The beginners guide to carbon footprinting for small business

We often get asked about carbon footprinting and we provide advice and support to enable small businesses (and some big ones too) to measure their carbon footprint. See more about the service we provide here. In case you want to have a go yourself, all of the questions we are commonly asked are covered in this guide. 

The guide provides all of the information you need to develop a carbon footprint for your small business.

We have tried to use plain English and to keep everything as simple as possible. If you are busy or just find it overwhelming, Green Small Business can do the work for you. Book a call to discuss your requirements. We would be happy to help.

Here’s what you will learn:

• What is carbon?
• What is a carbon footprint?
• What are Scope 1, Scope 2 and Scope 3 emissions?
• How can I develop a carbon footprint for my small business?
• Step 1: Decide on the scope of your carbon footprint
• Step 2: Decide on a baseline year and gather the data
• Step 3: Calculate your emissions (do the math!)
• What should I do with my small business carbon footprint?
• How can I reduce the carbon footprint of my small business?
• What is carbon offsetting? And should we offset?
• What does carbon neutral mean?
• What does net zero mean?
• What is carbon intensity?

What is carbon?

In this context, carbon refers to carbon dioxide. Carbon dioxide is a gas which is generated by burning fossil fuels (coal, gas, oil, petrol, diesel etc) in homes, cars, power stations and businesses.

Carbon dioxide is the most common greenhouse gas. Greenhouse gases got their name because increasing levels of these gases in the earth’s atmosphere are trapping more heat from the sun, causing global temperatures to rise.

Other greenhouse gases include methane, nitrous oxide and hydrofluorocarbons or ‘HFCs’ (the gases used in refrigeration and air conditioning). Each of these gases has a different capacity to cause global warming. This is often measured relative to carbon dioxide, using CO2e (carbon dioxide equivalent).

In the context of a carbon footprint, ‘carbon’ is often therefore used as shorthand not just for carbon dioxide but for CO2e, i.e. the emissions of all the greenhouse gases being measured.

When you see the term ‘carbon emissions’, it may well be referring to the emissions of all of the greenhouse gases.

What is a carbon footprint?

A carbon footprint of your business is a measurement of all of the greenhouse gases which your business produces. 

The activities of your small business produce these gases directly and indirectly. They are directly produced by burning gas to generate heat for your building(s) and using fuel in your vehicles, if you have any. They are indirectly produced from using electricity, some of which may have been generated from burning coal or gas in power stations. They are also produced indirectly when you purchase goods and services, all of which will have required energy to produce and deliver to you. 

You should always include the direct emissions in your small business carbon footprint. Ideally, you would also include all of the indirect emissions but this isn’t always possible. More on that later.

A carbon footprint is a tool you can use to understand the different ways in which your small business is contributing to climate change. It will allow you to identify ways of reducing that contribution in future. Updating your carbon footprint on a regular basis will allow you to measure your progress in reducing the carbon emissions from your small business.

What are Scope 1, Scope 2 and Scope 3 emissions?

The GHGProtocol is an organisation which has established a globally-recognised standard for measuring and managing greenhouse gas (GHG) emissions. The GHG Protocol distinguishes between direct and indirect emissions but breaks down the indirect emissions into 2 separate categories. Overall, greenhouse gas emissions are therefore divided into 3 categories or ‘scopes’:

• Scope 1 emissions are the direct emissions. These are the emissions produced by activities which are under your direct control as a small business. This would include emissions from burning fuel in boilers for on-site heating, burning fuel in vehicles owned by the business and gases escaping from on-site air conditioning systems.
• Scope 2 emissions are the indirect emissions resulting from the generation of electricity which you use as a small business.
• Scope 3 emissions are all of the other indirect emissions resulting from the activities of your small business. This could include:
  • purchasing of goods and services
  • business travel in vehicles which are not owned by the company
  • distribution of products and services that you buy and sell
  • waste disposal
  • water use

To some extent at least, your small business is responsible for all of these emissions. With Scope 1 emissions, you have alot of control and action to reduce them is often more straightforward. However, in the case of scope 2 and scope 3 emissions, they come from sources which you do not own or control so they can be more difficult to manage.

