Measurement is an important first step in a business’s journey towards carbon reduction. However, the perceived complexity of measuring carbon emissions often stops SMEs before they’ve even started. The spend-based method offers a simple, speedy, cost-effective solution for businesses.
Changing regulations and the expectations for larger businesses to address their scope 3 emissions place SMEs under increasing pressure to measure their carbon footprint. Customers and employees are also increasingly demanding that businesses do more for the planet.
SMEs that demonstrate a commitment to carbon reporting can experience a competitive advantage, winning business from larger organisations that require comprehensive scope emissions data and attracting conscious consumers/top talent to their business, notably Gen Z, who are increasingly concerned about climate change and are looking to businesses to provide green products and services.
Measuring carbon emissions also helps businesses identify carbon hotspots, informing where to cut emissions and costs. Plus, reporting emissions can unlock green finance opportunities for businesses as investors commonly use sustainability criteria to guide their financing decisions.
Despite these benefits, most businesses still don’t measure their carbon footprint.
What is holding SMEs back?
Feedback from our research with SMEs suggests that the perceived complexity, cost, and time required to measure carbon emissions prevent them from getting started. This is particularly true during the cost-of-living crisis when many businesses are having to prioritise immediate survival over longer-term sustainability initiatives. There is an increasing need for a ‘right-sized’ approach to reporting that is more accessible and cost-effective for SMEs.
Making it easy to get started: Introducing the spend-based method
The spend-based method offers the easiest, most credible solution to measure small businesses' carbon impact. This approach essentially measures business carbon emissions by taking the financial cost of a product or service and multiplying it by an emissions factor (AKA the amount of emissions produced per financial unit). The calculation analyses business spending across all categories, enabling businesses to measure the majority of their total footprint. Importantly, capturing footprint categories that are very hard to quantify using other methods.
This approach requires less manual data than other approaches, making it faster, easier, and cheaper to implement. Also, as financial accounting and reporting are standard practices for companies, this method aligns with existing practices, offering a straightforward initial estimate of a company’s carbon footprint.
However, the spend-based approach has recently come under criticism for being too generic—ignoring the differences between products, services, suppliers, industries, and geographies. Instead, many argue for activity-based measurement, which counts the units of products an SME purchases, like litres of fuel, and multiplies this by emissions factors. While that method can yield more accurate results, the collection and analysis of the data is much more complex, especially for organisations with long supply chains. Most small businesses don’t have the resources to undertake this type of data collection and measurement, which is why we advocate for the spend-based method as a great starting point.
A hybrid spend-based method
Cogo is pioneering a hybrid spend-based methodology informed by years of research into SME motivations, needs and challenges. The unique approach plays to the strengths of both spend-based data and activity data. It uses spend-based data to enable everyone using its products to calculate a carbon footprint estimate with minimal manual input. It then offers users the ability to overlay this foundational footprint with more accurate manually-entered activity data, e.g. kWh of electricity per month. This gives the business and their clients more confidence about the accuracy of the fossil fuel combustion, and electricity use components of their footprint.
There is also the option to integrate automated activity data feeds to enable SMEs to reach high levels of footprint accuracy without the effort of manual data entry. This includes, for example, the automation of smart meter data for gas and electricity consumption.
The value of a ‘journey-based’ approach is clear—Cogo's Business Carbon Manager tool consistently demonstrates a high conversion rate of over 90% of signed-up businesses that proceed through onboarding to generate their first carbon footprint. SMEs can complete this initial step in a matter of minutes.
What about reporting standards alignment?
SMEs are not isolated from the pressures being felt by corporations to set carbon targets and report their footprint. Regulations requiring large companies to report their footprint (including supply chain emissions) are now in place in the EU (CSRD), New Zealand, and other countries and are being developed in many others, including the UK (SDS) and Australia. Cogo provides Greenhouse Gas Protocol (GHGP) aligned carbon footprint reporting for SMEs, which is the gold standard for business carbon accounting, so they can communicate status, targets, actions and progress to key stakeholders.
The specific supply chain requirements vary depending on the industry, location and type of company. A comprehensive hybrid approach provides the typically requested key reporting metrics, such as carbon intensity, total business footprint, and breakdown in GHG scope emissions. The ability for SMEs to add activity data also enables them to improve accuracy in reporting, especially in key carbon hotspot categories.
It's critical to enable SMEs to go beyond reporting their footprint: They can demonstrate to corporate buyers their commitment and targets and, crucially, the actions they are taking to reduce their impact.
Learn more about how carbon management products can revolutionise business’s sustainability journeys.