Carbon accounting is rapidly gaining in importance – for large companies as a mandatory part of CSRD and for smaller companies (SMEs) increasingly as a strategic success factor. Those who know their greenhouse gas emissions today can not only meet regulatory requirements, but also take advantage of market opportunities, reduce costs and increase their competitiveness.
Whether due to legal regulations or increasing requirements along the supply chain: recording Scope 1, Scope 2 and, where applicable, Scope 3 emissions is becoming the new normal. But what exactly does carbon accounting mean – and how can companies get started in a practical way?
What is a CO₂ balance sheet?
The CO₂ balance sheet – or carbon footprint – is the structured recording of all climate-relevant emissions of a company. A distinction is made here:
Scope 1: Direct emissions (e.g. combustion of fossil fuels, company-owned vehicles, cooling systems)
Scope 2: Indirect emissions from purchased energy (electricity and heat purchases)
Scope 3: Indirect emissions along the value chain (e.g. purchased materials, transportation, business travel, product use, etc.)
The depth of reporting varies depending on the size of the company and the reporting obligation. However, a carbon footprint can also bring important benefits for SMEs – from energy savings to customer loyalty through climate transparency.
CSRD or VSME? Two paths to CO₂ balancing
The Corporate Sustainability Reporting Directive (CSRD) obliges all large companies in the EU to provide comprehensive sustainability reporting from 2027. This also includes full CO₂ accounting in accordance with ESRS E1, including:
Scope 1: Direct emissions
Scope 2: Indirect emissions
Scope 3: Other indirect emissions along the value chain
CO₂ balancing for SMEs: the voluntary path with structure
There is no direct legal obligation for SMEs – but there are growing indirect requirements, for example from business partners, financial institutions or funding bodies. This is why the VSME reporting standard was introduced, with a clear focus:
Mandatory: Accounting for Scope 1 and Scope 2
Optional: Scope 3, depending on relevance
Standard-compliant: GHG Protocol or ISO 14064-1
Practically realizable with the VSME template
This gives even smaller companies a tool with which they can report on their emissions in a transparent, comprehensible and structured manner – without excessive effort.
How CO₂ balancing works in practice
Creating a carbon footprint is not rocket science – but it does require a systematic approach. At its core, it is about measuring or estimating emissions that arise in the company or are caused by the company. Greenhouse gas emissions are stated in CO₂ equivalents (CO₂e) so that methane (CH₄), nitrous oxide (N₂O) and other gases can also be assessed in a standardized manner.
In the following, we explain step by step how companies calculate their emissions – differentiated according to the three scopes.
Scope 1: Direct emissions from own sources
What is included?
Emissions from the combustion of fuels in boilers, ovens, vehicles and volatile
emissions from air conditioning systems and industrial processes.
How is it calculated?
Record activity data
Quantity of fuel consumed, e.g. liters of diesel or quantity of heating oil (e.g. 2,000 liters of diesel consumption per year)Apply emission factor
Diesel: approx. 2.68 kg CO₂/liter
Emission factors can be found via the IPPC emission factor database, for exampleTake global warming potential (GWP) into account
The global warming potential (GWP) indicates how much a GHG contributes to global warming compared to CO2: CO₂ = 1, CH₄ = 25, N₂O = 298 – depending on the type of emission.Calculate emissions
The emissions are calculated using the following formula:
CO₂e emissions (in tons or kilograms) = consumption (activity data) × emission factor × GWP
e.g. 2,000 L × 2.68 kg CO₂/L x 1 = 5,360 kg CO₂₂ = 5.36 t CO₂e- Special calculation for energy units
If the fuel consumption is specified in energy units, the following formula applies:
Emissions = [volume x calorific value] x emission factor x GWP
–> Calorific value = energy content per unit (e.g. 35.8 MJ/L diesel)
Tip:
This data is often already available in fuel receipts, heating bills or internal records.
