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Have you decided to reduce the carbon emissions of your small business as part of your overall business strategy? You may be driven by a moral obligation to protect the planet or perhaps the potential for commercial upside. Your target might be to achieve carbon neutrality or even net zero (terms I’ll explain in this article).
You might be in an industry that’s carbon intensive (often product based) or one that represents lower levels of carbon emissions (usually service industries).
Many businesses are in the same position but are perhaps don’t quite know how to get started. Or what may be expected as a result of government net zero policy.
Whatever the case, you need to know how to transform your ambition into a strategy and then implement it into your business. In this post, I’ll walk you through how to do it:
And if you’re not yet sure if you want to launch climate goals for your business, then you may want to read this article about the pros and cons first. It may help you decide.
What to consider before embarking on a carbon reduction plan
Before you start a carbon reduction plan, it's good to go through a quick checklist.
Knowing your ‘why’
First of all, it’s important not to rush into anything. Integrating climate ambitions into your small business needs careful consideration if it is to be successful.
Are you clear about what you want to achieve and why? Companies face a lot of pressure to demonstrate their environmental credentials. While pursuing a climate agenda may have benefits, it shouldn’t come at the expense of optimising your core business. It should add value to what you do already without diverting your focus.
There should be a balance between what’s expected of your small business and what can be achieved practically. Your sustainability ambitions should not destroy value either by incurring excessive costs or distracting you from your day job.
Understanding the scale of the task
As part of any climate strategy, you need to conduct a thorough assessment of your company’s emissions profile. This will involve identifying the major sources of your emissions and understanding the potential for reduction. For some businesses (especially product rather than service-based industries), this can be a significant undertaking.
Is this something you’re willing to take on?
Do you have the resources?
Every company initiative consumes valuable resources. The difference with a climate plan is that it requires the cultivation of a separate knowledge base:
As a small business without a dedicated decarbonisation team, you’ll most probably need the expertise of an external consultant (at a cost).
You’ll also still need at least one person in-house who can take ownership of the project (with back-up in case they leave or are absent for some reason). This may take them away from other important tasks.
Management time will also be taken up for approval and sign-off.
You need to be sure you have the budget and enough of the right personnel to support your plan’s execution.
Are your stakeholders on board?
Given it’s unlikely to be core to your business (unless sustainability is part of your unique selling point — USP), an emissions reduction plan should get the backing of your stakeholders (especially investors and your management team).
You should engage in dialogue, seek input and communicate transparently about what you plan to do. If you face opposition, you need to understand why and then perhaps reassess.
Choosing the right expert consultant
There is a growing number of expert carbon neutral and net zero consultants to choose from. Their offers can range from carbon footprint calculations to bespoke advice to acting as an intermediary for carbon credit purchases (or all three). It’s important that you choose the right one for you.
It’s also worth doing some due diligence on fees and profit margins as only one in ten providers disclose this information (according to Carbon Market Watch) which means you could end up overpaying and/or buying low quality carbon credits.
The difference between carbon neutrality and net zero
Once you’ve decided to move ahead with your project to develop a climate strategy, you need to familiarise yourself with some industry terminology.
Let’s start with carbon neutrality and net zero. These terms are often (incorrectly) used interchangeably. Here’s an explanation of each:
Carbon neutrality
Carbon neutrality is like balancing a scale. It’s about making sure GHGs emitted on one side (say, by a company) are balanced by an equivalent amount that are avoided or removed (or offset) on the other side (in some other place). The result is that no additional net emissions are released.
So, in practice, a company would measure its emissions (through a calculation of its carbon footprint). It would then offset those emissions by doing something that avoids or removes the equivalent amount of emissions elsewhere, i.e. by buying carbon credits.
The result is that no additional net emissions are released.
Aiming for carbon neutrality is often the first step companies take to tackle their emissions before aiming to get to net zero.
One of the criticisms of carbon neutrality is that it acts, in effect, as a permission to pollute, i.e. companies are simply offsetting their emissions rather than reducing them (i.e. decarbonising). However, some companies do go a step further in their carbon neutrality strategies by doing some work to reduce their emissions at source (even by a small amount per year). The carbon offset credits they need to buy are then proportionately lower.
Net zero
Net zero takes the concept of carbon neutrality further. Its aim is to reduce emissions at source by as much as possible.
To achieve this, a company would analyse its emissions across its operations, supply chain and other associated activities and would then take measures to minimise them. It could do this through energy efficiency, switching to renewable energy and adopting sustainable business practices. Only residual emissions that can’t be eradicated would then be offset using carbon credits.
Organisations such as the Science Based Target initiative (SBTi) have developed pathways for companies to validate their net zero GHG reduction targets to ensure they’re aligned with what science deems necessary to limit global warming to 1.5°C in the near-term.
