Stricter Carbon Accounting Requirements Bring New Challenges for Global Businesses

As global efforts to combat climate change accelerate, carbon accounting requirements across various regions are becoming more stringent, presenting new challenges for corporate environmental compliance and sustainability strategies.

Background: The Importance of Carbon Accounting

Carbon accounting quantifies and reports greenhouse gas (GHG) emissions across three scopes:

• Scope 1: Direct emissions from company-owned sources, such as factory fuel combustion.
• Scope 2: Indirect emissions from purchased electricity, steam, heating, or cooling.
• Scope 3: Indirect emissions from upstream and downstream activities in the value chain, including suppliers, production processes, logistics, and consumer use.

Recent Updates: Tightening Carbon Accounting Regulations

1. EU CSRD (Corporate Sustainability Reporting Directive)

   • Starting in 2024, CSRD expands carbon emission reporting requirements to companies with over 500 employees or meeting specific financial thresholds.
   • The directive mandates companies to report GHG emissions, including Scope 3, following the European Sustainability Reporting Standards (ESRS).

2. SEC (Securities and Exchange Commission) Disclosure Rules

   • The SEC will require listed companies to disclose their GHG emissions data, including Scope 1 and Scope 2, with Scope 3 disclosures mandated for high-risk sectors.
   • Expected to take effect in early 2024, the rules will impact multinational corporations tied to U.S. markets.

3. ISO 14064 and PAS 2060 Updates

   • The latest revisions to ISO 14064 (GHG Quantification and Validation Standards) and PAS 2060 (Carbon Neutrality Standards) emphasize data accuracy and third-party validation, offering companies clearer reporting guidance.

4. Asia-Pacific Initiatives

   • China has expanded its carbon emission trading scheme (ETS) to more industries, requiring larger enterprises to conduct carbon accounting.
   • Japan and South Korea have introduced stricter carbon neutrality targets, urging domestic companies to enhance their carbon reporting and accountability.

Challenges and Opportunities for Businesses

1. Challenges:

   • Data Collection and Management: Scope 3 emissions require extensive data integration across supply chains.
   • Rising Compliance Costs: New regulations increase the complexity of carbon accounting and reporting.
   • Third-Party Audit Requirements: An increasing number of regulations demand independent validation of reported data.

2. Opportunities:

   • Enhanced Brand Reputation: Proactive carbon accounting and reduction initiatives will boost a company's appeal to ESG-focused investors.
   • Operational Efficiency and Cost Savings: Identifying energy hotspots through carbon accounting can lead to more efficient operations.
   • Market Access: Compliant carbon reports may become a ticket to entering low-carbon economy markets.

Expert Advice: Early Preparation, Greater Benefits

Environmental experts urge companies to act now:

• Map out carbon accounting obligations under the latest regulations.
• Adopt advanced tools and technologies, such as carbon management software and blockchain, to ensure data accuracy.
• Collaborate with third-party auditors to ensure reports align with international standards.

With stricter carbon accounting requirements on the horizon, addressing carbon emissions is not just about compliance—it is increasingly a core component of business competitiveness.