How can I develop a carbon footprint for my small business?

Step 1: Decide on the scope of your carbon footprint

As a minimum, you should include all scope 1 and scope 2 emissions in your carbon footprint. Measuring scope 1 emissions requires a record of fuel used on-site (available via energy bills), refrigerants used in servicing any air conditioning (available from invoices from the service engineers) and fuel used in company vehicles (usually available in financial records).

Measuring scope 2 emissions simply requires a record of electricity used (available via energy bills).

Sometimes, utilities such as gas and electricity are shared with other businesses in the same building. Where this is the case, a percentage of the overall usage can be allocated to your business which is equivalent to the percentage of the overall floorspace of the building that your business occupies.

That’s the easy bit.

You then need to determine which Scope 3 categories are relevant to your business. They are listed below.

Category	Summary of what’s included
1 – Purchased goods and services	Emissions from the products and services a company buys from other businesses.
2 – Capital goods	Emissions associated with the production and disposal of equipment, buildings, and other physical assets.
3 – Fuel and energy related activities	Emissions from the extraction, production, and transportation of fuels and energy that a company uses. The emissions which stem directly from the use of the fuels are included in other categories.
4 – Upstream transportation and distribution	Emissions from transporting and distributing products to the company from suppliers. Unless the transportation relates to products which are then sold by the business or used in a manufacturing or production process, transportation emissions are usually included in category 1.
5 – Waste generated in operations	Emissions from waste generated during a company’s operations, such as solid waste, wastewater, or hazardous waste.
6 – Business travel	Emissions from employee travel in vehicles not owned by the business, including flights, train rides, and rental cars for business purposes. Emissions from travel in vehicles which are owned by the business are included in Scope 1.
7 – Employee commuting	Emissions from employees’ daily travel to and from work, such as driving personal vehicles or using public transportation. Emissions from any commuting in vehicles which are owned by the business are included in Scope 1. Employee tele-working (homeworking) is a sub-category of Category 7.
8 – Upstream leased assets	Emissions which have not been included in Scope 1 and 2 from leased assets like buildings, vehicles, or equipment used by a company but owned by someone else.  We usually encourage clients to include emissions from leased assets in Scope 1 and 2, as it implies taking a greater sense of responsibility for them.
9 – Downstream transportation and distribution	Emissions from transporting and distributing a company’s products to customers.
10 – Processing of sold products	Emissions resulting from activities associated with the processing or use of a company’s products after they are sold, such as customer use of appliances or vehicles.
11 – Use of sold products	Emissions resulting from the use of a company’s products, such as the energy consumed by customers when using appliances or vehicles.
12 – End of life treatment of sold products	Emissions from activities related to the disposal or recycling of a company’s products after they are used by customers.
13 – Downstream leased assets	Emissions resulting from the use of leased assets by customers or other end-users.
14 – Franchises	Emissions associated with the activities of franchisees that are directly linked to the company’s brand.
15 – Investments	Emissions resulting from the investments made by a company, such as funds invested in projects or companies that contribute to greenhouse gas emissions.

Having worked out which categories are relevant, you then need to decide which ones to include in your footprint. For small businesses which are measuring their carbon footprint for the first time, we generally recommend that they include all scope 1 and 2 emissions and the scope 3 emissions from:

• business travel
• home working – more and more staff are working from home so we encourage inclusion of emissions from home working where this is relevant
• staff commuting
• supply chain emissions from purchased goods & services
• any other scope 3 categories that are likely to form a significant portion of the overall business footprint

We also generally recommend that businesses seek to expand the scope of their footprint over time so that they take responsibility for as much of it as they can.

Most importantly, in any reporting of your carbon footprint you should be transparent about what emissions are included and excluded. 

If you are required to produce a Carbon Reduction Plan as part of a procurement process, in compliance with PPN 06/21 there is a specific subset of scope 3 emissions that you need to measure. For full details, see our separate guide to preparing a Carbon Reduction Plan (PPN 06/21).