Carbon neutrality is a more readily achievable goal for companies with climate strategies. Getting to net zero takes more effort and will usually involve higher costs.
What is a carbon footprint and how do you measure it?
Now to get started with the real work of developing an emissions reduction strategy for your company.
Understanding your carbon footprint and the three scopes of GHG emissions
The first step is to understand and calculate the components of your ‘carbon footprint’ – the industry term for the amount of carbon you emit and its sources.
This is often referred to as a Baseline Assessment. This assessment is the starting point for setting meaningful carbon neutral or net zero goals.
Calculating your carbon footprint involves identifying and quantifying emissions from three different sources — described as Scope 1, Scope 2 and Scope 3 emissions. Each of these three scopes (as defined by the Greenhouse Gas Protocol) is a category of GHG emissions.
Here’s an explanation of each along with a summary diagram:
Scope 1: These are direct emissions from owned or controlled sources, such as on-site fuel combustion, company-owned vehicles or industrial processes. They are produced as a result of your company's operations and are within your direct responsibility. An example would be the emissions from the use of petrol in your company cars (if they’re not electric vehicles).
Scope 2: These are indirect emissions that come from the purchased electricity, steam, heat or cooling that your company uses. An example would be the emissions produced in generating the electricity that is used in your building.
Scope 3: These are all other indirect emissions (i.e. those not included in Scope 2). While they are not from sources your company owns or controls, they are related to what your company does (up and down your value chain). An example is when you buy, use and dispose of products from suppliers.
Scope 3 is typically around 90% of an average company’s carbon footprint. It is also the most opaque of the three scopes as it requires knowledge of the emissions of external parties. For this reason, most carbon footprint calculators account for Scopes 1 and 2 and perhaps only part of Scope 3 (where that can be measured reliably).
Of course, if your upstream and downstream value chain also measured and addressed its GHG emissions, your Scope 3 emissions could be fully accounted for.
Interestingly, some large (especially listed) companies are now requiring their supply chains to achieve defined environmental targets, e.g. full adoption of renewable energy as a power source. Small companies with large customers could get tied up in this and be forced to adopt a climate policy.
Image source: GHG Protocol
Data collection
The first step in calculating your carbon footprint is to collect the relevant and associated data. This will include your energy consumption, fuel usage, transport information, production processes and all other activities related to carbon emissions.
You can obtain this data from utility bills, fuel receipts, vehicle logs, production records and supplier information.
Emission factors
Next you gather the relevant emissions factors. Emission factors help you calculate how much pollution is created by different activities. They tell you how much greenhouse gas (GHG) emissions are produced for each unit of something you use or do.
Emissions factors will be different for various activities. For example, using electricity, heating a building and manufacturing a product will each have their own emission factors. Each takes into account variations, such as the type of fuel used, the energy efficiency of equipment and the specific process involved.
Emission factors can be found on government websites. They are most often consistent with the IPCC (Intergovernmental Panel on Climate Change) database of emission factors which can be found here.
Calculation and estimation
Using the collected data and emission factors, you can now calculate your carbon emissions. This involves multiplying activity data (e.g., energy consumption, distance travelled, etc) by the corresponding emission factors to estimate how much CO2 equivalent has been emitted from each source.
So for example, if you want to know the emissions from driving a company car, you can use an emissions factor that tells you how much CO2 is released per mile driven. Multiplying this factor with the number of miles driven will give you the emissions from the car.
Aggregation
Once you’ve calculated emissions for each emission source, these can be aggregated to determine the total carbon footprint of your company. This includes summing up emissions from all scopes and identifying the main contributors to your overall carbon footprint.
Normalisation
This is a process that will allow you to make meaningful comparisons between your company and others of a different size and type. It can also help track performance over time. Here’s an example of how it works:
Imagine two companies selling the same product: Company A sells 100 products, and Company B sells 1000 products. Without normalisation, it might seem like Company B emits more GHGs (just because it sells more). But normalisation can help make a fair comparison.
Normalisation uses a common factor (usually unit of production, revenue or employee) to divide total emissions. In this instance, we could use product volume. This would help us understand the emissions created by each unit of product. This makes it easier to compare the emissions of Company A with those of Company B.
Verification
This is an optional stage where you can engage third-party auditors to validate your carbon footprint calculations. Verification will add credibility to your reported emissions data and ensure compliance with established standards or reporting frameworks. It’s worth noting though that this will come with added costs.
Software packages that calculate carbon footprints
At this point, you may be wondering how you should record and combine all these data. It seems like a time-consuming, complex task – and it is. Thankfully, many start-up software companies have been launched in recent years that market standard software applications that help you get the job done. These are replacing the legacy approach which involves doing lots of manual calculations using spreadsheets or filling in forms.
Carbon footprinting software applications record all your data in a central location and streamline the process of combining the data to calculate your footprint. There is a one-time set up cost of consulting fees and your time but, on a recurring basis, the all-in costs are much lower than using spreadsheets.
