When it comes to measuring your business’s carbon footprint, you'll look to gather data from across the business: your accounting system, your energy bills, a survey to understand commuting habits - to name a few. The type of data you collect plays a crucial role in determining how accurate and useful your calculations will be.

Broadly speaking, there are two main approaches to gathering this data: spend-based data and activity-based data. Understanding the distinction between these two approaches—and when to use each—is essential for accurately assessing your environmental impact.

Spend-based vs. activity-based carbon accounting

Spend-based data is all about looking at the money you spend as a proxy for your emissions. Essentially, you tally up how much you spend in different categories and then apply an emissions factor to those costs. These emissions factors are based on industry averages, often pulled from Environmentally Extended Input-Output (EEIO) tables, which give you a rough idea of the carbon footprint per pound, dollar or euro spent in a particular industry.

Activity-based data, on the other hand, goes straight to the source. It involves collecting specific data on the actual activities that produce emissions, like the amount of electricity you’ve used, the miles your fleet has driven, or the weight of materials you’ve purchased. This method gives you a much more accurate measure of your emissions because it’s based on real-world data rather than industry averages.

The GHG Protocol recommends using activity-based data because it’s more precise and provides deeper insights, but it acknowledges that this isn’t always feasible. If an emission source isn’t particularly material (i.e. it doesn’t make up a significant portion of your total emissions) or if the data is difficult to access, spend-based data is a reasonable alternative.

Let's go into detail on each, starting with spend-based.

What is spend-based carbon accounting?

Spend-based accounting is essentially about using your financial data as a proxy for your carbon emissions. The idea is simple: the amount of money you spend in different categories can be used to estimate the emissions associated with those purchases. This method relies on Environmentally Extended Input-Output (EEIO) tables, which provide emissions factors based on industry averages. These factors tell you how much carbon is typically emitted per unit of currency spent in a specific industry.

Here’s how it works in practice. Imagine you run a company that spends £50,000 annually on office supplies. You would look up the emissions factor for the office supplies industry in the EEIO tables. Let’s say the factor is 0.0005 t CO2e per pound spent. You would multiply your spend by this factor:

£50,000 x 0.0005 t CO2e/£ = 25 t CO2e

This calculation gives you a rough estimate of the emissions associated with your office supplies purchases.

Where does this data come from?

Spend-based data is derived directly from your company’s financial records. You’ll be looking at invoices, expense reports, and accounts payable ledgers to see how much you’ve spent in various categories. This makes it relatively straightforward, as most businesses already have this information readily available.

Benefits of spend-based accounting

Spend-based accounting is quick to implement. If your financial records are in order, you can get a high-level estimate of your carbon footprint without too much hassle. It also provides a decent starting point, especially if you’re new to carbon accounting. It allows you to see where your major emission sources might be without diving into the nitty-gritty details.

Drawbacks of spend-based accounting

The biggest downside is that this method relies on industry averages, which might not accurately reflect your specific situation. For example, if you buy eco-friendly office supplies, the average emissions factor for the industry won’t necessarily account for that, leading to a potentially inflated footprint. It also doesn’t give you the granular data needed to identify specific areas for improvement. It’s great for a ballpark figure but not for detailed planning or targeted reductions.

What is activity-based carbon accounting?

If spend-based accounting is the quick and dirty way to estimate your carbon footprint, then activity-based accounting is the gold standard. It involves collecting data directly from the activities that generate emissions, giving you a much more accurate and detailed picture of your environmental impact. Instead of relying on how much you spent, you track the consumption of emission-generating resources at source.

Here are some common types of activity-based data.

kWh of energy used

One of the most straightforward forms of activity data is the amount of electricity and gas your business consumes, usually measured in kilowatt-hours (kWh). This data is essential for calculating your Scope 1 and 2 emissions from gas and electricity usage in the office. By knowing exactly how much energy you’re using, you can apply the correct emissions factor for your region and energy source, leading to a precise measure of your energy-related emissions.

Weight of materials purchased

If your business involves manufacturing or production, tracking the weight of the raw materials you purchase is crucial. For example, if you’re in construction, knowing how many tonnes of cement you’ve bought allows you to calculate the emissions associated with producing and transporting that material.

Miles traveled by mode of transport

Business travel, especially by air, is a significant source of emissions for many companies. By tracking the number of miles flown, driven or ridden by your employees, you can estimate the carbon footprint of your travel. For flights, different classes of travel (economy, business, first class) have different emission intensities, so this data helps you tailor your calculations more accurately.

Kgs or litres of fuel consumed

For companies with vehicle fleets, tracking the amount of fuel consumed—whether it’s petrol, diesel, or alternative fuels—provides direct data on your Scope 1 emissions (direct emissions from owned or controlled sources). This is more accurate than estimating based on £ spent on fuel, for example.

This also applies to businesses that consume fuel in a fixed location, for example as part of a manufacturing process, or to power a wood-fired pizza oven.

Weight of waste generated

Measuring the amount of waste your business produces allows you to calculate the emissions associated with its disposal, whether it’s sent to landfill, recycled, or incinerated. Waste management can be a significant, though often overlooked, part of a business’s carbon footprint.

Benefits of activity-based accounting

Because you’re working with real data from your specific activities, the emissions calculations are much more precise than those based on spend alone. This is especially important if you’re looking to make targeted reductions in your carbon footprint. Because of the increased llevel of detail, activity-based data is much better able to identify levers for emission reduction, such as shifting to recycled materials or cutting out business-class flights.

Drawbacks of activity-based accounting

Gathering activity-based data can be time-consuming and resource-intensive, especially for small and medium-sized enterprises (SMEs). While spend is readily available in your accounting system, the weight of material you purchased, or the distance your employees travel to work by car, is not necessarily tracked as standard by the average business.

In some cases, the data you need might not be available at all. For example, your energy provider might not give you detailed enough billing information, or your supply chain might be opaque, meaning you need to fall back on spend data until better data becomes available.

Combining the two approaches

In practice, many businesses, particularly SMEs, use a combination of spend-based and activity-based data. Spend-based accounting might be used for less material emission sources or where detailed data is hard to come by, while activity-based accounting is applied to the most significant emission sources where possible. This hybrid approach allows businesses to balance accuracy with practicality, ensuring that they have a comprehensive but manageable carbon footprinting process.

Conclusion

While activity-based accounting might require more effort to collect, the payoff in terms of accuracy and the ability to identify specific areas for improvement makes it worth the investment. By combining both approaches, businesses can create a carbon footprint assessment that is both comprehensive and practical, setting the stage for effective carbon management and reduction strategies. So, whether you’re counting pounds or kilowatt-hours, the important thing is to start measuring—because you can’t manage what you don’t measure.

At Seedling, we specialise in making it as easy as possible for SMEs to use activity data in their assessments, although we also facilitate spend as a fall back.