Let’s be honest: reporting your greenhouse gas (GHG) emissions isn’t just for the ESG crowd — it’s how smart companies stay competitive. With regulations tightening and investors pushing for greater transparency, accurate emissions data has become a real business asset. But here’s the catch — not all reporting methods are equal. Depending on the approach, your numbers can vary wildly, sometimes telling a skewed story about your actual impact.
The Two Carbon Accounting Methods
Broadly speaking, organizations can choose between spend-based and activity-based approaches to carbon accounting. Spend-based (or “financial-based”) reporting estimates emissions by linking them to the amount spent. It seems straightforward: you track your spending on, say, electricity or fuel, multiply it by an industry-standard emissions factor, and voilà — you have your carbon footprint. By contrast, activity-based methods measure usage directly: the exact number of kilowatt-hours consumed, gallons of fuel burned, or miles driven by a vehicle fleet.
For example, a company using spend-based accounting might say, “We spent $10,000 on fuel, so that equals X tons of CO₂.” Meanwhile, an activity-based approach would say, “Our trucks traveled 20,000 miles and used 1,000 gallons of diesel, leading to Y tons of CO₂.” Spend-based can be simpler if you already track expenses, but it’s highly susceptible to inflation and tariffs. Activity-based is typically more accurate, though it may require more detailed record-keeping.
Why Financial-Based Reporting Falls Short
The primary issue with a financial-based report is that the price doesn’t always reflect actual usage. When the costs of goods and services go up, your emissions look like they’ve gone up even if your operations haven’t changed.
Inflation Skews Results
Inflation isn’t just something that makes groceries more expensive; it can also make your emissions numbers balloon on paper. Imagine you budgeted $10,000 for fuel one year and, due to inflation, wound up spending $12,000 the following year, even though you purchased the same amount of fuel. A financial-based method would show an increase in emissions simply because the cost went up. If your leadership team sees those “rising” emissions, they might assume you need to cut back on driving or switch to a different fuel blend. But in reality, your fuel consumption stayed the same.
Tariffs and Supply-Chain Shifts
Tariffs are another variable that can spike costs overnight, especially if your business imports raw materials or components. When costs climb, financial-based models record more carbon emissions, even if you’re importing fewer goods or have made your processes more efficient. Additionally, supply-chain realignments (e.g., relocating production to another country) can cause both cost and currency fluctuations. A financial-based approach might suddenly report a big jump in carbon output while your real-world activities haven’t changed significantly.
Unreliable for Decision-Making
At the end of the day, if your data is faulty, it can lead to making the wrong decisions. Maybe you decide to invest in offsetting “rising” carbon emissions when they’re actually stable, leading to budget misallocations. Or, you might delay an operational improvement because your financial-based data doesn’t show how impactful it truly is. When your company’s sustainability strategy hinges on flimsy data, you risk making decisions that are neither cost-effective nor environmentally beneficial and open yourself up to greenwashing claims.
The Case for Activity-Based Reporting
On the other hand, activity-based emissions reporting almost always provides a more accurate picture of your carbon footprint because it’s tied to tangible operational metrics.
More Accurate
By measuring physical consumption, such as kWh or gallons of fuel, you decouple emissions totals from external market forces. Inflation and tariffs might affect your bottom line, but they won’t inflate your emissions data if your usage remains the same. This makes it easier to track the real environmental impact of your actions.
More Reliable
Activity-based data is inherently more stable. If your business invests in energy-efficient machinery or routes deliveries more efficiently, you’ll see a direct reduction in your kWh usage or miles driven. And that reduction will show up immediately in your emissions totals, especially if you’re using GHG tracking software. With financial-based reporting, those efficiency gains could be hidden if energy prices rise at the same time you cut usage.
More Actionable
Let’s say you run a retail chain that operates a fleet of delivery trucks. With an activity-based approach, you measure exactly how many miles the trucks drive and how much diesel they consume. If you swap old vehicles for more efficient models, you’ll see a drop in diesel gallons, and you can trace that directly to lower emissions. These tangible metrics make it far easier to pinpoint what’s working, where you need improvement, and which strategies get you the best return on investment for both cost savings and carbon reduction.
The Future of GHG Reporting: Where Standards Are Headed
Global sustainability reporting standards are evolving quickly. Major investors and consumers are increasingly demanding transparent data that accurately reflects actual usage. Policymakers are also paying close attention.
For instance, the European Union’s Corporate Sustainability Reporting Directive (CSRD) establishes new requirements for more detailed and standardized GHG disclosures. If history continues to repeat itself, U.S. states may soon follow the EU’s footsteps in standardized GHG reporting. While the directives don’t always specify exactly how companies must measure emissions, the push toward transparency rewards organizations that provide more precise, more direct data.
Financial-based approaches aren’t likely to disappear, but they’re becoming less popular for critical sustainability decisions. As more stakeholders demand precision, activity-based reporting emerges as a long-term solution that meets both compliance and strategic needs. By adopting it now, you can stay ahead of the curve, streamline your internal processes, and avoid last-minute scrambles to meet new guidelines.
How Emerald Built Environments Can Help
In an era of economic unpredictability, relying solely on spending to gauge your carbon footprint can give you a distorted view of your environmental impact. Activity-based reporting, by contrast, gives you the tools you need to make data-driven decisions that reflect your actual operations. It’s not just about avoiding negative press or meeting minimum requirements; it’s about becoming a stronger, more resilient business in an ever-changing global market.
However, starting activity-based reporting, whether shifting from a financial-based approach or no GHG reporting system, can feel daunting. How do you set up new data collection methods? Where do you source reliable emissions factors for each activity? And how do you integrate this new system into your broader sustainability strategies?
That’s where Emerald Built Environments, A Crete United Company, comes in. Our team specializes in helping businesses develop and implement robust GHG tracking and reporting systems. We understand that data collection is only half the battle; you also need accurate analysis and user-friendly reporting that speaks to internal teams, investors, regulators, and even customers.