Step 2: Decide on a baseline year and gather the data

To be really useful in measuring your progress in reducing emissions, you will need to update your carbon footprint on a regular (probably annual) basis. However, initially you will need to decide on a baseline year that you can measure your progress from.

Much of the data which you will use for your carbon footprint will come from your financial records so you may want to align your baseline year with your accounting period.

Your baseline year needs to be the most recent year for which you have the data BUT it also needs to be as near as possible to a typical year for the business. If you choose a year in which business was significantly impacted by the Covid pandemic or some other major event, it will not provide a useful basis for monitoring future change.

Having decided on your baseline year, you then need to gather the relevant data from that year. The likely data sources for the emissions included in a basic carbon footprint are shown below.

Activity	Source of data
Heating / cooling company facilities	Total kilowatt hours used from gas bills. Total litres and type(s) of top-up gases for any air conditioning units, from servicing bills.  If you rent part of a building and do not have a separate bills, you will need to estimate your usage – a percentage of the overall bill which is equivalent to your percentage of the overall floorspace of the building, for example.
Operating company vehicles	Litres of fuel purchased from invoices and receipts (more accurate); or  Vehicle mileage from vehicle log books/odometers (less accurate) Plus the vehicle type(s) used for the journeys.
Electricity use in company facilities	Total kilowatt hours used from electricity bills. If you rent part of a building and do not have a separate electricity bill, you will need to estimate your electricity usage – a percentage of the overall bill which is equivalent to your percentage of the overall floorspace of the building, for example.
Home working	Number of employee days worked from home, which might be available from timesheets or might just need to be estimated.
Business travel	Mode of travel (car, train, plane etc) and distance travelled for each journey taken. Mode of travel can be identified from expenses claims. If distance travelled isn’t also captured in those claims, this can be calculated using Google Maps or equivalent.
Staff commuting	Commuting distance, frequency and usual mode of transport for all staff This data is usually gathered via a staff survey
Supply chain emissions from purchased goods and services	Amounts of spend in broad categories – food & drink; computing; insurance etc This can usually be extracted from financial management software

Collating all of your data in a single spreadsheet will help keep you organised and make for easier updating in future years.

Step 3: Calculate your emissions (do the math!)

Having gathered data on all of the activities of your small business that have generated greenhouse gas emissions, you then need to do some simple calculations to convert the activity data to emissions. This is done using conversion factors.

Activity data x Conversion factor = Greenhouse gas emissions

Many Governments issue conversion factors to make carbon calculations more consistent. The UK Government updates conversion factors for the UK on an annual basis and publishes them online here. Some conversion factors are published by the Australian Government – the factors for 2020 are here. Emission factors for the USA are included in this (unfortunately rather complicated) GHG Protocol spreadsheet. Various other country-specific spreadsheets and tools can also be found on the GHG Protocol website. Try Google searches too.

Once you have converted all your business data into greenhouse gas emissions in each category, you can add them together to arrive at your small business carbon footprint. Nice work!

What should I do with my small business carbon footprint?

There are three main potential uses for your small business carbon footprint:

1. To identify priority areas for improving your environmental performance. Your carbon footprint should give you a clear idea of which activities are generating the most emissions and, therefore, where you might be able to make improvements.
2. To monitor progress. Recalculating your carbon footprint on a regular basis will enable you to monitor your progress in reducing the carbon emissions from your small business.
3. To establish how much carbon offsetting you would need to do in order to be a ‘carbon neutral’ business – more on this below.

How can I reduce the carbon footprint of my small business?

The answer to this question will be different for every small business. At Green Small Business, we take a structured and systematic approach to understanding all of the different business activities that generate an environmental impact and work with businesses to develop policies and action plans to address those impacts. Our free guide provides a step-by-step process for you to do the same, or you could get us to work with you.

From our work with dozens of different small businesses, there are some common areas for action, including:

• Reducing energy use in buildings, e.g. through improving energy efficiency.
• Developing a principled approach to business travel through reducing travel and using more sustainable modes of transport.

But there are lots of other areas that are commonly overlooked, including the choices made about things like company pensions and web hosting. Depending on how you have measured it, action in such areas may or may not make a measurable difference to your carbon footprint but they are crucial to ensuring your business has real integrity in its environmental management.

