Carbon Accounting: Understanding the Business Case for Emissions

What Is Carbon Accounting?

Carbon accounting is the process of measuring, tracking, and reporting an organisation's greenhouse gas (GHG) emissions. It operates on the same foundational logic as financial accounting, however, rather than tracking monetary flows, organisations track their environmental footprint.

While CO2 is the most widely discussed greenhouse gas, carbon accounting encompasses a broader spectrum of gases, all of which contribute to atmospheric warming. To ensure consistency and comparability across industries and jurisdictions, internationally recognised frameworks have been developed to standardise how emissions are measured and disclosed.

Carbon accounting can be applied at multiple levels: national, organisational, or at the level of individual products across supply chains.

Carbon Accounting: Global Frameworks and Standards

Carbon accounting relies on a set of internationally recognised frameworks that provide the methodological foundation for emissions measurement and reporting. The most widely adopted of these is the GHG Protocol Corporate Standard, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). It establishes the core methodology for preparing a GHG emissions inventory and covers all major greenhouse gases across the three emissions scopes.

Several other frameworks build upon or align with the GHG Protocol:

• ISSB IFRS S2 (Climate Disclosures): A global sustainability reporting standard effective for 2024 reporting periods, which mandates the disclosure of emissions and climate-related risk. It explicitly requires adherence to GHG Protocol methodology, effectively embedding carbon accounting into mainstream financial reporting.

• ISO 14064: An international standard for quantifying and reporting organisation-level GHG emissions, including third-party verification guidance.

• Task Force on Climate-related Financial Disclosures (TCFD): A voluntary disclosure framework that guides organisations in reporting climate-related financial risks, widely referenced by investors and regulators.

• Partnership for Carbon Accounting Financials (PCAF): An industry-led framework specifically designed for financial institutions to measure and disclose the emissions associated with their lending and investment portfolios.

• Science Based Targets initiative (SBTi): Supports organisations in setting emissions reduction targets aligned with climate science and the goals of the Paris Agreement.

Together, these frameworks provide the rules, boundaries, and methodologies that underpin credible carbon accounting. Organisations typically adopt one or more of these standards when calculating emissions and establishing reduction targets.

The Three Scopes of Emissions

A foundational concept in carbon accounting is the classification of emissions into three scopes. This framework helps organisations understand the full extent of their climate impact, including indirect contributions that may not be immediately apparent.

Scope 1 — Direct Emissions: emissions produced directly by a company's own activities, including fuel combustion in industrial processes, gas used for heating, and emissions from

company-owned vehicles. The organisation owns the source and bears direct responsibility for the emissions.

Scope 2 — Indirect Energy Emissions: emissions arising from the generation of purchased electricity, heat, or cooling. Although the organisation does not combust the fuel directly, it drives demand for the energy that requires it, and consequently shares responsibility for the associated emissions.

Scope 3 — Value Chain Emissions: the broadest category, and often the most material. Scope 3 captures all other indirect emissions across an organisation's value chain all the way from suppliers of raw materials and logistics providers, to the end use and disposal of products by customers. For financial institutions, this category includes financed emissions.

A common misconception is that organisations with low direct emissions bear no climate responsibility. In practice, almost every organisation contributes to emissions somewhere along its value chain — whether through procurement, business travel, or the industries it finances.

Carbon accounting also distinguishes between three types of climate impact: generated emissions (produced through operations), avoided emissions (prevented through the adoption of cleaner alternatives), and emission removals (carbon actively extracted from the atmosphere). Understanding these distinctions enables organisations to identify where the most meaningful reductions can be achieved.

Calculating Greenhouse Gas Emissions

In practice, calculating GHG emissions involves converting business activity data into tonnes of carbon dioxide equivalent (CO2) using standardised emission factors. Organisations collect activity data (such as volumes of fuel consumed, kilowatt-hours of electricity used, distances travelled, or quantities of materials processed) and apply published emission factors drawn from recognised sources, including national inventories, the Intergovernmental Panel on Climate Change (IPCC), and the WRI.

The GHG Protocol Corporate Standard provides detailed guidance on this inventory process. As a practical illustration:

• Fuel consumed by a company-owned generator yields Scope 1 emissions, calculated using fuel-specific emission factors.

• Purchased electricity yields Scope 2 emissions, calculated using grid-average or supplier-specific emission factors.

• Upstream and downstream value chain activities (such as purchased goods, logistics, and investments) yield Scope 3 emissions, estimated using spend-based, distance-based, or supplier-specific methodologies.

Many organisations use dedicated software or structured spreadsheets incorporating approved emissions calculators to apply these calculations systematically. The result is a total carbon footprint expressed in CO2e, which is a transparent, auditable, and comparable metric across reporting periods.

