What is carbon reporting?
Carbon reporting is the process of measuring and disclosing the greenhouse gas emissions produced by your business activities. This typically includes:
- Direct emissions from things like fuel use (Scope 1)
- Indirect emissions from purchased electricity (Scope 2)
- Wider emissions across your supply chain, travel and purchased goods (Scope 3).
For many SMEs, Scope 3 is where the biggest impact sits, but it can also be the most difficult to measure.
The aim of carbon reporting is to give a clear, evidence-based picture of your environmental impact, allowing you to track progress and make informed decisions about reducing emissions over time.
Are carbon accounting and carbon reporting the same thing?
They are closely linked, but not the same.
Carbon accounting is the process of collecting and calculating emissions data. It is the behind-the-scenes work - gathering information on energy use, travel, suppliers and more.
Carbon reporting is what you do with that information. It is the act of presenting and sharing your emissions data, whether internally, with stakeholders, or as part of formal disclosures.
In simple terms:
- Carbon accounting = measuring and calculating
- Carbon reporting = presenting and communicating.
Most SMEs will start with carbon accounting before moving into more structured reporting.
Do SME businesses need to do carbon reporting?
At the moment, most UK SMEs are not legally required to produce formal carbon reports in the same way as large, listed companies. In reality, many SMEs are already being drawn into carbon reporting through:
- Supply chain requirements from larger customers
- Procurement frameworks asking for emissions data
- Access to finance, with lenders increasingly considering ESG factors
- Investor expectations for transparency.
In addition, upcoming policy developments are starting to shape the direction of travel.
For example, the introduction of the Carbon Border Adjustment Mechanism (CBAM) will place new reporting expectations on certain imported goods based on their carbon intensity. While this may not apply directly to all SMEs, it will have a knock-on effect across supply chains.
In short, while it may not yet be mandatory for most SMEs, carbon reporting is quickly becoming a commercial requirement.
Common challenges SMEs face with carbon reporting
It is worth recognising that carbon reporting is not always straightforward, particularly for smaller businesses. Some of the most common challenges include:
- Limited internal resource or expertise
- Difficulty accessing supplier data
- Uncertainty over what to include (especially Scope 3)
- Concerns about cost and time commitment
This is why many SMEs take a phased approach, starting with the most accessible data and building out from there.
Why 2026 matters for SMEs when it comes to carbon accounting and reporting
There is no single deadline forcing SMEs to act, but several developments are coming together:
- Larger organisations are tightening supplier requirements
- ESG reporting is becoming more standardised
- Financial institutions are asking more detailed sustainability questions
- Industry-specific expectations are increasing.
This means many SMEs will be asked for carbon data sooner than expected, even if they are not legally required to publish it.
Starting early puts you in a far stronger position than trying to respond under pressure.
Where should SMEs start with carbon accounting and reporting?
For many businesses, the key is to keep things practical. You do not need a perfect, fully detailed carbon model from day one. A sensible starting point might include:
- Reviewing your energy usage (electricity, gas, fuel)
- Looking at business travel and transport
- Identifying your key suppliers and purchased goods
- Choosing a simple carbon accounting tool or method.
There are now a range of platforms designed specifically for SMEs, such as Sage Earth, Seedling and Flotilla, which can automate data collection and produce clear, structured carbon reports without the need for complex manual processes.
The important thing is consistency - using the same approach each year so you can track changes over time.
The benefits of getting ahead with carbon accounting and reporting
Although it can feel like an additional task, there are clear advantages to taking carbon reporting seriously:
- Strengthening your position in tenders and supply chains
- Improving operational efficiency through better data insight
- Enhancing your reputation with clients and stakeholders
- Preparing for future regulatory changes
- Supporting access to funding and investment.
In many cases, businesses find that the process highlights cost-saving opportunities, particularly around energy use and travel.
Can LWA help with carbon accounting?
At LWA, we work with businesses across a wide range of sectors to help them understand their numbers - not just from a financial perspective, but in terms of wider reporting and compliance requirements.
If you would like support in getting started with carbon accounting or understanding what may be expected of your business in the coming years, our team would be happy to help.
Call our inhouse expert, Matt Jones on 0161 905 1801 or you can email your query to mail@lwaltd.com with ‘Carbon accounting query for Matt’ in the subject header.
In the meantime, visit our blog for more information on business environmental and carbon reduction topics including Carbon accounting.