between carbon accounting, which focuses on carbon dioxide, and GHG accounting, which encompasses all greenhouse gases.

Scope 3 emissions – often 5.5 times higher than direct emissions – present the greatest challenge but also the greatest opportunity for impact. Companies are increasingly integrating carbon metrics into financial reporting, risk management and procurement decisions to meet stakeholder expectations. Meanwhile, global climate policy shifts and innovations in carbon capture, hydrogen and climate technology are reshaping sustainability strategies, positioning carbon accounting as a strategic advantage rather than a compliance burden.

Carbon transparency and the stakeholder imperative

The rise of carbon accounting has also prompted a shift in investor behaviour. Institutional investors are now scrutinising emissions data as part of their due diligence, using it to assess long-term risk and value creation. This trend is influencing capital allocation, with low-emission companies often enjoying better access to financing and more favourable terms. As sustainable finance continues to grow, carbon accounting will play a pivotal role in shaping investment portfolios and guiding shareholder engagement.

In parallel, consumer awareness is also influencing corporate behaviour. Customers are increasingly making purchasing decisions based on a company’s environmental credentials, and carbon transparency is becoming a key differentiator in competitive markets. Brands that can demonstrate genuine progress in reducing emissions are more likely to build loyalty and attract ethically minded consumers. This shift in consumer expectations is reinforcing the need for robust carbon accounting and transparent reporting.

Academic institutions and research bodies are also contributing to the evolution of carbon accounting. Universities are developing specialised programmes and certifications to equip future professionals with the skills needed to manage emissions data and sustainability reporting. These educational efforts are helping to build a pipeline of talent capable of supporting organisations in their transition to low-carbon operations. The collaboration between academia and industry is fostering innovation and ensuring that carbon accounting remains responsive to emerging challenges.

Given these developments, it is clear that companies can no longer afford to treat carbon accounting as a superficial exercise. It has become a boardroom priority. The growing trend of GHG emissions disclosure among large corporations reflects increasing pressure from regulators and stakeholders. Investors, customers and employees now expect greater transparency regarding environmental impact. As a result, carbon accounting has become a vital tool for building and maintaining trust.

There are also significant financial implications. High emissions can result in lost business, particularly as more companies require carbon disclosures during procurement. Ignorance of emissions data can be detrimental to competitiveness.

Strategic and risk management considerations are also driving companies to enhance their carbon accounting efforts. This enables organisations to identify and manage climate-related risks, including regulatory changes, market shifts and physical impacts.

Despite its growing adoption, carbon accounting remains challenging to embed across operations. Technical issues often affect data accuracy and quality. Emissions data is typically fragmented across systems used by procurement, logistics, human resources and finance, making it difficult to compile a complete and consistent picture. Overcoming these silos requires improved collaboration and clearly defined responsibilities for data collection. Companies should invest in centralised repositories and automated platforms to reduce manual errors and accelerate reporting.

The selection of emission factors – which underpin every calculation – is critical. Using outdated or inappropriate factors can lead to serious inaccuracies. This issue is particularly complex for multinational firms, where regional differences must be considered. Such companies should rely on the latest region-specific data from trusted sources, such as the GHG Protocol.

Organisations must also prioritise audit readiness. Credible verification depends on transparent, traceable processes. Every figure must be supported by clear documentation and a detailed audit trail. Aligning with GHG Protocol guidelines ensures consistency, while regular internal reviews and interim audits help identify weaknesses before external verification.

As carbon accounting matures, there is growing interest in harmonising standards across jurisdictions. Fragmented regulatory frameworks can create confusion and inefficiencies, especially for multinational corporations. Efforts by bodies such as the International Sustainability Standards Board (ISSB) aim to unify reporting requirements, making it easier for companies to comply and for stakeholders to compare performance. This global convergence could accelerate adoption and improve the quality of emissions data worldwide.

Embedding sustainability into corporate DNA

As with many modern compliance issues, senior leadership – particularly the C-suite – must take ownership of carbon accounting. From the chief executive down, leadership is essential in driving sustainability. Their decisions and actions shape not only the present but also the long-term future of the organisation. Carbon accounting plays a key role in value creation, risk mitigation and stakeholder engagement.

However, improving carbon accounting is not a one-off task; it is an ongoing process requiring strategic planning, methodological rigour and innovation. Senior leaders must focus on education and training, recruitment and collaboration, and regular monitoring and reporting. This ensures carbon accounting becomes a permanent and vital part of business operations.

In addition to internal efforts, collaboration with external partners is becoming increasingly important. Companies are forming alliances with suppliers, industry groups and technology providers to share best practices and develop sector-specific solutions. These partnerships can help overcome data challenges, improve reporting accuracy and foster innovation. By working together, organisations can accelerate progress toward net zero and build more resilient value chains.

To embed sustainability into the organisational culture, companies must also rethink how success is measured. Traditional financial metrics alone are no longer sufficient. Forward-looking organisations are incorporating environmental performance indicators into executive scorecards, annual reports and strategic reviews. This shift signals a broader transformation in corporate governance, where climate responsibility is treated as a core business objective rather than a peripheral concern. By aligning incentives with sustainability outcomes, companies can ensure that carbon accounting is not only adopted but actively championed across all levels of leadership.

When implemented effectively, carbon accounting can transform organisational thinking. Like broader compliance functions, it should not be viewed as a burden. With the right leadership and systems, it can deliver competitive advantage and support sustainable growth.

© Financier Worldwide

BY

Richard Summerfield