Carbon Accounting & Its Relevance to Indian Companies - CMA Ravi Monga

Introduction: The New Currency of Business Sustainability

In the 21st century, carbon has become the new currency of corporate sustainability. As the global economy transitions toward a low-carbon future, companies are no longer measured only by profits, assets, or market share—but also by how responsibly they manage their carbon footprint.

This shift has brought a powerful new concept to the forefront of business governance — Carbon Accounting.

For Indian companies, the relevance of carbon accounting extends beyond environmental compliance; it’s about competitiveness, global credibility, and long-term resilience. With India’s ambitious pledge to achieve net-zero emissions by 2070, businesses have a central role to play in this transformation.

What Is Carbon Accounting?

Carbon accounting is the systematic process of measuring, recording, and managing greenhouse gas (GHG) emissions produced directly or indirectly by an organization. It’s essentially “accounting for carbon” — quantifying how much carbon dioxide and equivalent gases a business emits across its value chain.

Just as financial accounting tells a company how it’s performing economically, carbon accounting reveals how it’s performing environmentally.

The Three Scopes of Carbon Emissions

The Greenhouse Gas Protocol, the world’s most widely used carbon accounting standard, divides emissions into three categories:

Scope 1: Direct emissions from sources owned or controlled by the company — e.g., fuel combustion, company vehicles, manufacturing plants.

Scope 2: Indirect emissions from purchased electricity, steam, or heat used in operations.

Scope 3: All other indirect emissions in the value chain — from suppliers, logistics, business travel, product use, and waste disposal.

For many companies, Scope 3 emissions account for 70–90% of their total carbon footprint, making supplier engagement and value chain collaboration critical. Why Carbon Accounting Matters for Indian Companies

1. Regulatory Momentum: India’s ESG and Climate Reporting Framework

The Securities and Exchange Board of India (SEBI) has already mandated the Business Responsibility and Sustainability Report (BRSR) for the top 1,000 listed companies. The BRSR requires detailed disclosure of GHG emissions, energy usage, and sustainability initiatives.

Furthermore, India’s participation in global agreements such as the Paris Accord and the G20 Sustainability Agenda reinforces the importance of carbon transparency.

Carbon accounting, therefore, is no longer a “good-to-have” — it’s becoming a regulatory expectation.

2. Access to Global Capital and Green Financing

International investors are increasingly integrating Environmental, Social, and Governance (ESG) parameters into investment decisions. Companies that can quantify and reduce emissions stand a better chance of attracting green bonds, sustainability-linked loans, and foreign institutional investments.

For instance, the Reserve Bank of India (RBI) and SEBI are promoting frameworks for green finance, where verified carbon data is a precondition for capital access. Carbon accounting becomes the foundation upon which such credibility is built.

3. Competitive Advantage and Brand Reputation

Consumers today expect transparency. From FMCG to automotive to IT, Indian brands that disclose their carbon performance are perceived as responsible and future-ready. Companies like Infosys, Tata Steel, and Mahindra & Mahindra are already publishing detailed sustainability reports, setting ambitious carbon reduction targets, and committing to renewable energy use.

Carbon accounting gives businesses a quantifiable story to tell — not just promises, but numbers that reflect real action.

4. Supply Chain Compliance

Multinational corporations (MNCs) are increasingly demanding that their suppliers — including Indian vendors — report carbon data.

For example, companies like Unilever and Apple have begun requiring their global suppliers to disclose Scope 3 emissions.

This means that Indian SMEs, even if not listed, must adopt carbon accounting practices if they want to stay in the supply chain of large global buyers.

5. Cost Optimization and Operational Efficiency

Carbon accounting helps companies identify inefficiencies. When you measure energy use, fuel consumption, and waste, you often uncover cost-saving opportunities.

Reducing emissions frequently goes hand in hand with lowering energy bills, streamlining logistics, and optimizing resource use — creating both environmental and economic gains.

How Indian Companies Can Start Carbon Accounting

Step 1: Establish Leadership Commitment

Carbon accounting requires a cultural shift. The Board of Directors, CFOs, and sustainability heads must recognize carbon as a strategic business metric, not merely an environmental concern.

Step 2: Define Boundaries and Emission Scopes

Organizations should clearly identify which operations, business units, and subsidiaries will be included. They must then categorize emissions under Scope 1, 2, and 3, as per the GHG Protocol.

