The Muamalat Newsletter Vol. 2 2024

FEM eNewsletter | December 2024 73 the company purchases and utilises in its operations. A business engaged in information technology (IT) may operate server farms that need substantial electricity consumption. It would incorporate the emissions generated during the production of this energy in its carbon accounting. If the company operates within the appropriate industry, this pollution may constitute a significant portion of its overall emissions. Scope 3 Emissions - Scope 3 emissions, referred to as supply chain emissions, are greenhouse gas emissions originating from sources not owned or controlled by a corporation, nevertheless resulting from its activities. A manufacturer’s emissions encompass those generated during the production of purchased goods or raw materials, the transportation utilised to deliver the product to market, the emissions resulting from customer usage of the product, and even the emissions produced by employees commuting to work. A significant portion of the emissions produced by Western industries is Scope 3 emissions. Service-based enterprises often exhibit significantly higher pollution levels in Scope 3 compared to Scopes 1 and 2. Consequently, a significant method for corporations to reduce their greenhouse gas emissions is to get fewer third-party products or seek more environmentally friendly alternatives. Challenges of Carbon Accounting Carbon accounting is a complex procedure that requires accurate energy data and factor sets from the past, present, and future. Energy data must illustrate the complexity and hierarchical structure of the firmfor compliance and reporting objectives. This method allows for the tracing of emissions to their origins. Organisations can evaluate their achievement against objectives by maintaining current data for comparison across reporting intervals. The methodology for data collection and emissions calculation should adhere to globally acknowledged criteria. Numerous enterprises utilise spreadsheets and manually gathered data for annual carbon accounting and ESG rating computations. This elevates danger and diminishes efficiency, particularly for substantial, multinational corporations that must comply with various frameworks. Carbon accounting is a way to measure and keep track of greenhouse gas pollution, but it faces a lot of big problems that make it less useful. One of the biggest problems is getting to and quality of data. A lot of companies have trouble getting accurate data on their emissions, especially from the companies that serve them. This issue is made worse by techniques and reporting standards that aren’t always followed. This leads to differences in the data that is recorded, which makes it hard to compare different companies (Bringer et al., 2021). Small and medium-sized businesses often don’t have the resources to set up full data collection tools, which makes emissions reporting less accurate. The fact that pollution sources are so complicated is a big problem. As mentioned earlier, there are three types of carbon emissions: Scope 1 is made up of direct emissions, Scope 2 is made up of indirect emissions from buying energy, and Scope 3 is made up of even more indirect emissions. Each type is harder to measure and prove. Scope 3 emissions include a wide range of actions, from using products to dealing with waste, and are still hard to precisely measure (Haller et al., 2020). This level of complexity makes it hard for businesses to fully understand their overall carbon effect. There are different ways of reporting carbon because there are not any standard methods for doing it. Companies may use different methods because there aren’t any rules that everyone agrees on. This makes it harder to compare emissions between businesses or regions (Jenkins et al., 2019). Because there isn’t any standardisation, people may not trust the data that is provided, which could hurt efforts to build trust and accountability in carbon markets. The final problem is that combining carbon accounting with cash reporting is very hard.