17 Apr 2024
3 minutes

The pains and gains of carbon accounting in finance

This article has been brought to you by our spend management editorial team.Payhawk Editorial Team
Pains and Gains of Carbon Accounting in Finance
Quick summary

Demands for sustainability reach all corners of an organisation, including finance. In this article, we interviewed three ESG or finance leaders to outline the role of carbon accounting within finance management, challenges related to ESG reporting, and reasons and ways to improve the accuracy of measuring the financial carbon footprint.

Table of Contents

    What is carbon accounting in finance and company spend?

    Carbon accounting in finance and company spend refers to the process of measuring, recording, and analysing the greenhouse gas emissions (carbon dioxide equivalents or CO2e) generated as a result of financial activities and expenditures.

    The goal of carbon accounting, also known as carbon footprinting, is to measure and report on emissions in order to understand, manage, and reduce the environmental impact of a business. It includes the following:

    • Quantifying emissions: Calculating the CO2 amount produced directly (Scope 1) and indirectly (Scope 2 and 3) by the organisation’s financial activities
    • Tracking the carbon footprint: Monitoring how emissions change over time as a result of decisions about financial activities
    • Reporting and disclosure: Showing the company’s commitment to sustainability according to regulatory requirements

    ESG reporting ebook: Discover the priorities for finance teams

    Why should finance teams care about their carbon footprint?

    The start of 2024 is a pivotal moment in carbon accounting. The Corporate Sustainability Reporting Directive (CSRD) has taken effect, requiring some 50,000 companies operating in the European Economic Area to publish sustainability data in 2025 from the 2024 financial year.

    If you make carbon accounting data easily available, Finance teams can use it to make strategic decisions, such as identifying opportunities to reduce costs from energy use or, implementing specific travel policies and/or selecting suppliers and partners. In general, all teams, not only Finance, should use emission data for long term planning in order to adapt to new sustainability trends, new regulatory requirements and most important, greener consumer preferences.

    Raquel Orejas, Product Marketing Manager, Payhawk

    There's no reason to think that regulation will ease off anytime soon. But besides promoting compliance, additional attention to carbon accounting can help finance professionals make informed decisions to further mitigate environmental impact. And, you do not need a crystal ball to predict that a company’s sustainability will become even more a matter of competitiveness: managing risks to the environment helps maintain a good reputation that has direct implications to financial performance.

    To delve more into the financial aspect of it all, we asked three of our customers to describe the role of environmental sustainability in finance.

    Tsvetomir Uzunov, Chief Financial Officer at Discordia, shares that “Over the past decade, environmental sustainability has become an increasingly important issue in Finance. Increasing and ever more complex regulatory requirements and the need to assess and manage the impact of those factors on investment risk, return and overall financial performance imply sustainability will become an integral pillar of finance. Finance will need to contribute to and develop sustainable finance strategies, aligning investments with long-term value creation and the evolving needs and expectations of stakeholders (clients, suppliers, investors, employees, etc).”

    Serkan Yüksel, Digital Transformation Lead, Finance at Hypoport stresses this even further by saying that “Environmental sustainability in accounting is crucial for responsible financial decisions. The finance department has a key role to play in developing metrics and KPIs for sustainable performance. It is responsible for recording and transparently reporting the financial impact of sustainable initiatives.”

    Finally, Anna Bukowski, Quality Management, ESG, Company Onboarding Manager at Plaion GmbH, Austria adds their perspective: “Sustainability and the reduction of carbon emissions will become increasingly important in all areas in the coming years, not just in finance. Companies need to step up their environmental and social initiatives accordingly.”

    Tsvetomir Uzunov, Chief Financial Officer at DiscordiaTsvetomir Uzunov, Chief Financial Officer at Discordia
    Tsvetomir Uzunov, Chief Financial Officer at Discordia

    How do companies consider carbon emissions in company spend?

    Integrating ESG principles into finance and spend management helps ensure efficient cost management and promotes sustainability, ethical business practices, and social responsibility throughout the supply chain. Here’s what Serkan Yüksel and Tsvetomir Uzunov had to say about the topic.

    Serkan Yüksel, Digital Transformation Lead, Finance, Hypoport, says:

    As a listed company, we publish a sustainability report once a year. We calculate carbon emissions along our value and supply chains to the best of our ability. When selecting new spending tools, we make sure that a qualitative integrated carbon measurement is possible. When developing new business models and products, we also ensure that a sustainable and low-emission approach is taken during the investment phase.”

    "Our core business is not yet directly subject to ETS and/or carbon taxation. This will change with ETS II, currently planned to be phased in 2027. We have two main ambitions in the interim: Tighten procurement screening and, where necessary, add exclusion criteria for suppliers that do not sufficiently embed sustainability in their core values and operations. Build a transactional carbon footprint model and offer clients differentiated sustainability services that enable them to optimize their price/carbon footprint trade-off," continues Tsvetomir Uzunov, Chief Financial Officer, Discordia

    Serkan Yüksel, Digital Transformation Lead, Finance, HypoportSerkan Yüksel, Digital Transformation Lead, Finance, Hypoport
    Serkan Yüksel, Digital Transformation Lead, Finance, Hypoport

    What are the biggest challenges in financial carbon footprinting?

    Impactful and accurate carbon accounting requires commitment, collaboration, and purpose-built technological solutions. Hurdles on the way to satisfactory – let alone leading – emissions measurement include:

    • Regulatory and reporting requirements
    • Data accuracy and availability
    • Scope 3 understanding and visibility
    • Value chain complexity
    • Integration of financial and environmental metrics
    • Resource and expertise constraints
    • Buy-in and resistance to change

    Data is at the heart of it all. Where to find it? How to keep it clean and high-quality? How to analyse and use it for decision making? Incomplete, outdated, and unavailable data are an especially prominent headache with indirect emissions (Scope 2 and 3). Here’s what our clients share from their experience.

