Key takeaways from working with spend-based carbon accounting

Spend-based carbon accounting is often considered publicly less valuable compared to the activity-based approach, as it is less accurate. However, we strongly believe in the spend-based approach. We even consider it as the right way to get started with your carbon accounting!

In this article we will argue why we consider spend-based carbon accounting as the right way to get started; also, by sharing the key takeaways from working with our own spend-based carbon accounting in connection with the preparation of the official Annual Accounts 2022 of Solitwork.

Justifying Spend-Based Carbon Accounting

We believe in the value of gaining control of your carbon footprint via using the data you already have, i.e. your posted expenditures. Spend-based carbon accounting is quicker and less expensive, and it helps you to improve the accuracy of your CO2 reporting intelligently and gradually where it really matters.

In addition, you might be surprised by the extensive number of available emission factors based on the unit “money”, which converts financial transactions into CO2. These factors cover not only several types of activities (e.g. electricity, heating, diesel etc.), they also cover detailed geographical regions.

Furthermore, almost 50 % of European companies consider the lack of data quality and reliability as the greatest challenge of producing a valid and meaningful ESG reporting. At Solitwork, we put trust into the financial transactions as they are audited and generated from controlled processes in the ERP systems. Moreover, based on our experience, the ESG reporting is quite often tied up in the finance departments.

Based on the above, we see spend-based carbon accounting as the best way to (later) verify activity-based carbon accounting. We passionately believe this approach is the best way to start!

Sif Lynge Andersen, Senior Manager, Business Development at Solitwork:

“As a former auditor I was relieved working with numbers that I trust and can relate to. I am very convinced that spend- and activity-based carbon accounting are inextricably linked as the results from the two methods reinforce each other.

I cannot relate to the completeness of measured KwH (Kilo Watt Hours), nor CO2. However, I can relate to financial transactions, which are even audited. The spend-based carbon accounting provides me with a benchmark to verify completeness of activities used for activity-based carbon accounting.”

Key takeaways from working with spend-based carbon accounting

In connection with the preparation of Solitwork’s official Annual Report 2022, we used our Carbon Accounting application and the spend-based approach. Here are our key takeaways:

What went well?

• It is extremely useful to work with transactional level data including posting dimensions (e.g. department). With our Carbon Accounting application, you can set up rules based on several input parameters. We were e.g. able to set up different carbon accounting rules on fuel costs based on the different fuel types (diesel, gasoline, electricity) operated within our fleet of company cars.
• A significant success factor for the accuracy of carbon accounting registration is the possibility to add a dedicated lifespan to every rule. We were e.g. able to set up different carbon accounting rules on fuel costs to cover separate fuel types.
• It got clear to us how trustworthy financial transactions themselves are, which made us quickly also trust the CO2 emissions derived from them.

What have we learned?

• Consider your posting logic to improve your rule-based carbon accounting, i.e. could it be beneficial to add posting dimensions of split certain financial accounts into more accounts. Example: we previously booked electricity, water, and heating costs at the same account, meaning that we did have to tag transactions separately. However, as from 2023 we have changed our posting logic and now book the individual costs separately.
• Initially, it takes some time to identify the correct emission factors to be used; simply due to the extensive number of available factors. However, take your time to research and make your assumptions (which you of course can comment and document while working). …and this is a one-time exercise, i.e. once you have defined your rules, all future transactions of similar kind will be handled automatically!