Read about the importance of measuring your company’s supply chain emissions.
Whether you’re new to carbon accounting or an industry veteran brushing up on your knowledge, this glossary will help you decode its most frequently-used concepts. For deep-dive explainers and guides, head to our Insights page.
The Paris Agreement commits countries to limit global warming to well-below 2°C above pre-industrial levels, ideally following a more ambitious trajectory of 1.5°C. Any greater level of warming than 1.5°C could lead to vastly more destructive climate changes. Scientists have calculated that in order to follow a 1.5°C trajectory, the world must cut its emissions in half by 2030 and reach net zero by 2050.
Activity data specifies how many units of a particular product or material that a company has purchased. For example, it could be liters of fuel, kilograms of textile, etc. In carbon accounting, activity data generally allows for more accurate emissions estimates than spend-based data.
Additionality is a principle for evaluating carbon removal projects. A carbon removal project is additional if it will lead to a reduction of greenhouse gas emissions that would not have happened otherwise.
To set emission reduction targets and embark on the net zero journey, one must first specify a base year. The yearly reduction targets are set by the percentage of the total emissions in the base year.
The production of bio-oil is a method of carbon removal. It is created by heating agricultural waste without oxygen. The resulting bio-oil is then injected deep underground.
The production of biochar is a method of carbon removal. Biochar is a charcoal-like substance created by heating agricultural waste (corn husks, stems, leaves, etc.) until its chemical composition changes. After the CO₂ has been stored in this way, the biochar is used to create a substance that can be added to the soil, such as a fertilizer. This means that the CO₂ is almost permanently removed, and won’t be released back during decomposition.
Cap and trade is a market-based approach to lowering GHG emissions. A central authority allocates a limited number of permits that allow the holder to emit a particular amount of greenhouse gases over a specific time period. Companies that want to emit more than their allocated share must purchase additional permits from other companies willing to sell them.
Read more about methods of limiting GHG emissions, including cap and trade.
Carbon accounting is the process of measuring how much carbon dioxide equivalents (CO2e) an organization (company, state, etc.) emits.
Carbon dioxide is a colorless gas that occurs naturally in the atmosphere. It is also created in many industrial processes. Carbon dioxide is a greenhouse gas and therefore contributes to global warming.
For any greenhouse gas, the carbon dioxide equivalent (CO₂e) is the mass of CO₂ which would warm the earth as much as the mass of that gas. CO₂e provides a common scale for measuring the climate effects of all greenhouse gases.
All of the greenhouse gas emissions (both direct and indirect) associated with a specific product or activity.
A business is carbon negative (or climate positive) if the net result of its activities is a decrease in the amount of carbon in the atmosphere. This is going a step further than net zero.
A business is carbon neutral when its core business activities do not contribute any additional GHG emissions, on balance. This means that a company can become carbon neutral without doing anything about its scope 3 emissions, even though this is where the majority of emissions are located for most companies. To meet the goals of the Paris Agreement, companies must go beyond carbon neutrality and reach net zero emissions.
Carbon reduction is the process of reducing the amount of GHG emissions a company produces. For example, this can be done by switching to more climate-friendly suppliers or to clean energy providers. Carbon reduction is a crucial step in the journey to net zero.
Carbon removal is the process of taking carbon from the atmosphere and storing it where it won’t contribute to climate change.
Carbon sequestration (or carbon removal) is the process of storing carbon somewhere where it won’t contribute to climate change.
Once carbon has been removed from the atmosphere see (carbon removal), it needs to be stored somewhere. This storage is called a carbon sink.
A carbon target is a commitment to reduce a company’s greenhouse gas emissions by a specified amount before a given year.
A carbon tax is a tax on the carbon emissions required to produce goods and services. A carbon tax reduces emissions overall, both by decreasing demand for high emission goods and services and by incentivizing efforts to make them less emission-intensive.
Read more about methods of limiting GHG emissions, including carbon taxes
CDP is a framework for companies, cities, and states to report their environmental impact.
Climate investment – also known as offsetting, carbon compensation, and carbon removal – takes carbon from the atmosphere and stores it where it won’t contribute to climate change.
A business is climate positive (or carbon negative) if the net result of its activities is a decrease in the amount of carbon in the atmosphere. This is going a step further than net zero.
CO₂ mineralization is a method of carbon removal in which atmospheric CO₂ is transformed into a solid mineral. It happens naturally when certain rocks are exposed to CO₂, but there are technologies that can speed up the process. Once CO₂ has been mineralized, it has essentially been permanently removed from the atmosphere.
COP (Conference of the Parties) is a yearly UN climate change conference. Leaders from almost every country on Earth gather to review progress made in cutting emissions and ensure that climate targets are met.
Corporate sustainability is the business strategy of providing goods and services in a way that is environmentally sustainable while also conducive to economic growth.