Scope 2: Indirect emissions from purchased energy
What is included?
Power consumption
Purchased district heating, cooling or steam
Two calculation methods:
Grid-based (location-based): Based on the average emission value of the electricity grid.
Market-based: actual electricity supplier incl. guarantees of origin (e.g. green electricity contracts)
Formula: CO₂e emissions = activity data x emission factor
Example:
Electricity consumption: 12,000 kWh per year
Emission factor Germany 2022 (location-based): 430 g CO₂/kWh
→ 12,000 × 0.430 kg = 5,160 kg CO₂e = 5.16 t CO₂e
Note:
Both methods may be shown in parallel. The network-based calculation is usually sufficient for small businesses.
Scope 3: Other indirect emissions along the value chain
The GHG Protocol distinguishes between 15 categories of Scope 3 emissions, divided into upstream and downstream emissions. These include, among others:
Purchased materials & services
Transportation & logistics by third parties
Business trips, commuter traffic
Use and disposal of products sold
Capital goods, leasing, investments
Not all categories are relevant for every company, so the first step is to prioritize the topics.
Procedure:
Screening and prioritization
The first step is to check which of the 15 Scope 3 categories are relevant at all – such as “Purchased goods”, “Transport”, “Business trips”, “Waste”, “Product use”.
The rule is: not everything has to be recorded – but what is essential.Criteria such as
Contribution to total emissions (order of magnitude)
Influenceability by the company
Relevance for stakeholders (customers, investors)
Risk contribution (e.g. price volatility, reputational risks)
High proportion of sales or costs
Selecting the right calculation methods
There are different methods for each Scope 3 category – from rough to precise. As a general rule, the more specific the method, the better the data quality, but the greater the effort involved. A pragmatic mix is often the best approach. The formulas listed here were taken as an example from Category 1: Purchased goods and services. All formulas can be found in the Scope 3 Calculation Guide:Possible methods (ordered by accuracy):
Supplier-specific method
Direct emissions data from the supplier
→ high accuracy, complex
Formula: ∑ (quantity of purchased goods (e.g. kg)
× supplier-specific product emission factor (e.g. kg CO2e/kg))Hybrid method
Combination of primary data and industry-specific factors. An overview of the formulas can be found here.Average-data method
Average values based on quantity data (e.g. kg of material)
Formula:
∑ (mass or unit of the purchased good or service (piece or kg)
× emission factor per mass unit (kg CO2e/kg)) or reference unit (e.g. kg CO2e/piece))Spend-based method
Emissions estimate based on expenditure
Formula: ∑ (value of the purchased good or service ($/€/CHF) × emission factor)
Example (spend-based method):
A VSME purchases €10,000 of office supplies per year. The emission factor is 0.4 kg CO₂e/€
→ €10,000 × 0.4 = 4,000 kg CO₂e = 4 tCombining allowed:
Companies can use more precise methods for “large” emission sources – and work with approximate methods for “small” sources. Example: Primary data for main suppliers, average values for secondary purchases
Tip for SMEs: Start small, grow strategically
Even if Scope 3 is voluntary, it can be useful to at least carry out a screening estimate – in order to:
be able to respond better to customer requirements
define initial climate targets
Recognize cost-benefit potential (e.g. through supplier selection)
Conclusion
The carbon footprint is not an end in itself – it is the first step towards a climate-conscious future.
For small and medium-sized companies that want to take a structured approach to their CO₂ accounting, we recommend tools such as the VSME template for support. It offers an easy-to-understand template for recording Scope 1 and Scope 2 emissions as well as optional Scope 3 data – aligned with the voluntary VSME standard and the GHG Protocol. This makes getting started simple, clear and practical – even without in-depth prior knowledge.
For companies that fall under the CSRD , the double materiality assessment helpful, because they offers one well-founded Basis, to relevant scope3-categories systematically to identify them. Helpful tools for this can be found here.