How to set carbon neutrality goals
Now that you have your baseline assessment, you can set clear, realistic and measurable carbon neutrality goals. These goals should specify a date by which you aim to reach your target and be aligned with the overall sustainability strategy of your organisation.
Define your scope
At this stage, you need to understand the extent to which you’ll reach carbon neutrality, i.e. you need to decide if your goals will cover only your direct emissions (Scope 1) or indirect emissions beyond that. For example, you could include indirect emissions from purchased electricity (Scope 2) and any additional indirect emissions from your supply chain and other sources (Scope 3).
To do this, you need to evaluate your company’s sphere of influence and its ability to control or modify emissions from different sources.
Select your timeframe
This is entirely subjective but needs to be practical. It can be short-term (within five years) or longer-term (say, 10-20 years). What’s essential here is that your timeframe aligns with your company’s overall sustainability strategy.
Consider frameworks and standards
To boost your credibility and ambition, you could align your carbon neutrality goals with a recognised framework and standards. For example, those set by the Science-Based Targets Initiative (SBTi). These targets are considered to be in line with achieving the climate goals of the Paris Agreement, i.e. limiting global warming to well below 2°C (above pre-industrial levels) and pursuing efforts to limit it to 1.5°C.
Set realistic goals
While it may be tempting to set ambitious goals, they must also be achievable. You need to take into account how they fit within your overall business strategy, including your operational capabilities, your resources (financial and human), technical knowledge and stakeholder expectations.
Determine your reliance on carbon credits
To achieve your climate goals, you may consider decarbonisation efforts, such as:
Improving energy efficiency
Adopting renewable energy as a source to power your operations
Changing company policies and procedures so fewer emissions are released
Working with suppliers and partners to promote sustainability throughout your supply chain
Product innovation to deliver low-carbon or carbon-neutral products and services to customers
The extent to which you do this will depend on your specific ambitions. Whatever is then left over (and either can’t be eliminated or are not part of your programme) are called residual emissions. You need to determine how you will compensate for these.
You can do this by buying carbon credits (i.e. investing in carbon offset projects). Some of the factors to consider, beyond choosing between an avoidance/reduction or removal/sequestration type project, include the following:
Vintage — this refers to the specific year or time period in which the emission reductions or removals associated with a carbon offset project occurred. There are various factors that determine the price of carbon credits but all else equal, older vintages tend to be cheaper than their newer counterparts.
This can be because of relatively higher supply, less stringent compliance criteria (e.g. standards and methodologies, verification processes, etc), older technologies, higher risk and fewer additional co-benefits (e.g. bio-diversity conservation, community development, etc).
Standards and certification — projects should be certified by reputable standards bodies to ensure credibility and assurance regarding a project's environmental integrity.
Verification and monitoring —monitoring and verification processes should be in place to ensure the accuracy and reliability of the reported emission reductions or removals from a project. This should add credibility to the project.
Registry and tracking — carbon offset projects should be registered in a recognised registry which tracks the ownership and retirement of the credits. This provides transparency and prevents double-counting or double-selling of credits.
Co-benefits and sustainable development — some projects generate additional co-benefits, such as biodiversity conservation, community engagement or sustainable development initiatives (sometimes referred to as SDGs). Projects that have positive social and environmental impacts beyond carbon reduction can offer added value and contribute to sustainable development.
While you may need to rely on external consultants, it will help if you understand the broad market dynamics and supply-demand situation for carbon credits, i.e. how prices can vary due to factors such as project quality, vintage and geography.
You should probably also consider diversifying your carbon credit portfolio by purchasing carbon credits in different regions and sectors. This should help spread the environmental and social impact of your choices and reduce the risks associated with relying on a single project.
To make sure you get the right type of project(s) for you and which fit within your budget, it’s best to work with expert, reliable consultants who can guide and advise you.
Before deciding to use carbon credits to offset your residual emissions, you should take note of the criticisms that have been levelled at the product. I have summarised these in an article on the advantages and disadvantages of launching a climate strategy.
Engage stakeholders
You may want to involve internal and external stakeholders in your goal-setting process. This could be your employees, your management team and your small business advisor or coach so you can gain their views, support and commitment.
As mentioned above, you may also want to consult with experts or sustainability consultants for guidance and to ensure you meet industry best practice.
Software solutions can help you with goal setting
I mentioned above that standard software solutions now enable you to calculate your carbon footprint quite efficiently. These same applications increasingly embed planning tools that make it easier for you to set your emissions reduction targets.
These tools don’t just enable you to flex your assumptions about factors internal to your business (e.g., switching your company car fleet from petrol to electric vehicles). They also incorporate expected future changes in external conditions, such as the share of electric power from the public grid that will come from renewable sources in future years.