Carbon Accounting in Action: South African Examples

The Industrial Perspective — Sasol

Sasol is one of South Africa's most carbon-intensive companies, operating large-scale industrial processes that generate significant emissions. The company measures and discloses its emissions across all three recognised scopes through its integrated sustainability reporting, providing regulators, investors, and stakeholders with visibility into the full extent of its climate impact. That transparency has had material strategic consequences. Sasol's emissions

disclosures have driven investment in renewable energy and hydrogen technologies, and informed the company's response to South Africa's carbon tax framework, which places a direct financial cost on high emitters.

The Financial Sector Perspective — Nedbank

Nedbank illustrates a different, yet equally important, dimension of carbon accounting. As a financial institution, Nedbank's direct operational emissions are relatively modest. However, the bank finances businesses and projects whose emissions are substantial, therefore, those emissions also carry accountability. Using the Partnership for Carbon Accounting Financials (PCAF) framework, Nedbank measures its financed emissions: the carbon impact of the companies and projects it lends to or invests in. For financial institutions, financed emissions frequently dwarf operational ones, which illustrates just how much climate impact flows through

capital allocation decisions.

The Carbon Disclosure Project and South African Organisations

The Carbon Disclosure Project (CDP) is a global non-profit organisation that operates one of the world's most comprehensive climate disclosure platforms. Companies and municipalities voluntarily report their emissions, climate strategies, and reduction targets through CDP's standardised questionnaires. This forms the data that investors, regulators, and supply chain partners increasingly rely upon to assess corporate climate performance.

CDP's reporting framework encourages rigorous GHG accounting aligned with the GHG Protocol and TCFD-style disclosures, and actively supports organisations in setting credible emissions reduction targets.

South African participation in CDP has grown considerably in recent years. In 2023, 84 South African organisations responded to the CDP climate questionnaire, which was a noticeable increase from 50 respondents in 2018. Furthermore, a significant portion of companies in the JSE Top 100 disclosed publicly through CDP in 2023, including a substantial number of the country's largest banks, mining companies, and utilities.

For South African organisations, CDP participation has become an important mechanism for benchmarking carbon performance against global peers, demonstrating transparency to international investors, and reinforcing the credibility of their emissions reduction commitments.

The Presidential Climate Commission and National Targets

Corporate carbon accounting does not occur in isolation as it is shaped and increasingly compelled by national policy. South Africa has established both institutional structures and formal emissions commitments that set the policy context within which organisations measure and manage their climate impact.

The Presidential Climate Commission (PCC), a multi-stakeholder advisory body established in 2020, guides South Africa's climate agenda and its strategy for a just transition to a low-carbon economy. The PCC played a direct role in shaping South Africa's updated Nationally Determined Contribution (NDC) submitted under the Paris Agreement in September 2021, which commits the country to total GHG emissions of 350–420 MtCO2e by 2030. This target represents a reduction of roughly 19%-32% below 2010 emission levels.

Looking further ahead, South Africa has signalled a long-term target of net-zero carbon emissions by 2050. This goal is reflected in the country's 2020 Long-Term Low-Emissions Development Strategy and is explicitly endorsed in the PCC's Just Transition Framework, adopted in 2022.

These national commitments are directly relevant to corporate carbon accounting. Large South African organisations are increasingly expected to align their emissions reduction targets and reporting with the NDC trajectory and the 2050 net-zero vision. Taken together with the carbon tax regime and emerging climate-related disclosure requirements, the PCC's work and South Africa's national targets form a critical policy backdrop that elevates carbon accounting from a voluntary best practice to a strategic and regulatory imperative.

South Africa's Carbon Tax

South Africa introduced its Carbon Tax Act in June 2019, making it one of the first African countries to implement a market-based mechanism for reducing greenhouse gas emissions. The tax places a direct price on carbon by requiring companies that exceed certain emissions thresholds to pay a levy per tonne of CO2 equivalent emitted. For the 2024 tax period, the carbon tax rate stood at R190 per tonne of CO2e. The tax applies primarily to Scope 1 emissions from industrial processes, combustion activities, and fugitive emissions. To ease the transition, the legislation provides a range of allowances (including a basic tax-free threshold and sector-specific allowances) which effectively reduce the taxable emissions base for most companies.

In practice, the carbon tax has prompted many large South African emitters to invest in carbon offsets as a complementary strategy. Companies may use certified offsets, such as those generated through renewable energy projects or forestry initiatives, to offset a portion of their tax liability, subject to prescribed limits. This has stimulated a nascent domestic carbon market and encouraged organisations to look beyond their own operations when developing decarbonisation strategies. Critically, navigating these offset mechanisms effectively requires a thorough and accurate understanding of an organisation's emissions profile, further underscoring the value of disciplined carbon accounting.

Phase two of the carbon tax, which runs to 2030, is expected to progressively reduce these allowances and increase the tax rate, intensifying the financial incentive for organisations to invest in emissions reduction.

For businesses operating in South Africa, the carbon tax reinforces the strategic importance of robust carbon accounting: accurate emissions measurement is not only a reporting obligation but a direct determinant of tax liability.

