Are your reported carbon emissions significantly higher than your actual environmental impact? For many companies using spend-based calculation methods, the answer may be yes—potentially by a substantial margin. As regulations like the Corporate Sustainability Reporting Directive (CSRD) and California's Climate Corporate Data Accountability Act (SB 253) take effect in 2025 and 2026, this discrepancy creates material risks for business decisions and compliance readiness.
The GHG Protocol, widely recognized as the global standard for emissions accounting, includes spend-based methodology as one of its approved calculation methods. However, it explicitly recommends its use only for initial emissions screening or when more accurate data collection isn't feasible. This limitation becomes particularly critical as companies face unprecedented pressure for accurate emissions reporting that can withstand third-party assurance requirements.
The Limitations of Spend-Based Calculations:
- Price Volatility Risk: When using spend-based factors, emissions calculations are tied to market prices. Consider a logistics department purchasing transportation services: If carrier rates increase by 30% due to fuel surcharges or capacity constraints while shipment volumes remain unchanged, calculated emissions would artificially increase by 30% - despite no real change in environmental impact. This creates misleading year-over-year comparisons and potentially flawed reduction strategies.
- Business Impact: This price-based distortion leads to overreporting of emissions, resulting in higher compliance costs, excessive carbon credit purchases, and wasted sustainability budgets.
- Geographic Context Loss: Spend-based factors rely on Environmentally-Extended Input-Output (EEIO) data that provides broad sector averages across entire economic sectors. This means companies cannot account for significant regional variations in production methods, transportation distances, or local energy grids - factors that can substantially impact actual emissions.
- Supplier Performance Invisibility: Spend-based calculations cannot reward or identify sustainable business practices at the supplier level. When companies spend the same amount with different suppliers in the same sector, their calculated emissions will be identical - regardless of whether one supplier has invested heavily in emissions reduction initiatives while another hasn't. This creates a disconnect between actual environmental performance and reported emissions, potentially discouraging suppliers from making sustainability improvements.
- Lost Optimization Opportunities: Without granular data, companies miss valuable opportunities for emissions reduction. When organizations switch from spend-based to supplier-specific calculations, they often uncover significant variations in emissions intensity between carriers and suppliers that were previously invisible. For example, primary data often reveals that some carriers on the same routes can have substantially higher emissions than others, presenting clear opportunities for optimization that spend-based calculations cannot identify.
Research Spotlight: The Real Impact of Calculation Methods
A recent VesselBot analysis demonstrated the substantial impact calculation methodology has on emissions reporting accuracy. The study examined 7,000 truck shipments across North America between August and December 2024, calculating the total emissions using different methodologies:
- Spend-based calculations reported approximately 1.4 million kg CO2e
- GLEC methodology reported 1.3 million kg CO2e
- GHG Protocol-DEFRA factors reported 1.0 million kg CO2e
- VesselBot's primary data approach measured just 0.7 million kg CO2e
This striking difference—with spend-based calculations showing emissions nearly twice as high as those measured using primary data illustrates the material impact calculation methods have on your reported environmental footprint. For transportation and sustainability leaders, this gap represents not just a reporting issue but potentially misallocated resources, excessive carbon credit purchases, and missed opportunities to identify and partner with lower-emission carriers.
While spend-based calculations require minimal effort, they create significant business risks:
- Regulatory Compliance: As regulations demand higher accuracy and auditability, spend-based calculations may not meet future compliance requirements.
- Investment Decisions: Without accurate supplier-level data, companies cannot effectively allocate capital for emissions reduction initiatives.
- Competitive Advantage: Companies using more accurate calculation methods gain better insights for optimization and can demonstrate superior environmental performance to stakeholders.
Moving Beyond Spend-Based Calculations
The GHG Protocol recommends a hierarchical approach to emissions calculations:
- Supplier-specific method (highest accuracy).
- Hybrid method (combining supplier data with industry averages).
- Average-data method (based on physical units).
- Spend-based method (lowest accuracy).
While the transition from spend-based calculations may appear challenging, leading companies recognize that access to primary data is essential for meaningful emissions reduction and regulatory compliance. Even when using hybrid approaches that combine primary with modeled data, the accuracy of the modeling fundamentally depends on the quality of the underlying primary data used to build these models. This is why investing in robust primary data collection capabilities is crucial - it not only provides direct accuracy but also enables more reliable modeling when needed.
Companies should focus their initial efforts on transportation/logistics emissions—an area where primary data collection can provide immediate benefits and actionable insights. Here's a practical roadmap:
- Begin collecting the right data points: Start tracking shipment weights, distances, modes, fuel consumption, and carrier-specific information.
- Engage transportation providers: Work with carriers and logistics partners to provide actual operational data rather than just invoice information.
- Implement primary data where available: Use primary data for main transportation lanes and high-volume carriers first.
- Apply energy consumption models: For areas where primary data isn't yet available, use providers that can deliver accurate energy consumption models built using primary data that are constantly being updated by such data.
- Use distance-based calculations as a last resort: When primary data and energy models aren't feasible, use distance-based methods that at least account for physical shipment characteristics.
As your data capabilities mature, aim to achieve 100% primary data coverage or a strategic combination of primary data and energy consumption models. The key is progressive improvement rather than allowing perfection to be the enemy of good.
As stakeholder expectations and regulatory requirements evolve, companies need to move beyond simple spend-based calculations. While the transition requires investment, the alternative - continuing to rely on rough estimations - creates increasing business risks and missed opportunities for meaningful emissions reductions.
Success in emissions management requires accurate, actionable data that can drive real business decisions. As leading companies have demonstrated, moving beyond spend-based calculations isn't just about better reporting - it's about better business.