Many Perth SME’s are being asked about their carbon accounting. The pressure from large corporates to understand the carbon footprint of Perth SMEs is creating a significant amount of work for Perth business accountants and their clients.
What is carbon accounting?
Carbon accounting is the process of calculating an organisation’s total greenhouse gas (GHG) emissions, expressed in carbon dioxide equivalents (CO2-e), across its operations and supply chain. This calculation must then be reported and documented so that it is audit-ready for others to review.
While it’s a measurement exercise, carbon accounting differs from traditional financial accounting in that it is not about tracking, quantifying, or recording the movement of money. Instead, it focuses on tracking, quantifying, and recording the movement of carbon. The same skillset of a Perth business accountant will be needed as a Perth carbon accountant—and the carbon accounting reports are also produced within the financial accounting reports lodged and presented to ASIC.
The government has recently made carbon accounting even more essential through the Australian Accounting Standard Board S2 Climate-related Disclosures. AASB S2 mandates the disclosure of climate-related risks and emissions within the corporate financial reports produced by larger entities. And this is to confirm with international accounting standards such as the IFRS S2. Organisations must now measure and report their carbon footprint using recognised frameworks like the GHG Protocol to meet national and global sustainability reporting obligations.
The National Greenhouse and Energy Reporting Act 2007 (NGER Act) provides the framework for measuring and reporting carbon emissions. Globally, the GHG Protocol is the leading standard for this purpose. It is widely accepted and compatible with various sustainability reporting frameworks.
What is measured in a carbon footprint?
A carbon footprint captures both direct and indirect emissions, which are grouped into three categories:
- Scope 1 (Direct emissions): These are the greenhouse gas (GHG) emissions that come directly from the organisation’s activities, such as fuel combustion from owned vehicles or equipment.
- Scope 2 (Indirect emissions from energy use): These emissions stem from generating electricity, heating, cooling, or steam that the organisation purchases.
- Scope 3 (Other indirect emissions): This category includes all other indirect emissions, such as those from the organisation’s supply chain, waste management, and business travel, which are not covered in Scope 2.
The carbon produced by suppliers is the backbone of Scope 3 emissions. These emissions by Perth SME’s are what is now needed as part of the carbon accounting push.
Organisations adhering to the AASB S2 Climate-related Disclosures standard must ensure that their emissions data is accurately captured across these scopes to meet national and international reporting requirements.
Steps to Measuring Carbon Emissions
Your business’s cloud accounting program will be the final place where you will collate your carbon footprint. Ultimately, every supplier you engage will notify you of their carbon footprint, and that will be in their invoice.
- Set the Boundaries Start by defining the boundaries of your carbon footprint.
- Identify Emission Sources Depending on your reporting obligations, your focus might begin with Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased energy) as required by mandatory reporting. For others, including Scope 3 (other indirect emissions) will be essential for a comprehensive approach.
- Choose a Calculation Approach Decide whether your organisation will follow the Australian NGER Act 2007 framework or the globally recognised GHG Protocol. Both have their methodologies for measuring emissions.
- Gather Data and Apply Emission Factors Collect the relevant data across your operations. Combine this data with emission factors to calculate your carbon footprint. Gathering this data through software integrated into programs like Xero, MYOB, Attache, or Sage will be critical to streamlining and simplifying the data collection. You do not want to double-handle every supplier payment.
- Use Calculation Tools The tools to manage your data and combine it with your other cloud accounting software will make a significant difference to the cost of administering your carbon accounting journey.
- Consolidate Data at the Corporate Level If applicable, consolidate your data at the corporate level to get an overall view of your organisation’s carbon footprint. This step ensures a complete picture across all parts of your business.
Why is carbon accounting important for organisations?
Carbon accounting is increasingly critical for Perth SMEs and their business accountants due to two main factors: strategic opportunities and compliance obligations.
Organisations driven by strategic goals are prioritising carbon accounting to maintain competitive access in several key areas:
- Access to Capital: Investors, future buyers of your business, owners, and lenders are placing growing emphasis on environmental performance, particularly carbon footprints. Companies failing to measure and reduce their emissions risk losing access to funding as markets increasingly favour businesses with strong sustainability credentials.
- Access to Markets: Both customers and supply chains frequently demand transparency around a company’s carbon footprint.
- Access to Talent: From a people perspective, attracting and retaining top talent increasingly depends on a company’s environmental initiatives. Many employees, especially younger generations, are more likely to join or stay with organisations committed to reducing their environmental impact and have clear plans to minimise their carbon footprint.
- Mandatory reporting: Large corporates must start tracking, quantifying, measuring, and auditing their carbon emissions from 1 January 2025. This information is classically flowing to suppliers through requests for carbon emissions. Alternatively, it is part of the information needed for a successful tender.
From the perspective of our Perth SMEs, clients with a turnover exceeding AUD 50m (among other things) must start reporting to ASIC from 1 July 2027.
Regardless of where your business fits within the economic system, stakeholders—including investors, clients, and employees—expect transparency around your carbon footprint, your goals for reducing emissions, and the progress you’re making.
Conclusion
The push for carbon accounting reporting is relatively new across Australia but not so much in Europe. At Westcourt, we have been investing resources into carbon accounting and have developed a cornerstone relationship with Trace so that we can simplify your carbon accounting tracking tools with your Xero financial tracking tools.
With our heavy technology investment as a Xero Platinum partner, our award-winning expertise, and our global network of over 29,000 independent advisers, we are a clear choice for supporting your business moving forward—so why not give us a call?