The Five Principles of Good GHG Accounting

For carbon reporting to be credible and comparable, the Greenhouse Gas Protocol sets out five core principles that guide how emissions should be measured and disclosed:

• Completeness: all significant emission sources must be accounted for within the organisation's defined boundaries. Selective reporting (capturing only the most convenient sources) undermines the integrity of the exercise.

• Consistency: the same methodologies must be applied from one reporting period to the next, enabling meaningful trend analysis and year-on-year comparisons.

• Relevance: reported data must genuinely reflect the organisation's actual climate impact, not merely what is straightforward to measure.

• Accuracy: emissions estimates must be as reliable as possible, using the best available data and recognised emission factors.

• Transparency: organisations must clearly disclose the assumptions, methodologies, and data sources underpinning their reported figures.

Both Sasol and Nedbank have made meaningful progress in aligning with these principles through their sustainability and climate disclosures. Full compliance, however, remains a challenge, particularly with respect to Scope 3 emissions, where limited supplier data and evolving methodologies can constrain measurement accuracy. Over time, organisations can strengthen their reporting by investing in dedicated emissions measurement systems and aligning their disclosures with emerging global standards, including the IFRS Sustainability Disclosure Standards.

What About Smaller Businesses?

Carbon accounting is not the exclusive domain of large, listed corporations. Small and medium-sized enterprises (SMEs) stand to benefit meaningfully from developing foundational emissions awareness, beginning with measures as straightforward as monitoring energy consumption, quantifying transport-related emissions, or assessing the carbon footprint of key suppliers.

As climate-related regulation tightens and stakeholder scrutiny of environmental credentials intensifies, organisations that can demonstrate a credible understanding of their emissions profile will be better positioned, both commercially and reputationally. Establishing these practices early creates the foundation for progressively more rigorous reporting as regulatory expectations evolve.

Organisations that begin measuring and managing their emissions today will be better prepared to navigate the transition to a low-carbon economy — whatever form that transition ultimately takes.

At Allegro Enterprises, ESG reporting, which includes carbon accounting, forms a core part of our accounting and advisory offering. We support African businesses in measuring, managing, and disclosing their environmental impact with rigour and assurance. Stay tuned to our social media and blogs as we continue to unpack the frameworks, regulations, and practical tools shaping the future of sustainable business across Africa.

Key Takeaways

• The carbon cycle has been materially disrupted by industrial activity, resulting in atmospheric warming and accelerating climate instability.

• Carbon accounting is the structured measurement and reporting of an organisation's greenhouse gas emissions - similar in form to financial accounting.

• Emissions are classified into three scopes: direct (Scope 1), energy-related (Scope 2), and value chain (Scope 3).

• Financial institutions carry distinct obligations: financed emissions can significantly exceed operational ones.

• International frameworks, including the GHG Protocol, IFRS S2, ISO 14064, and CDP, provide the methodological standards for credible carbon reporting.

• South Africa's carbon policy landscape, including the PCC and the 2030 NDC commitments, is raising the bar for corporate climate accountability.

• Good carbon accounting adheres to five principles: completeness, consistency, relevance, accuracy, and transparency.

• Both large corporations and SMEs benefit from developing strong, systematic emissions measurement practices.

References

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https://carbonaccountingfinancials.com/files/downloads/PCAF-Global-GHG-Standard.pdf

International Financial Reporting Standards Foundation (IFRS Foundation). (2023). Greenhouse gas emissions disclosure: IFRS S2 educational material.

https://www.ifrs.org/content/dam/ifrs/supporting-implementation/ifrs-s2/ghg-ifrs-s2-educational-m aterial.pdf

Sasol Limited. (n.d.). Our climate change position. https://www.sasol.com/esg/environment/climate-action/our-climate-change-position

Nedbank Group Limited. (n.d.). Climate and nature approach: Our operational footprint. https://group.nedbank.co.za/sustainability/climate-and-nature-approach/our-operational-footprint

.html

Partnership for Carbon Accounting Financials (PCAF). (2020). The global GHG accounting and reporting standard for the financial industry.

https://pdfs.semanticscholar.org/c7f9/272aa814a2e21cb480403f2fd3ce03fa75ec.pdf

Deloitte. (2025). Greenhouse gas protocol reporting considerations. https://dart.deloitte.com/USDART/home/publications/roadmap/greenhouse-gas-protocol-reportin

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Climate Action Tracker. (2023). South Africa: Targets. https://climateactiontracker.org/countries/south-africa/targets/

Climate Action Tracker. (2023). South Africa: Net zero targets. https://climateactiontracker.org/countries/south-africa/net-zero-targets/

CDP. (2023). South Africa snapshot: Environmental disclosure and progress in 2023.

https://assets.ctfassets.net/v7uy4j80khf8/6qdeFUS1r94ndYp0wj0ZWZ/a468a71f0079e01a2b6d 4be022ab93c0/south-africa-snapshot-environmental-disclosure-and-progress-in-2023.pdf