Spend-based carbon footprinting

The data for your carbon footprint is already in your bank statement

Calculating your core business finances is fairly simple. Gather your bank statements. How much income did you earn? How much did you spend? Is your profit matching your target?

Calculating your carbon footprint seems a lot more complicated. You’ve got bills showing the kilowatts of energy used for your own gas and electricity, so that’s straightforward. But what about all the products in your supply chain? How do you measure the carbon in an email, or from your insurance package? Where do you look to find data on the climate impact of things you buy and the things you do as a business? It’s all there – in those same bank statements.

There are two key benefits to using your spend data to calculate your greenhouse gas emissions. The first is that you already have it, in your procurement logs. The second is that spend data can be used with an input-output model, a model that uses computing power to keep going further and further back through supply chains to give a really complete emissions factor.

If you can calculate how much you spent on different things for your business, you can use the same data to calculate the carbon footprint from your supply chain.

How input-output models take biscuits to infinity

An input-output model takes the amount of money you spend in any one industry, and calculates the emissions from the full supply chain. The Small World input-output model has data on the emissions from each of 103 industries, and data on the other industries that they spent money with. As you pick your favourite biscuit to dunk in your brew, and think about where all the emissions come from in its production, how far back can you go?

If you buy some biscuits in the UK, the input-output model knows the direct emissions from this first-tier industry, which is easy to imagine as the energy needed to heat the baking ovens. The model also knows how much the baking industry spends on packaging, transport and digital advertising as well. So, it calculates the smaller quantity of emissions from the amount spent on those second-tier industries. The packaging industry has direct emissions, and it also spends money on other industries, like paper production, and insurance. So the model calculates the emissions from these third-tier industries. The model keeps going up and up through an infinite number of tiers, adding ever smaller quantities of emissions to the total. The result is a complete carbon footprint calculated from the amount you’ve spent on a year’s supply of dunkable biscuits.

Using spend-based data with an input-output model gives a really complete emission factor, but it lacks specifics. It doesn’t know the difference between spending on organic chocolate biscuits or macaroni cheese, which have very different ingredients and so will have different carbon footprints.

Input-output models give system-complete carbon emissions but lack specificity. Avocados and Brussels sprouts are both vegetables, but have quite different carbon footprints.

Spend-based and activity-based emission factors

You can improve your emission estimates by using the actual amount of something you bought rather than the total you paid for it. Spend-based models use the amount you spent, whereas activity-based methods use the quantity you bought.

A spend-based model will use the £'s you've spent on petrol in a year, and use the average petrol price to work out how much petrol that is and the emissions generated when it was burnt. But if you know the exact amount of petrol you used, in litres, you can use an activity-based model which will give you a more accurate emissions factor.

We use activity-based for any products and services where we have records of the quantities bought. This is usually easy for things like gas and electricity, and sometimes for the core products a business buys, like bags of flour and boxes of eggs. For everything else, we use spend-based.

Life Cycle Analysis and Hybridisation

“Life Cycle Analysis, or an LCA, comes from the bottom up,” says Matt Bond, Senior Consultant at Small World Consulting. “It starts with the specific components of a product and then looks at the other components needed for those. But because it's done manually it generally stops after 2 or 3 tiers.”

So this way of calculating carbon would capture the difference between chocolate biscuits and pasta and the different things needed to supply those, like sugar and wheat for the biscuits, and eggs and cheese in our macaroni dish. It would then look at those second tiers, the products and services needed for sugar or for eggs, and the emissions from those. But as LCAs are calculated manually by people, going to infinity isn’t a workable option. This means that LCAs are much more specific than input-output models, but don’t go as far up the tiers, so they're not as complete and underestimate the full carbon in the supply chain.

That’s why we analyse LCAs, work out which tiers they’ve stopped at, and then use our input-output model to calculate the emissions from those missing tiers.

“Using hybridisation gives you the best of both models,” says Matt Bond; “we look at how many tiers are in the LCA and what’s been truncated, or left out. Then we use the input-output model to give a calculation for those missing tiers. Adding the two together gives us the most realistic carbon footprint for a product.”

Using our own input-output model also allows us to make adjustments to the data when we know specific details of a spend.

Having this level of detail in your carbon footprint is a huge benefit. It gives you the most reliable emissions factor, so you know that the actions you take to lower your emissions are really having an impact. And it means that when you change your spending choices to reduce your supply chain emissions, those reductions can be shown in your footprint reports year on year. If you change your biscuits to ones with a lower carbon footprint, our calculations can show that in your emissions report.

The fuel used in a company's van would be scope 1, and the emissions from the food they sell would be scope 3.

Scope 1, 2 and 3 emissions

Carbon accounting breaks down your emissions into 3 categories or scopes. Your spending records can be used to measure all 3 scopes.

Scope 1 emissions

These are direct emissions from using fossil fuels in your own facilities and operations. Your gas heating boiler and the fuel used in your company vehicles produce Scope 1 emissions.
Scope 1 emissions are within your control and ownership.

Scope 2 emissions

Scope 2 covers indirect emissions associated with the electricity you buy. When your organisation consumes electricity generated elsewhere, these emissions fall under Scope 2. Your electricity may be 100% renewable, or it may be generated from burning gas.
Although Scope 2 emissions are indirect, you can influence them by choosing renewable energy sources or improving your energy efficiency so you use less electricity.

Scope 3 emissions

These are other indirect emissions that occur outside your organisation’s direct control. They result from activities related to what your organisation does and buys, but are produced elsewhere.
Examples include emissions from suppliers, product use, and waste disposal. The biscuits you buy and the collection of the biscuit package as waste are both scope 3.
Scope 3 emissions are often the largest portion of an organisation’s total carbon footprint and the hardest for you to measure on your own, which is where Small World's experience can help.

If you need a little more help or advice, get in touch. We're happy to set up a free intro call to help understand what's needed to get the most reliable carbon measurements for your organisation.

We reach thousands of spenders

Our spend-based data is used by a number of clients, many of who use it to help calculate the carbon footprint of their customers. So our spend-based emissions are reaching thousands, maybe millions of people.

Read our Cogo case-study to learn how they use our spend-based emissions to integrate carbon footprints into banking apps.