    “The biggest obstacle is the calculation of a product-based carbon footprint as many companies often do not have these selected Scope 3 emissions directly available. One of the biggest challenges for retailing companies, for example, is the calculation of transportation emissions.”
    Anna Bukowski, Quality Management, ESG, Company Onboarding Manager, Plaion GmbH, Austria

    “Quantifying carbon footprint data often brings challenges. Reliable and accurate emissions data is often difficult to obtain. A lack of standardized reporting procedures or clear data sources can lead to uncertainties in measurement.”
    Serkan Yüksel, Digital Transformation Lead, Finance, Hypoport

    "The biggest challenge we face, and I think this applies to many other businesses, is Scope 3 emissions. Those include the indirect emissions in the upstream or downstream activities of the organization and could be very difficult to even identify, while the complexity of the supply chain and the lack of structured and reliable data make them difficult to quantify.

    Let me give you just two examples:

    1) Our transportation business rents or leases hundreds of new trucks and trailers each year. We rent tires for them and need a lot of spare parts. The supply chains for these are quite long and complex.

    2) Our freight forwarding business works with hundreds of suppliers, often SMEs, who do not maintain and cannot provide sufficient and reliable data on the equipment they use and/or the operational execution of such deliveries."

    Tsvetomir Uzunov, Chief Financial Officer, Discordia,

    Anna Bukowski, Quality Management, ESG, Company Onboarding Manager at Plaion GmbH, AustriaAnna Bukowski, Quality Management, ESG, Company Onboarding Manager at Plaion GmbH, Austria
    Anna Bukowski, Quality Management, ESG, Company Onboarding Manager at Plaion GmbH, Austria

    What are the main benefits of carbon accounting?

    Carbon accounting contributes to a healthier environment but also brings tangible economic benefits and positions organisations for long-term success in a rapidly changing global landscape. For may businesses, the environmental impact is understandably the number one priority.

    But, alongside a positive effect on the environment, companies can realise business-related benefits from improved carbon accounting, including:

    • Resource efficiency: Understanding where emissions originate helps identify inefficiencies and optimise resource use, leading to cost savings and improved operational efficiency.

    • Reputation and brand value: Commitment to carbon accounting and sustainability initiatives appeals to environmentally conscious consumers, leading to increased brand value and loyalty.

    • Investment attraction: Sustainability continues to be a key decision-making factor for investors. Companies focusing on emission reduction are more likely to access capital in the future.

    • Innovation and competitive advantage: Emission reduction fosters innovation in developing cleaner products and services, which can differentiate the company in markets that value sustainability.

    • Resilience: All of your emissions are not in your hands. Weak links in your supply chain can pose unexpected risks to your business and sustainability. Stronger collaboration helps identify vulnerabilities and enhance resilience.

    What can finance teams do to measure, manage, and reduce emissions?

    In order to go from scattered sustainability data to accurate and standardised reporting, finance teams should pay close attention to three aspects of carbon accounting:

    1. Alignment of financial goals and environmental targets
    For true environmental impact, sustainability needs to be considered as part of the organisation’s top-level goals.

    2. Collaboration between finance and sustainability departments
    Fundamental alignment of finance and CSR fosters an environment where the organisation can collaborate to achieve highest possible impact.

    3. Technological enablers
    In day-to-day work, technology turns sustainability goals and talk into concrete actions and change. The ability to support carbon footprint measurement and tracking should be among key criteria when selecting financial management solutions.

    One of our expert Product Marketing Managers Raquel Orejas shares how technology helps financial teams in their sustainability-related work:

    “In the sustainability sector and more in particular in relation to carbon accounting, two concepts come up indisputably, accuracy and automation. Technology enables the automated collection and analysis of vast amounts of data, improving the accuracy and reliability of carbon accounting. Automated systems reduce the risk of human error associated with manual data entry and calculations. At Payhawk we support customers with automated emission calculations for all card spend using GHG Protocol for best accuracy.”

    Finally, we asked our clients about the actions they are taking in finance to decrease carbon emissions.

    “It is particularly important to reduce carbon emissions through own initiatives and by supporting local projects. For example, many companies already use green electricity and are installing photovoltaic systems. Extensive renovation of old buildings also helps to reduce our carbon emissions.”
    Anna Bukowski, Quality Management, ESG, Company Onboarding Manager, Plaion GmbH, Austria

    “There are three main pillars in terms of 1) structuring, collecting and providing reliable data to 2) ensure regulatory compliance and 3) support business model evolution and adaptation.”
    Tsvetomir Uzunov, Chief Financial Officer, Discordia

    “We focus heavily on obtaining detailed emissions data. Solutions like Payhawk help us a lot by providing spend-based carbon calculations. We use these and other calculations to get the most complete and accurate picture of the carbon footprint, generate group-wide reports, and monitor trends.”
    Serkan Yüksel, Digital Transformation Lead, Finance, Hypoport

    Leap forward in carbon accounting

    Carbon emissions tracking. ESG reporting. Understanding the environmental impact of your organisation and supply chain. It’s all hard work.

    Payhawk Green makes it a lot less daunting, by helping you to:

    • Unravel your Scope 3 emissions
    • Bridge data gaps and save time with proactive data collection
    • Collect supplier data to better understand your supply chain

    Want to see it in action? Book a demo today.

    This article has been brought to you by our spend management editorial team.
    Payhawk Editorial Team

    The Payhawk Editorial Team consists seasoned finance professionals boasting years of experience in spend management, digital transformation, and the finance profession. We're dedicated to delivering insightful content to empower your financial journey.

    See all articles by Payhawk →

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