Corporate social responsibility (CSR) refers to the set of policies a company implements with the aim of having a positive influence on the world.
The Corporate Sustainability Reporting Directive (CSRD) will set the standard by which nearly 50,000 EU companies will have to report their climate and environmental impact by introducing more detailed reporting requirements and expanding the number of companies that have to comply.
The European Commission plans to adopt the CSRD in late 2022. Companies will likely need to start reporting to the new sustainability reporting standards in 2024, using the information from the 2023 financial year.
Read more about CSRD and whether your company will have to comply
Decarbonization (also known as carbon reduction) is the process of reducing the amount of GHG emissions your company produces. For example, this can be done by switching to more climate-friendly suppliers or to clean energy providers. Decarbonization is a crucial step in the journey to net zero.
Direct air capture (DAC) is a method of carbon removal. DAC technologies absorb CO₂ directly from the atmosphere. To ensure that the absorbed CO₂ stays removed from the atmosphere, DAC is often combined with CO2 mineralization.
Direct emissions are those that a company generates while performing its business activities. For example, this includes generation of electricity, manufacture and processing of materials, waste processing, and transportation using the company’s own vehicle fleet. Direct emissions are also called scope 1 emissions.
A carbon removal project engages in double-counting if the same climate investment is sold multiple times. Avoiding double-counting is therefore an important principle of high-quality climate investment.
Read more about the four principles for evaluating carbon removal methods
Downstream emissions are emissions that occur after a company has sold its goods and services. Together with upstream emissions (or supply chain emissions) they make up a company’s scope 3emissions.
An emission factor (EF) measures the emissions associated with one additional unit of a specified activity. For example, it could be the extra emissions associated with spending one euro on clothing or transportation. It could also be the extra emissions associated with purchasing one kilogram of textile or one liter of fuel.
If a company reports how much it has spent on various products and services, spend-based EFs allow us to estimate the company’s emissions. If a company more specifically reports the quantities of all purchased items, activity-based EFs provide an even more accurate estimate of the company’s emissions.
Under a cap and trade scheme, companies are allocated emission rights, which they can either use to for their own emissions, or sell to other companies that want to emit more than their allocated share.
In this context, emissions refer to greenhouse gas emissions, and are measured in terms of carbon dioxide equivalents.
Enhanced weathering is a method of carbon removal. By spreading finely ground rock such as basalt, the natural weathering process is accelerated, permanently removing CO₂ from the atmosphere via CO₂ mineralization.
An ESG report is a report published by a company about its environmental, social, and governance impact.
The EU taxonomy is a framework that provides companies, investors, and policymakers with a common language for determining which economic activities are environmentally sustainable.
Learn more about the EU Taxonomy
Fugitive emissions are leaks of gases and vapors. They are part of a company’s scope 1 emissions.
A greenhouse gas (GHG) is a gas that absorbs and emits radiant energy within the thermal infrared range, causing the greenhouse effect and thereby global warming.
Greenwashing is the practice of providing misleading or false information about the sustainability of a company’s business activities. Because companies may not realize that majority of their emissions are in scope 3 or that many carbon offsets are of dubious efficacy, greenwashing can happen unintentionally as well as intentionally.
The Global Reporting Initiative (GRI) provides a set of standards for companies to use when reporting their environmental impact. They provide both general best practices and industry-specific guidance.
A company’s indirect emissions are the emissions from their purchased energy (scope 2 emissions) and from their value chain (scope 3 emissions).
A carbon removal project has leakage if its implementation will lead to negative consequences elsewhere. Avoiding leakage is therefore an important principle of high-quality climate investment.
Life cycle assessment (LCA) is a method for evaluating the environmental impact of a commercial product or service through all stages of its life cycle, from cradle (raw material extraction) to grave (final disposal).
Net zero is a state in which the amount of greenhouse gases emitted into the atmosphere is counterbalanced by removing an equivalent amount of greenhouse gases. In a system that has reached net zero, the total amount of greenhouse gases (GHG) in the atmosphere will remain constant. In practice, net zero is most often discussed in relation to companies and countries, which set net zero targets to guide their GHG reduction efforts. But reaching net zero can also be a goal for individual people, industries, geographic regions, or the entire planet.
The process of reaching net zero. A company’s net zero journey involves first measuring its entire carbon footprint, then reducing every emissions source possible, then compensating the remainder with high-quality climate investment.
The Non-Financial Reporting Directive (NFRD) is a piece of EU legislation that requires large companies to disclose information regarding (1) environmental impact, (2) social and employee issues, (3) human rights, and (4) bribery and corruption. With respect to environmental impact, it is recommended that they disclose scope 1, 2, and 3 emissions, as well as absolute reduction targets. It is recommended that banks and insurance companies focus on their scope 3 emissions, despite the difficulties in measuring this category. The NFRD is set to be replaced by the CSRD.
