Discover how businesses can effectively measure, reduce, and communicate their carbon footprint. Explore tools, strategies, innovations, and global standards.
Environmental, Social, and Governance issues are rapidly ascending the priority lists of corporate leaders across all sectors and, among the many facets of ESG, the carbon footprint has emerged as a core indicator of corporate sustainability.
As companies strive to align with global climate goals and increasing stakeholder expectations, understanding, measuring, and communicating carbon emissions is a key action that reflects the environmental consequences of business activities, serving as a barometer for resilience, transparency, and long-term viability in a rapidly decarbonizing global economy.
Importance of Measuring Carbon Footprints
A footprint that engages the industrial and economic fabric and the surrounding environment in a massive way, considering that it is estimated that in every business activity, 90 % of emissions come from the supply chain, which becomes increasingly important to engage, creating the commitment necessary to measure and monitor ESG performance throughout the supply chain.
Hence the urgency of measuring and communicating it externally, because of also the decisions taken at the European and global levels, in terms of reducing emissions and lowering the climate rise threshold, as established by the Paris Accords and pursued by the UN 2030 and 2050 Agenda.
Starting from what the EBA has established in defining the carbon footprint, it is to be measured and monitored through GHG emissions released by the company and expressed with the unit of measurement in CO2, where GHG stands for Greenhouse Gases and indicates all gases capable of trapping heat in the atmosphere, giving rise to the "greenhouse effect" phenomenon. They represent a priority risk of ESG factors: in fact, GHG emissions are recognized as an "ESG risk impacting the inside-out environment, where precisely the business activity has impacts on the surrounding environment and therefore needs to be monitored in risk management and prudential control."
This means that emissions fall under the view of dual materiality, established by globally recognized standards, such as "Accountability Principles Standards" and specifically GRI 101 (of the Global initiative report," "Principle of Materiality") and the EFRAG guidelines, where the concept of dual materiality is introduced.
The latter, perfectly coinciding with the inside-out risk of emissions provides that, in a dynamic perspective, two aspects within companies are measured and reported: one inherent to the evaluation and reporting of the company's business and which finds its perimeter within the accounting standards of the financial statements, the other in a perspective of mutual and dynamic symbiosis with the environment and the social and economic fabric involved in its business activities, providing for ad hoc integrations through indicators on ESG risks, as far as non-financial reporting is concerned.
To ensure the normative framework is applicable both at the European and global levels, it is important to recognize that just as a company's activities can have a positive or negative impact on the surrounding environmental ecosystem—along with subsequent economic and social repercussions—the territory where the business operates can also harm the company if appropriate measures and precautions are not taken.
Hence the need for a definition and measurement of what can affect both the business and the territory in a dynamic perspective that allows qualitative-quantitative measurements to be added to economic-financial evaluations.
How is carbon footprint calculated?
To frame such carbon footprint reporting normatively, the first definition of emissions and what so-called "greenhouse gases" are, is given in the "Kyoto Protocol," in 1997: it is here, for the first time, established which are the main gases emitted by human activities with a climate-changing effect, such as carbon dioxide, methane, nitrous oxide and fluorinated gases (hydrocarbons, perfluocarbons, sulfur hexafluoride and nitrogen trifluoride).
These GHGs are measured by two main aspects that impact global warming: their radiative forcing (energy entering and leaving the Earth-atmosphere system) measured in GWP (Global Warming Potential) and their residence time in the atmosphere, which varies among GHGs.
In the financial reporting perspective, provided by the EU Taxonomy and measured globally by the GHG Protocol, emissions are classified as environmental pollutants according to three distinct categories: Scope 1, Scope 2, and Scope 3.
Each of these scopes presents unique challenges for measuring and reporting their respective impacts, in fact:
- Scope 1 emissions, so-called "direct" emissions, can be directly related to a company's activities. For example, emissions from automobiles and emissions from any production plant or operating facility.
- Scope 2 emissions, defined as "indirect emissions”, are classified as any energy consumption that is part of the production of any product or service.
- Scope 3 emissions, like Scope 2 also "indirect”, are the most difficult to identify, not falling into the previous two classes and covering the activities of the entire downstream product life cycle, from business travel, to supply chain logistics, to end-of-life waste of any product.
Various metrics and models have been implemented to date to estimate company-wide classes of emissions, and thus the carbon footprint of the business: The most widely used are:
- the Science Based Targets, which measures emissions for contracted investments and financing, indicating the trajectory to be in line with the 2030 agenda (minus 1.5° climate rise);
- the "Financed Emissions" method, which estimates the amount of greenhouse gases a financial institution is responsible for through its investments, through a precise "attribution factor" scale established on business sectors of listed and unlisted companies.
Challenges in Data Collection and Analysis
Despite the growing sophistication of carbon accounting tools, collecting and analyzing emissions data remains a formidable challenge.
One of the most persistent obstacles is the availability and reliability of Scope 3 data, as these emissions often originate from upstream and downstream value chain actors who may lack the capacity, incentives, or transparency to provide accurate data.
Furthermore, integrating emissions data with financial and non-financial performance metrics requires a high level of analytical capability and organizational alignment.
Many companies grapple with siloed data systems, inconsistent methodologies, and varying reporting requirements, which complicate holistic analysis.
In this context, adopting a dual materiality perspective, one that captures both the environmental impact of business activities and the way environmental changes affect the business, adds another layer of complexity but is essential for credible ESG risk assessment and strategic planning.
Strategies for Reducing Carbon Emissions
Once emissions are measured, the next critical step is implementing strategies to reduce them.
Through the creation of a decarbonization strategy, businesses embark on a fundamental shift in how they operate, design products, engage suppliers, and interact with customers.