Step 3: Collect Activity Data

This includes fuel usage, electricity consumption, transportation data, production inputs, and waste metrics. Modern tools like IoT-based energy monitors, ERP-integrated carbon dashboards, and AI-based sustainability platforms can automate data collection.

Step 4: Apply Emission Factors

Emission factors (EFs) convert activity data into carbon equivalents. For example, one liter of diesel emits around 2.68 kg of CO₂. India-specific emission factors can be sourced from the Central Electricity Authority (CEA) or Intergovernmental Panel on Climate Change (IPCC) guidelines.

Step 5: Prepare the Carbon Inventory

Once all emissions are quantified, companies prepare a Carbon Inventory Report, summarizing total emissions, sources, and intensity metrics (e.g., kg CO₂ per unit of product).

Step 6: Verification and Disclosure

Engaging third-party auditors ensures transparency and credibility. Companies can disclose data through BRSR, CDP (Carbon Disclosure Project), or Integrated Annual Reports.

Step 7: Set Reduction Targets and Implement Action Plans

Carbon accounting is not an end; it’s the beginning. The next step is setting Science-Based Targets (SBTs) and implementing strategies like:

1. Renewable energy adoption

   
   

2. Energy-efficient technologies

   
   

3. Electrification of transport

   
   

4. Circular economy models

   
   

5. Carbon offset projects

Sectoral Relevance in India

1. Manufacturing

Heavy industries like cement, steel, and chemicals contribute significantly to India’s emissions.

Carbon accounting here supports process optimization, fuel switching, and emission trading opportunities under schemes like the Perform, Achieve, and Trade (PAT) program.

2. IT and Services

Though emissions are lower compared to manufacturing, IT companies face increasing client expectations for carbon-neutral operations.

Data centers, travel, and office utilities are major focus areas for accounting and reduction.

3. Agriculture and FMCG

Agriculture-related emissions from fertilizers, logistics, and packaging are becoming measurable through advanced supply chain tracking.

FMCG giants are embedding life-cycle carbon accounting into product design and distribution.

4. Real Estate and Construction

Sustainable building practices, material efficiency, and energy modeling are being driven by carbon measurement and certification systems such as LEED and GRIHA.

Emerging Trends in Carbon Accounting

1. Digital Carbon Accounting Tools:

AI-driven tools like CarbonChain, Emitwise, and Watershed are automating carbon data analytics for precision and scalability.

2. Carbon Pricing Mechanisms:

India is exploring domestic carbon markets, where companies with verified data can trade carbon credits.

3. Integration with Financial Reporting:

Carbon data is becoming part of Integrated Reporting (IR) and CFO dashboards, aligning sustainability with financial performance.

4. Assurance and Attestation Services:

Professional bodies such as the Institute of Cost Accountants of India (ICMAI) are training CMAs and finance professionals to audit and verify carbon data, ensuring credibility.

Challenges and the Way Forward

1. Data Availability and Accuracy

Small and medium enterprises often lack proper data systems to track emissions, leading to estimation errors.

2. Cost of Implementation

Initial investment in measurement tools and third-party audits may appear high, though long-term savings usually outweigh them.

3. Skilled Professionals

There is a growing demand for carbon accountants and ESG auditors trained in both finance and environmental science.

4. Standardization

Multiple frameworks (CDP, GRI, SASB, TCFD) can create confusion. A unified Indian standard for carbon reporting will improve comparability and confidence.

The Path Ahead

Carbon accounting should not be viewed as a compliance burden but as an instrument of strategic transformation — aligning profitability with planet-conscious growth.

As CMA Ravi Monga often emphasizes,

> “What gets measured gets managed, and what gets managed defines the future of responsible business.”

Indian corporates that institutionalize carbon accounting today will lead tomorrow’s sustainable economy.

Conclusion: Turning Accountability into Advantage

Carbon accounting is not just a technical process — it’s a philosophy of accountability. It’s about understanding the invisible cost of growth and transforming it into a visible opportunity for innovation.

India’s journey toward net-zero emissions requires not only government policies but also corporate integrity, professional skill, and transparent systems.

When finance professionals, cost accountants, and business leaders collaborate on this mission, carbon neutrality becomes not a dream, but a measurable, manageable reality.