Getting Started with Carbon Accounting as an SME
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Carbon accounting is the first concrete data task most SMEs encounter when preparing a sustainability report. If you are not sure whether you need a sustainability report at all, start with our sustainability reporting starter guide. If you already know you need one and want to understand the full VSME framework, read our VSME reporting guide. This post focuses on the emissions calculation itself.
What carbon accounting means for an SME
Carbon accounting is the process of quantifying the greenhouse gas (GHG) emissions your business causes. For SMEs reporting under VSME Module Basic, this means two things:
- Scope 1: Direct emissions from sources you own or control
- Scope 2: Indirect emissions from purchased electricity, heat, or steam
That is it for Basic. Scope 3 (everything else in your value chain) is only required under VSME Comprehensive and even there only where data is available. Do not start with Scope 3.
The formula
Every emissions calculation follows the same structure:
Activity data × Emission factor = Emissions (tCO₂e)
Activity data is what you consumed — kilowatt-hours of electricity, litres of diesel, cubic metres of gas. The emission factor converts that consumption into tonnes of CO₂ equivalent. Your job is to get the activity data right and pick the correct emission factor.
Scope 1: direct emissions
Scope 1 covers three source types for most SMEs:
Stationary combustion
Gas boilers, oil heating, backup generators. Pull consumption from your utility invoices.
- Natural gas: Your invoice shows kWh or m³. Convert to kWh if in m³ (1 m³ ≈ 10.55 kWh for natural gas). Apply the DEFRA natural gas emission factor.
- Heating oil: Invoices show litres. Apply the DEFRA gas oil / burning oil factor.
- LPG: Invoices show litres or kg. Apply the corresponding DEFRA factor.
Mobile combustion
Company-owned or leased vehicles where you buy the fuel.
- Diesel vehicles: Total litres of diesel purchased in the period × DEFRA diesel factor.
- Petrol vehicles: Total litres of petrol × DEFRA petrol factor.
- If you only have kilometres driven, use the DEFRA per-km vehicle factors (less accurate but acceptable for a first cycle).
Fugitive emissions
Refrigerant leaks from air conditioning and cooling equipment. If you had an HVAC service that topped up refrigerant, the service report shows the type and quantity of gas recharged. Apply the relevant global warming potential (GWP) factor.
For most service-sector SMEs, fugitive emissions are negligible. If you did not recharge any refrigerant, report zero with a note that no leakage occurred.
Scope 2: purchased electricity
Scope 2 is usually the largest emissions source for office-based and light-industry SMEs.
Location-based method
This is the default for VSME Basic. It uses the average grid emission factor for the country where you consume the electricity.
Annual electricity consumption (kWh) × national grid factor (kgCO₂e/kWh) = Scope 2 emissions
Where to find the grid factor:
- European Environment Agency publishes country-level factors for all EU member states
- Your national energy agency (e.g., VREG in Flanders, CWaPE in Wallonia, BNETZA in Germany)
- DEFRA publishes international electricity factors as a fallback
Market-based method (optional)
If you buy 100% renewable electricity with a Guarantee of Origin (GO) certificate, the market-based method lets you report a lower or zero emission factor for that portion. VSME Basic does not require market-based reporting, but it is useful to note alongside the location-based figure if your customer asks.
Where to find your data
| Data point | Source | What to look for |
|---|---|---|
| Electricity (kWh) | Utility invoice or supplier portal | Annual consumption, not spend |
| Natural gas (kWh or m³) | Gas invoice or supplier portal | Annual consumption |
| Vehicle fuel (litres) | Fuel card statements or fleet records | Total litres by fuel type |
| Refrigerant (kg) | HVAC service reports | Type of gas and quantity recharged |
| Heating oil / LPG | Delivery invoices | Litres or kg delivered |
If you operate across multiple sites, collect data per site and aggregate. Note the country per site — Scope 2 factors differ by country.
Emission factor sources
For a first-cycle report, these two sources cover almost everything:
- UK DEFRA Conversion Factors (updated annually) — covers all fuel types, vehicle categories, refrigerants, and international electricity. Widely accepted by auditors and customers across Europe despite being UK-published.
- European Environment Agency — country-specific electricity grid factors for all EU member states.
Use the factor set from the year matching your reporting period. If reporting 2025 data, use 2025 factors.
Common mistakes
- Using spend instead of consumption. Do not divide your electricity bill total by a price per kWh from a different year. Use the actual kWh figure on the invoice.
- Mixing Scope 1 and Scope 2. Gas consumed on-site for heating is Scope 1. Electricity purchased from the grid is Scope 2. District heating purchased from a utility is Scope 2.
- Forgetting leased vehicles. If you lease a car and pay for fuel, those emissions are your Scope 1. If the lease is fully serviced including fuel, check the lease terms — emissions may belong to the lessor.
- Double-counting electric vehicles. An EV charged at your premises is already counted in Scope 2 via your electricity bill. Do not also count it as Scope 1.
- Estimating when actuals are available. Banks and customers trust actual invoiced data. Estimates signal poor data quality even when the numbers are similar.
Putting it together
A typical SME Scope 1+2 calculation takes two to four hours once you have the invoices in hand. The steps:
- Collect 12 months of utility invoices (electricity, gas, heating oil)
- Collect fuel card or fleet fuel records
- Check HVAC service records for refrigerant top-ups
- Tabulate activity data by source and site
- Apply emission factors from DEFRA or EEA
- Sum to total Scope 1 and total Scope 2 (tCO₂e)
That output feeds directly into the energy and GHG disclosure of your VSME Basic report. If a large customer asked you for this data specifically, see our guide on what CSRD companies ask from SME suppliers for the full picture.
Frequently asked questions
What is the difference between Scope 1 and Scope 2 emissions?
Scope 1 covers direct emissions from sources you own or control — burning natural gas for heating, diesel in company vehicles, refrigerant leaks. Scope 2 covers indirect emissions from purchased energy — primarily the electricity you buy from the grid. Together they form the minimum emissions disclosure for VSME Basic.
Where do I find emission factors?
For electricity, use your national grid emission factor published by the European Environment Agency (EEA) or your national energy authority. For fuels, the UK DEFRA conversion factors (updated annually) are the most widely used and accepted set. Your energy supplier may also provide a supplier-specific emission factor for Scope 2.
Do SMEs need to report Scope 3 emissions?
Not under VSME Module Basic. Scope 3 is only part of VSME Comprehensive and even there it is limited to categories where data is reasonably available. Most SMEs should get Scope 1 and 2 right first before attempting Scope 3.
How accurate does my carbon accounting need to be?
For a first-cycle VSME Basic report, reasonable accuracy from actual consumption data is sufficient. You do not need third-party verification. Use real utility bills and fuel receipts rather than estimates. Precision improves in subsequent cycles as you refine data collection.
What unit should I report emissions in?
Tonnes of CO₂ equivalent (tCO₂e). This unit accounts for different greenhouse gases by converting them to their carbon dioxide warming equivalent using global warming potential factors.