How to apply impact accounting in practice? How are other companies doing it? Addressing this question and supporting each other to efficiently apply impact accounting lies in the core of our work. With regards to the GHG methodology that we have developed together with IFVI, we have now shared some of our learnings in the IFVI-VBA GHG Implementation Guide.
Specific use cases are typically helpful for understanding the application hands-on. With regards to GHG, these can be for example in informing internal carbon prices such as for business flights, or when assessing R&D projects.
To incentivize low-carbon employee travel, one VBA member company leverages an internal carbon price for employee business flights. For each flight purchased, a fixed carbon price is paid to the organizational cost center, which is invested in vetted carbon offset projects. As a result, alternative transportation to flights is incentivized, especially for short-distance travel.
The SCC serves as a basis to determine this internal carbon price and to adjust it over time. Similar to the SCC, the internal carbon price per flight increases over time and can be adjusted once the SCC is updated due to more recent research available. The exact internal carbon costs are subject to the company’s discretion. The example below assumes a price of $100 per flight.
An employee has two options for traveling from Berlin to Frankfurt: by train or by plane. The train costs $170, while taking the plane costs $200. However, due to internal company policy, an additional internal carbon cost of $100 would be required if the plane is taken, resulting in a total cost of $300. This makes it less likely for the cost center to opt for the plane as a mode of transportation and therefore reduces emissions for company travel in the long term.
Another VBA member company leverages impact accounting to increase transparency of GHG emissions impacts on society when initiating R&D projects.
By including GHG impact information in regular financial reports, the company raises the awareness on societal cost and incentivizes decision-making associated with reduced GHG emissions.
To do this, the company completes the following steps when setting up a new R&D project:
When a new R&D project is launched, the company assesses GHG emissions data and GHG impact information to understand total societal impact. The company can also perform scenario analysis to investigate how to reduce GHG emissions. By showing the GHG emissions impact in monetary terms, the company’s decision makers can more easily understand the societal costs and more readily compare it to the financial costs associated with the R&D project.
In addition to evaluating single R&D projects, multiple R&D projects can be considered and analyzed together. In doing so, GHG emission intensities, and their associated societal impact in monetary terms can be compared. This increased transparency can help controllers act more consciously, and foster GHG emissions-sensitive decision-making.
Collaborating on this topic, we bring together practitioners from multiple industries with different levels of experience – from beginners to experienced experts. We welcome interested companies in joining our journey. Please feel free to reach out if you want to know more.