Implementing Sustainable Practices in Business
Reducing a company’s carbon footprint begins with integrating sustainability into the very DNA of its operations.
This means rethinking energy use, optimizing production processes, and redesigning supply chains to minimize emissions at every stage.
Energy efficiency improvements are among the most immediate and cost-effective actions companies can take.
From upgrading machinery and HVAC systems to implementing smart energy management solutions, businesses can significantly cut emissions and reduce operating costs simultaneously.
Transitioning to renewable energy sources, such as solar, wind, or geothermal, further accelerates decarbonization efforts.
Many leading companies are now signing Power Purchase Agreements (PPAs) or investing directly in clean energy infrastructure to ensure a stable, low-emissions energy supply.
Product innovation also plays a strategic role.
Designing goods with lower embodied carbon, longer lifespans, and recyclability in mind helps reduce lifecycle emissions. In parallel, sustainable procurement strategies encourage suppliers to adopt greener practices, creating a cascading effect throughout the value chain.
Crucially, sustainability governance must be embedded at the highest levels of the organization with boards and executive teams should set measurable sustainability goals, link performance incentives to ESG indicators, and allocate resources to support cross-functional sustainability initiatives.
Communicating Carbon Footprint Effectively
In today’s regulatory and reputational landscape, transparent communication of carbon emissions is as important as reduction itself.
Clear, credible disclosure enhances trust among stakeholders and positions companies as leaders in the transition to a low-carbon economy.
Transparency in Reporting Emissions
Regulatory frameworks, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and the guidelines issued by the European Banking Authority (EBA), increasingly mandate comprehensive emissions disclosure.
These frameworks are aligned with global initiatives like the Global Reporting Initiative (GRI) and the Task Force on Climate-related Financial Disclosures (TCFD), ensuring standardization and comparability.
At the core of these frameworks is the principle of double materiality, which requires organizations to disclose not only how they affect the environment, but also how environmental changes affect them, thanks to an approach that bridges sustainability with financial materiality, allowing emissions data to inform corporate risk management, strategic planning, and investor relations.
Reporting must go beyond compliance to deliver real insight.
Companies should provide detailed breakdowns of Scope 1, 2, and 3 emissions, explain their methodologies, and disclose year-on-year progress against clearly defined targets.
Engaging Stakeholders with Impactful Communication
Beyond technical disclosures, effective carbon footprint communication involves telling a compelling story.
This narrative should explain not only the company’s current emissions performance, but also its vision, strategy, and progress toward decarbonization goals.
Engaging communication, whether through sustainability reports, investor briefings, or digital channels, builds credibility and fosters long-term stakeholder loyalty as employees become more invested when they understand the environmental purpose behind their work and customers are more likely to support brands that align with their values.
Finally, the economic implications of corporate environmental performance have also reached the financial sphere as investors are increasingly prioritizing climate-conscious portfolios.
The Role of Innovation in Carbon Management
Innovation is a powerful catalyst for effective carbon management. In an era defined by digital transformation and climate urgency, leveraging technology and foresight is essential for organizations seeking to stay ahead of the curve.
Technological Innovations Aiding Carbon Footprint Measurement
New technologies are revolutionizing how companies monitor, measure, and manage emissions.
Internet of Things (IoT) devices enable real-time tracking of energy consumption and emissions across distributed assets, while Artificial Intelligence (AI) has become particularly helpful in analyzing vast datasets to identify patterns, inefficiencies, and opportunities for reduction.
Another particularly suited technology, Blockchain, is being explored to enhance traceability and transparency in emissions reporting, especially in complex supply chains.
Finally, Digital twins, such as virtual models of physical assets or processes, can simulate the carbon impact of operational decisions before they are implemented.
Global Standards and Regulations
The global push for climate accountability is underpinned by a growing body of standards and regulations that shape how businesses measure, report, and reduce emissions.
Key International Guidelines on Emissions Reporting
At the international level, the Paris Agreement and the United Nations Sustainable Development Goals (SDGs) serve as overarching frameworks guiding climate action.
These are operationalized through more detailed standards such as the Greenhouse Gas Protocol, GRI Standards, and the International Sustainability Standards Board (ISSB) framework.
Regionally, in Europe the EU Taxonomy, CSRD, and the European Financial Reporting Advisory Group (EFRAG) guidelines create binding obligations for companies to report not only their emissions but also their environmental risks, mitigation strategies, and transition plans.
These regulations reflect a growing consensus: climate-related information is financially material and must be disclosed with the same rigor as traditional financial data.
Compliance and Its Impact on Business Operations
Compliance with emissions regulations is not merely a defensive strategy, it is an opportunity for differentiation and value creation.
Companies that anticipate regulatory trends and invest in sustainable practices early gain a competitive edge, attract responsible investors, and build stronger stakeholder relationships.
On the other hand, non-compliance can result in financial penalties, loss of market access, and significant reputational damage.
As climate-related disclosures become mandatory in more jurisdictions, emissions management will be a core component of operational and reputational risk management.
Solutions for Effective ESG Integration
Effective ESG integration hinges on aligning sustainability with business objectives, processes, and performance indicators.
This requires robust governance structures, clear accountability, and cross-departmental collaboration.
Organizations should develop ESG strategies that are data-driven and future-oriented, supported by digital platforms that enable seamless reporting and real-time decision-making.
Training programs, change management initiatives, and stakeholder engagement campaigns ensure that sustainability becomes part of corporate culture, not just compliance.
Ultimately, integrating carbon management into core business functions is essential for resilience in an era of environmental volatility and investor scrutiny.
