The first steps to managing your carbon footprint are understanding what carbon metrics are. You should also learn how to make a simple calculation. This knowledge can benefit your business. Calculating your carbon footprint and why it matters for SMEs is crucial in today’s environmentally-conscious market.

Understanding the ESG jargon

At their simplest, carbon metrics are designed to measure how much a business (or person) is putting into the atmosphere over a period of time in terms of Greenhouse Gases.

Greenhouse Gases (GHG) are the gases which trap heat in the earth’s atmosphere. They are named because they act a bit like the glass in a greenhouse. The greenhouse effect is necessary to keep the Earth livable. However, since the Industrial Revolution, we have produced too much GHG, leading to overheating. Some GHGs are naturally created and others are made by humans – the main ones are carbon dioxide, methane, and nitrous oxide.

A carbon footprint measures the total amount of GHG emitted by a business over a year. This is measured in tonnes of CO2e (Carbon Dioxide Equivalent) sometimes shortened to tCO2e.

GHG emissions are categorised as into 3 Scopes:

1 – the emissions a business produces in its direct operations, from sources it owns or controls

2 – the emissions a business is responsible indirectly through the generation of energy for electricity, cooling or heating

3 – the indirect emissions a business causes through all its other related business activities, including its supply chain.

For most SMEs, especially service businesses, Scope 3 will make up the huge majority of a carbon footprint. It includes things like business travel, waste disposal, purchased good and services. It also involves use of products sold to customers, transportation, investments, and leases.

Before we dive into the calculations, there are three more definitions that are important to understand in setting climate targets:

Carbon neutral means that you are offsetting all your emissions.

Net zero means that you have reduced all GHG emissions as much as possible and offset any residual emissions.

Net negative means you’re removing more GHGs from the atmosphere than you’re emitting.

Measure your emissions

The first step to reducing your carbon footprint is to measure what it is now.

If you join the SME Climate Hub (which is free), you need to commit to halving your carbon footprint by 2030. You must also publish your progress. In return, they offer access to a free calculator, powered by a company called Normative, which is very easy to use.

The calculator uses spend-based metrics to produce a clear report which you can use to publish your footprint. All you need is your accounts, your utility bills and an idea of how big your office is.

The calculator takes you through a series of simple questions. For Scope 3 emissions, you match your expenses to various categories, such as capital goods (desk, chairs), printing, and business travel. The more detailed your inputs, the more accurate your carbon footprint will be. You don’t need to get it right down to the last penny, but the calculator tells you when you’ve got it close enough.

If you work from home, working out your utility bill doesn’t have to be too complicated. I use a method based on the one the HMRC suggests for calculating business expenses, as follows:

Take your total utility bill for the year and divide it by the number of rooms in your house. This gives you the annual cost of that utility for your office. Divide that number by 365. Then multiply it by the number of days you work in your office each year.

For example, if your electricity bill for the year is £3,000 and your house has 6 rooms (3 bedrooms, kitchen, living room, and office). Then the annual electricity bill for your office is £3,000/6 = £500.

If you work 3 days a week and you take 4 weeks’ holiday a year, you work 3 x 48 = 144 days in your office. So the electricity you use for your business when working from home is £500/365×144=£197.

The rule of thumb seems to be that if you’re not sure if your calculation is accurate, as long as you explain how you got to the numbers when you publish your carbon footprint, then that’s good enough.

The SME Climate Hub calculator is known as a spend-based calculator and it’s a good place to start. There are many other free carbon footprint calculators available to small companies, such as GreenFeet or the Carbon Trust as well.

Reduce your carbon footprint

Once you’ve calculated your footprint, the next step is to work out how to you’re going to reduce it over time.

One of the easiest ways to impact your footprint is to switch to a renewable energy tariff. This reduces your Scope 2 emissions dramatically.

Cutting down on unnecessary expenses can also be effective, though this may be more difficult for growing businesses. Simple changes like looking for opportunities to recycle or re-use office furniture can help reduce big costs. Travelling by bicycle, bus, or train rather than by car or plane will help too.

Joining an offset programme like Ecologi, My Carbon Plan or Trees for Cities can complement your efforts to change corporate behaviour. Most will show you what tCO2e you are offsetting, so that can be taken into account in your carbon metrics as well.

Why does it matter to SMEs

These days, most large or listed companies are having to produce their own carbon metrics and have published net zero targets publicly. This means they are under pressure to reduce their emissions, especially Scope 3 emissions, which are an enormous factor for financial companies.

A lender or an insurer must include their customers’ emissions in their Scope 3 calculations. Many are now offering incentives to encourage customers to reduce their own GHG emissions.

If you’re able to show, using carbon metrics, that you are reducing your carbon footprint, you may find that your bank or insurer will offer you a better rate. This is because your reduced emissions mean that their Scope 3 emissions drop too. If you do get a lower borrowing or insurance cost, your expenses are reduced. That will help your own carbon footprint too – a virtuous circle!

The same goes for those of your customers who are large businesses. If they are making net zero commitments and calculating their carbon footprint, they will be looking for suppliers who can help them in their efforts by doing the same thing. If your carbon footprint reduces, so does theirs. You may find this gives you an advantage over those of your competitors who aren’t able to show the effort they are making.

Benefit from your Efforts

Calculating your carbon footprint doesn’t need to be as complicated as it may seem if you’ve never done it before. A spend-based metric is a great starting point. As your business becomes more familiar with ESG matters, there are other ways to consider how best to measure your efforts. Measuring your carbon footprint means you can share it. There’s a good chance it will help to reduce your costs and win more business.

Thank you to Cathy Oh of Tanamera Ltd for this article. Tanamera is a member of the Farringford Legal SME Network.