What Is Spend-Based Analysis in Carbon Accounting – and When Should You Use It?
If your business is starting its decarbonisation journey (or simply trying to figure out your carbon footprint to address customer or regulatory reporting requirements), one of the first things you'll need is a high-level picture of your emissions. That's where spend-based analysis comes in.
Spend-based analysis is used in carbon accounting to estimate greenhouse gas (GHG) emissions based on how much you spend on goods or services. For example, "we spent £1 000 on employee car travel" versus "employees travelled 500 miles in a petrol diesel size car" (which is information usually not readily available in most company management systems).
Using spend-based analysis to estimate your whole carbon footprint year after year is not a good practice because, in short, spend-based analysis doesn't reflect your emissions well (more detail below). Still, it is a great entry point and valid for an initial screening exercise.
Gathering all data required to calculate Scope 1-3 greenhouse emissions is time-consuming (aka money-consuming). For some categories in Scope 3, collecting accurate and reliable data from some of your suppliers may even be impossible. The reality is that not all your emission sources matter the same; some of them might represent 30% of your carbon footprint, and others might only account for a tiny percentage. You shouldn't be spending vast amounts of time (money) collecting activity data to accurately calculate what might be a 1% of your carbon footprint. Use this time to determine how the actions will help reduce emissions from sources representing a significant percentage of your carbon footprint. Be clever with your time and resources! A spend-based analysis is good enough for your first screening exercise. It will help you identify your emissions hotspots.
How does spend-based analysis work?
Spend-based analysis uses financial data to estimate GHG emissions. It works by multiplying how much you spend on a product or service by an emissions factor that reflects the average environmental impact per unit of currency (e.g., kg CO₂e per £ or $).
For example, if your company spends £1,000 on employee car travel, you apply an emissions factor for that category to estimate the associated emissions: Spend (£) × Emission Factor (kg CO₂e/£) = Estimated Emissions
Why use spend-based analysis?
Spend-based analysis offers several advantages:
✅ Fast and easy to apply: All you need is your purchasing data—something your finance team already tracks.
✅ Ideal for Scope 3 emissions: Scope 3 includes indirect emissions from suppliers or business travel. They are often the hardest to measure but critical to your carbon footprint reduction efforts.
✅ Helps prioritise actions: This method can help identify emissions "hotspots" and direct your carbon reduction initiatives to where they matter most.
Limitations to keep in mind
While it's a great starting point, spend-based analysis does have some critical limitations. As experts in carbon accounting and net-zero strategy, we always recommend being aware of the following:
❌ Affected by market prices: Price changes (due to inflation, exchange rates, or changes in demand) can distort emissions estimates, making it hard to measure progress over time. For example, if diesel prices rise, emissions from your employee's car travel could increase even if your employees travelled fewer miles this year.
❌ Doesn't capture sustainability efforts: Spending-based analysis might not reflect supplier sustainability improvements. For example, your supplier could use a new raw material with a lower carbon footprint this year. Still, if this new material is more expensive and you use spend-based analysis, carbon footprint results will increase.
That's why, after the screening exercise, you must move away from spend-based analysis and use activity data as specific as possible to your suppliers. For categories representing a tiny percentage of your greenhouse emissions where activity data is complex to collect, it is OK to continue using spend data to be clever with our limited resources.
Oakdene Hollins specialises in helping organisations take meaningful steps toward net-zero and overall environmental performance improvement. Whether you're starting with a high-level footprint or ready to dive into detailed GHG emissions reporting, we offer end-to-end carbon accounting solutions that align with your goals. Contact us to learn how we can support your carbon footprint reduction journey.