In doing so, they efficiently enable you to explore various scenarios by which you could reach your emissions targets and choose the one that is best for your business.
Monitoring and reporting the progress of your climate strategy
This is the next step of the process.
Monitor and track progress
You’ll need to establish mechanisms to monitor and track your progress towards meeting your goals. This will involve defining key performance indicators (KPIs) and implementing robust measurement and reporting systems.
You’ll need to regularly assess your company’s emission reductions (as compared with your baseline), track the effectiveness of the measures you’ve put in place and make adjustments where needed (so you can stay on track). If you are using a carbon footprinting software application, this will usually incorporate plenty of tools to monitor your progress.
Most companies set and review their goals on a quarterly or annual basis (depending on their timeline).
Report and disclose
Now that you have full detail of your carbon footprint and a plan in place to address it, you’ll want to make your internal and external stakeholders aware of your ambitions and your progress. You can do this through press releases, sustainability reports, your website and social media platforms. Accuracy here is crucial as mis-communication or mis-interpretation can lead to criticism.
If you are a B2B business, you may be required by your larger corporate customers to report your carbon footprint and your progress in reducing it. If you are using a credible carbon footprinting software solution, this should streamline your reporting workload and add credibility to the data you communicate.
Staying on top of regulation
If you hire an expert carbon neutrality or net zero advisor, they should be able to keep you briefed on any changes to relevant climate-related regulations, policies or incentives. If not, you’ll need to allocate resources to understanding the regulatory landscape and adapting as it evolves.
The pitfalls to avoid in an emissions reduction strategy
As with any small business strategy, effective planning and execution are key — along with the ability to adapt when needed. There is extra emphasis when it comes to climate strategy given it is very likely outside your expertise and the risk of reputational damage is high (if it’s mis-managed and that becomes public).
Here are some of the factors to guard against:
Insufficient planning
Lack of proper strategic planning can lead to inefficiencies, missed opportunities and limited impact.
Lack of integration
As mentioned above, climate reduction efforts need to integrate smoothly with your company’s overall strategy and operations. Sustainability initiatives should not be treated as separate or isolated projects. Instead, they should be embedded within your core business practices if you are to achieve long-term and systemic change.
Inadequate monitoring and evaluation
If you don’t have proper mechanisms to monitor, measure and evaluate the progress and effectiveness of your climate plan, you’ll lose track. You then won’t be able to adjust your strategies (because you won’t be able to identify roadblocks). You also won’t be able to accurately report on your achievements.
APPENDIX
What are the environmental or carbon markets?
These are made up of two main segments:
The Voluntary Carbon Market (VCM)
The VCM is a system that allows individuals and organisations to take voluntary action to reduce their impact on the environment — as measured by their carbon footprint or greenhouse gas (GHG) emissions.
They do this by purchasing carbon credits (sometimes described as carbon offsets) from projects that have successfully reduced GHGs emissions or removed GHGs from the atmosphere. One carbon credit represents the reduction or removal of one tonne of carbon dioxide (CO2) or its equivalent in other GHGs.
Carbon offset projects fall into two main categories:
Avoidance / reduction — projects that prevent emissions when carbon would ordinarily have been released into the atmosphere, e.g. building a wind farm to lower the burning of fossil fuels to produce energy.
Removal / sequestration — projects that absorb CO2 from the atmosphere, e.g. direct air capture or ocean-based carbon removal (which is commonly known as 'blue carbon').
Projects of both types are located across the globe.
By purchasing carbon credits, buyers effectively finance (or invest in) these projects. They can then claim the environmental benefits associated with the emissions reductions achieved by those projects. So, essentially, the emissions that buyers generate elsewhere are balanced out (or offset) by the reductions achieved by these projects.
The Compliance Carbon Market
In contrast to the VCM, the compliance carbon market is a mandatory system that specific industries in certain geographies must comply with. This type of market can be found in the UK, the EU, parts of the US and elsewhere.
Participating governments set a limit, or cap, on the total amount of GHG emissions allowed for those industries. This cap is then divided into allowances. These allowances represent the right to emit a certain amount of GHGs and are distributed or auctioned among companies operating in the regulated sector.
If a company emits more GHGs than the allowances it holds, it must buy additional allowances from companies that have a surplus or from an emissions trading market. This creates a market for trading emissions allowances where companies can buy and sell allowances to meet their compliance obligations.
The goal of the compliance carbon market is to provide an economic incentive for companies to reduce their emissions. Companies that can reduce emissions more efficiently and cost-effectively have the opportunity to sell their surplus allowances to other companies that may find it more challenging or expensive to achieve emissions reductions.
By placing a price on carbon emissions and establishing a trading system, the compliance carbon market encourages companies to adopt cleaner technologies, improve energy efficiency and invest in low-carbon practices. It also helps governments achieve their emissions reduction targets.