Why More SMEs Are Being Asked for Carbon Footprint Information
For many SMEs, carbon reporting has traditionally felt like something aimed at large corporates.
But increasingly, smaller businesses are being asked questions about emissions and sustainability by larger customers, procurement teams, lenders and supply-chain partners.
In many cases, businesses aren't being asked for highly complex climate modelling or a detailed climate strategy.
Instead, they may simply be asked to provide practical information about:
energy usage;
fuel consumption;
operational emissions;
business travel or transport; and
environmental improvement plans.
This is where carbon footprinting is becoming increasingly relevant for SMEs.
Why are SMEs being asked for carbon information?
There are several reasons.
Larger organisations are increasingly seeking information about the environmental impacts associated with their supply chains.
A customer may therefore ask a smaller supplier for carbon information as part of:
a supplier questionnaire;
a procurement exercise;
a tender;
a sustainability assessment; or
a broader ESG review.
Financial institutions can also ask businesses for sustainability information as part of lending or green-finance assessments.
For the SME receiving the request, this can create a difficult situation:
"We're not a large company. Why are they asking us for this information?"
The answer is often that the request is coming through the supply chain or financing relationship, rather than because the SME itself is subject to the same reporting requirements as a large corporate.
What information might an SME actually need?
The information requested will vary considerably between customers and organisations.
However, a basic carbon footprint assessment may begin with operational data that the business already holds.
This can include:
electricity consumption;
natural gas or other heating fuels;
company vehicle fuel;
business transport;
refrigerants where relevant; and
other significant sources of direct operational emissions.
For many SMEs, the first objective isn't to produce a highly sophisticated carbon model.
It is to establish a reasonable, consistent and traceable baseline.
Scope 1 and Scope 2 emissions
A useful starting point for many SMEs is understanding Scope 1 and Scope 2 emissions.
Scope 1
Scope 1 generally covers direct greenhouse gas emissions from sources owned or controlled by the organisation.
For an SME, this could include emissions associated with:
fuel burned in company-owned vehicles;
gas or other fuels used for heating; and
certain on-site combustion or other controlled sources.
Scope 2
Scope 2 generally covers indirect emissions associated with purchased energy, primarily purchased electricity and, where relevant, purchased heating or cooling.
For many SMEs, Scope 1 and Scope 2 provide a practical starting point because the underlying activity data can often be obtained from:
utility bills;
fuel records;
vehicle records; and
accounting or procurement systems.
What is the GHG Protocol?
The GHG Protocol is one of the most widely used frameworks for greenhouse gas accounting.
It provides guidance for organisations seeking to measure and report greenhouse gas emissions and establishes the commonly used Scope 1, Scope 2 and Scope 3 framework.
For an SME, using a recognised methodology can provide greater consistency and credibility when responding to customer, procurement or other information requests.
However, the appropriate level of assessment will depend on what the business is actually being asked to provide.
A small supplier responding to a customer questionnaire may not need the same level of carbon accounting as a multinational preparing a comprehensive sustainability report.
What is the value of carbon footprinting for an SME?
The value isn't necessarily in producing a report and putting it in a drawer.
A carbon footprint can provide useful insight into how a business operates.
It can help identify:
energy inefficiencies;
operational waste;
exposure to fuel costs;
opportunities to reduce energy consumption;
areas where emissions are concentrated; and
potential environmental improvement measures.
In some cases, reducing emissions and reducing operating costs can be achieved through the same actions.
For example, improving energy efficiency can potentially reduce both carbon emissions and energy expenditure.
What if a customer asks for a carbon footprint?
This is becoming an increasingly common challenge for SMEs.
A customer may ask:
"Please provide your Scope 1 and Scope 2 emissions."
The SME may have never calculated them before.
That doesn't necessarily mean that the business needs to embark on an extensive carbon-reporting project.
A sensible first step is to establish:
What exactly has the customer asked for?
Is the request for:
annual Scope 1 and Scope 2 emissions;
emissions per product;
a carbon intensity figure;
an emissions reduction target;
information for a supplier questionnaire; or
a more comprehensive carbon footprint?
The answer determines what level of work is actually necessary.
Start with the data you already have
One of the advantages for SMEs is that much of the information needed for an initial assessment may already exist within the business.
Potential sources include:
electricity bills;
gas bills;
fuel receipts;
vehicle records;
accounting records;
meter readings;
procurement information; and
business travel records.
The first challenge is often collecting and organising the information, rather than generating new data.
Once the activity data has been established, appropriate emissions factors can be applied to calculate the associated greenhouse gas emissions.
What should an Irish SME do now?
If your business is increasingly being asked for carbon information, a practical starting point is to:
1. Understand what is being requested
Don't assume that every carbon questionnaire requires the same level of analysis.
Identify exactly what the customer, lender or procurement team is asking for.
2. Establish your reporting boundary
Determine which business activities, sites and operations are included in the assessment.
3. Gather the available data
Start with the information already held within the business.
4. Apply a recognized methodology
Use an appropriate and consistent methodology and relevant emissions factors.
5. Document your assumptions
Where estimates or assumptions are necessary, record them clearly.
6. Keep the calculation traceable
Retain the underlying activity data, emissions factors and calculations so the result can be explained or updated.
Don't overcomplicate it
For an SME, carbon footprinting can sometimes appear more complicated than it needs to be.
The appropriate level of assessment depends on the purpose.
A business responding to a customer questionnaire may need a practical Scope 1 and Scope 2 assessment.
Another business may need a broader assessment because of its customer requirements, financing arrangements, tender commitments or sustainability objectives.
The important thing is to understand the requirement first and then build an assessment proportionate to that requirement.
The key takeaway
Carbon footprinting is increasingly becoming part of the information that SMEs may be asked to provide, even where the SME itself isn't subject to the same sustainability reporting requirements as a large corporate.
The practical starting point is not necessarily a complex carbon strategy.
It is:
Understand what you are being asked for, establish the relevant operational data, apply a recognised methodology and keep the calculation transparent and traceable.
A basic carbon footprint can also provide useful insight into energy use, operational efficiency and potential cost-reduction opportunities.
TrailZero helps Irish SMEs develop practical Scope 1 and Scope 2 carbon footprint assessments using operational data already available within the business and relevant emissions factors.
Need help responding to a customer, tender or lender request for carbon information? Contact TrailZero for practical carbon footprint support.