What is carbon offsetting? And should we offset?

The main purpose of calculating a carbon footprint for your small business should always be to better understand how you can reduce carbon emissions. However, you will not be able to eliminate all of your carbon emissions. Carbon offsetting, at least in theory, provides a way of compensating for the emissions that you can’t eliminate by investing in projects that result in a reduction of carbon emissions. Such projects might include tree planting or new renewable energy.

The concept of carbon offsetting is being increasingly scrutinised. It has been criticised for two main reasons:

1. Carbon offset projects do not always deliver the promised carbon reductions.
2. Carbon offsetting is used by some businesses as an excuse for carrying on business-as-usual.

At Green Small Business, we are not fans of the concept of carbon offsetting. We always encourage businesses to invest in high quality environmental projects. We just don’t think they should be thought of as ‘offsets’. To do so risks false or exaggerated claims being made and/or there being less of an emphasis on reducing the carbon footprint of the business.

Our recommendation: Don’t use the term ‘offset’ and don’t make any claims about offsetting your carbon. Focus on reducing your carbon and financially supporting the best environmental projects – not because it will magically offset your carbon but because it’s the right thing to do.

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What does carbon neutral mean?

‘Carbon neutral’ is a label that is sometimes claimed by businesses that have offset all of their carbon emissions. ‘Climate neutral’ and even ‘climate positive’ are also used and seem to mean similar things.

If you are going to use the term (and we don’t recommend it) always be clear about what is included in your carbon footprint calculations and what isn’t.

What does net zero mean?

‘Net zero’ has been described as the most important metric of the 21st century but there is a lot of confusion about what it means.

A net zero world would be one in which the amount of greenhouse gases coming into the atmosphere was equivalent to the amount being taken out, e.g. through being absorbed by plants and trees. In that sense, it is very similar to ‘carbon neutral’ but the key difference is that net zero relies on carbon offsetting only once radical reductions in direct emissions have been achieved. By radical, we mean 90-95%! Net zero can therefore rarely be achieved in the short-term, with most businesses setting long-term targets to achieve it.

The term also implies reference to an important global movement. In Paris in 2015 a global target was set of achieving net zero by 2050 in order to prevent dangerous levels of global warming. The Inter-Governmental Panel on Climate Change (IPCC) subsequently stated that an interim target of achieving a 50% reduction by 2030 was necessary.

Businesses and other organisations have since been encouraged to set targets which are consistent with these global net zero targets. The United Nation’s Race to Zero campaign has been established to support this. Numerous country-specific initiatives have also been set up to encourage businesses and other organisations to set targets which are aligned with these global goals. 

For net zero to be achieved, clearly it requires consistency in the way it is measured. The Science-Based Targets Initiative (SBTI) is attempting to standardise and verify the setting of these targets by individual businesses and organisations. Use this methodology if you can but beware that for many smaller businesses, meeting SBTI requirements will be extremely challenging due to the often limited control over some emissions sources, e.g. when operating from rented premises.

What is carbon intensity?

In the context of carbon footprinting, carbon intensity is a measure of carbon emissions relative to business turnover. It is usually measured in CO2e per $million revenue.

As a business grows and the levels of its different activities increase, its carbon emissions are also likely to grow. Measures that have been taken to reduce carbon emissions might not then show in the business carbon footprint as they could be outweighed by the extra emissions from the growth in business activity.

Similarly, if a business was shrinking, this is likely to result in a reduction of emissions. 

Carbon intensity is therefore an important measure for getting an accurate understanding of the success or otherwise of your carbon reduction efforts. If carbon intensity is decreasing then it is an indication that carbon reduction efforts are succeeding (bear in mind though that there will be a natural reduction in carbon intensity anyway as the level of renewable energy in the grid increases, the efficiency of vehicles improves etc). If carbon intensity is increasing then it is an indication that your efforts are not having the impact you intended.

Our advice – unless your business is growing really fast, keep an eye on your carbon intensity as it’s easy to measure and can be useful but always aim to reduce your absolute carbon footprint year-on-year.