Carbon offsetting is the process of balancing a business’s carbon emissions by removing a proportionate amount of carbon from the atmosphere. In theory, there’s nothing wrong with this. In fact, carbon removal is the necessary final step of a company’s net zero journey. In practice, however, the term “carbon offsetting” has become associated with low-quality activities which can be much less effective than the businesses that purchase them believe. This leads companies to unintentionally “greenwash” by only compensating a fraction of their carbon footprint.
The Paris Agreement is an international treaty on climate change, adopted in 2015 and ratified by almost every country in the world. The Agreement commits its signatories to keep global warming to well below 2°C above pre-Industrial levels, and preferably limiting the increase to 1.5°C.
A [carbon reduction target is Paris-aligned if it is consistent with the Paris Agreement’s commitment to limit global warming to well below 2°C greater than pre-Industrial levels.
Permanence is a principle for evaluating carbon removal projects. A carbon removal project is permanent if it will result in a quantifiable piece of carbon being kept out of the air forever.
The Sustainability Accounting Standards Board (SASB) provides a set of standards for companies to use when reporting their environmental impact.
The Science-Based Targets initiative (SBTi) encourages companies to set science-based targets in line with the Paris Agreement. They provide general as well as industry-specific guidance on how to meet these targets.
An emissions reduction target is science-based if it accords with what climate science tells us about how to meet the goals of the Paris Agreement: to limit global warming to less than 2°C above pre-industrial levels and ideally pursue a stricter 1.5°C target.
Scope 1 emissions are direct GHG emissions that a company generates while performing its business activities. This includes generation of electricity, manufacture and processing of materials, waste processing, and transportation using the company’s own vehicle fleet.
Scope 2 emissions are the indirect emissions generated by the production of purchased energy.
Scope 3 emissions (also known as value chain emissions) are all indirect emissions that occur in the value chain of a company and are not already included within scope 2. These emissions are a consequence of the company’s business activities, but occur from sources the company does not own or control. Scope 3 emissions include the following:
The Streamlined Energy and Carbon Reporting (SECR) is a piece of UK legislation. It requires large companies and all publicly traded companies to report on their energy consumption and associated greenhouse gas emissions.
Read more about SECR
The Sustainable Finance Disclosure Regulation (SFDR) is a piece of EU legislation that regulates the sustainability information that financial advisors and financial market participants must disclose.
Learn more about SFDR.
The spend-based method of calculating GHG emissions takes the financial value of a purchased good or service and multiplies it by an emission factor – the amount of emissions produced per financial unit – resulting in an estimate of the emissions produced.
Since spend-based methods’ emission factors are built on the industry average greenhouse gas emissions levels, spend-based calculations can lack specificity. For example: if you buy a chair, a spend-based approach would only factor in that you bought a piece of furniture, and wouldn’t account for whether the chair was made of iron or wood. Activity data is generally more reliable.
Supply chain emissions are emissions that occur upstream in the company’s supply chain. Supply chain emissions are part of scope 3 emissions. They are also known as upstream emissions.
Read about the importance of measuring your company’s supply chain emissions.
Sustainability reporting is a way for companies to disclose their environmental and social performance. In some jurisdictions, sustainability reporting is mandatory for companies of a certain size. However, even when it’s not mandatory, customers, investors, and potential employees are increasingly demanding to know what measures companies are taking to reduce their greenhouse gas emissions and reach net zero by 2050, in line with the Paris Agreement.
The Sustainable Development Goals (SDGs) are a set of global goals designed to be a “blueprint to achieve a better and more sustainable future for all.” The goals were set up by the UN’s General Assembly in 2015, and are intended to be achieved by 2030. Goal 13 is to “take urgent action to combat climate change and its impacts by regulating emissions and promoting developments in renewable energy.”
The Task Force on Climate-related Financial Disclosures (TCFD) provides a set of recommendations for the reporting of climate-related financial information.
Perhaps the most well-known carbon removal method is to plant trees. Plants absorb carbon dioxide from the air during photosynthesis, and trees in particular can store carbon for a long time in the form of cellulose. There are two types of tree-planting projects: reforestation projects seek to restore existing forests, whereas afforestation projects plant trees in areas with no forests previously. Some methods of tree planting are less effective than advertised, and companies who use these methods may risk allegations of greenwashing.
The United Nations Global Compact is an initiative to encourage companies to work toward environmentally and socially sustainable practices, and disclose their progress.
Upstream emissions are emissions that occur upstream in the company’s supply chain. Upstream emissions fall under the scope 3 emissions category. They are also known as supply chain emissions.
Value chain emissions (also known as scope 3 emissions) are the emissions that occur either upstream (i.e. in the supply chain) or downstream (i.e. during product use and disposal) of the company itself. For many companies, value chain emissions make up 90% of their total emissions, which makes it crucial for these emissions to be taken into account when setting reduction targets.