Carbon budgets: take control of your decarbonization
Published November 7, 2025
- Sustainability
Key takeaways
- Building a carbon budget has become a new must for companies seeking to better manage the achievement of their decarbonization targets.
- Three key steps are essential to building a carbon budget: estimating the carbon footprint for the coming year, aligning it with the carbon trajectory and financial budget, and allocating it across the company’s various departments.
- To become an effective management tool, the carbon budget must be embraced by all functions and business lines.
Carbon management has become standard practice for most companies committed to sustainable transformation. Now that measuring carbon footprints and defining reduction trajectories are well-established concepts, companies must take the next step: implementing a “carbon budget” in collaboration with their CSR and Finance departments. The goal? To better steer progress toward decarbonization targets—here’s how.
Carbon budgets: from measurement to emissions management
Numerous terms revolve around carbon: carbon footprint measurement, decarbonization targets, decarbonization trajectories—and now, carbon budgets.
Key concepts and adoption maturity within companies:
The calculation of greenhouse gas emissions generated by a company’s operations and value chain, typically over the course of a year. This exercise is now relatively well mastered by most companies.
The maximum amount of greenhouse gases a company aims to emit by a given point in time, often broken down into a short-term target (5 years) and a long-term target (2050). It is a goal, usually expressed as a percentage reduction compared to a baseline year. While most large companies have set overall decarbonization targets, translating these into targets for individual departments or entities remains a challenge—one that the carbon budget aims to address.
Note: There are frameworks available to help define these targets. The most well-known is the Science Based Targets initiative (SBTi), which enables companies to set science-based targets aligned with a maximum global warming of 2°C. The main challenge in defining these targets and their associated trajectories lies in balancing compliance with the framework’s absolute emissions reduction guidelines and the company’s growth context.
Outlines the emissions reduction pathway required to meet the decarbonization target. It breaks down the long-term goal into intermediate milestones. Most companies base their trajectories on multi-year action plans.
the amount of carbon an organization allows itself to emit each year, broken down by business unit and team—similar to a financial budget. This approach ensures alignment with the decarbonization trajectory. Currently, only the most advanced organizations—particularly in the insurance and banking sectors—have implemented such mechanisms, which sometimes coexist with internal carbon pricing. The latter is a levy introduced by the company to fund decarbonization projects.
In practice: an example of a carbon trajectory and its associated budget
If we draw an analogy with a financial budget:
- the decarbonization trajectory would be the “mid-term financing plan” or “business plan”,
- the carbon measurement would be the “actuals”,
- the carbon budget would be the “forecast”,
- an initial estimate of whether the budget is being met and its adjustment would also be the “forecast”.
How to build your carbon budget?
Step1: Estimate the carbon footprint for the coming year
- Gather the necessary data…
In practice: Carbon footprint from the previous year, changes in workforce or office space, impact of major projects or investments, effect of past decarbonization actions, budget evolution, inflation.
- …to estimate the carbon footprint for the coming year using this data and projection assumptions
In practice: Based on the previous chart (Figure 1), and assuming a 5% increase in workforce, the projected carbon budget for 2026 is: 1,050 tCO₂e.
Step 2: Align the estimated carbon footprint with the trajectory-defined budget and the financial budget
- Identify the gap between the estimated carbon footprint and the budget set by the decarbonization trajectory
- Identify the key actions needed to meet the budget
- Ensure the financial impacts of decarbonization actions are reflected in the financial budget
In practice: To reduce emissions from 1,050 tCO₂e to 900 tCO₂e (in line with the decarbonization trajectory), a reduction of 150 tCO₂e is required. In this company, employee-related emissions are split evenly between IT and travel. The identified actions are as follows:
- IT: Reduce equipment allocation. Carbon impact: –75 tCO₂e. Financial impact: –€150k
- Travel: Introduce a bike rental service. Carbon impact: –75 tCO₂e. Financial impact: +€100k
Step 3: Allocate the budget across the company’s departments
The final step consists in allocating the budget to the various departments of the organization, based on distribution keys defined according to their ability to act on the emissions assigned to them or their share in total emissions.
In practice: The budget to be allocated for the coming year is 900 tCO₂e. Each department has its own capacity to act: IT: 450tCO2e. Travel: 450tCO2e.
How to turn your carbon budget into an operational reality?
The carbon budget is a powerful emissions management tool—provided it is made operational at every level of the organization. To achieve this, several key success factors can be identified:
Building a carbon budget marks a turning point in how greenhouse gas emissions are governed. The Finance department is a key ally alongside the CSR team in defining the carbon budget and proactively managing emissions. These two departments jointly lead the process, combining carbon technical expertise with financial rigor to enhance the budget’s credibility among business units and its reliability for emissions management. Pooling the skills of both departments—Finance’s budgetary discipline and CSR’s carbon optimization—must be anchored in a collective project led by both teams, with other operational stakeholders gravitating around it. This alliance is essential to ensure the carbon budget is accepted and implemented effectively.
Beyond shared governance between CSR and Finance, Finance also brings methodological value. The carbon budget must be built on financial management principles to enable precise and robust emissions tracking. It should provide a forward-looking view of expected emissions while incorporating the company’s decarbonization ambitions for the year. This view must be reconciled at year-end to assess whether the budget has been met. To do so, “carbon management control” practices must be developed to estimate carbon budget outcomes, analyze any deviations, and support informed decision-making.
Once the carbon budget is defined, it is allocated to the various departments or Business Units, which are responsible for adhering to it—just like their financial budgets. Each team is thus accountable for the footprint of its activities and the actions taken to reduce it. The CSR department plays a key role in guiding designated contacts within these teams, suggesting levers to activate and helping interpret activities with significant impact. The CSR team and the carbon budget unit also retain responsibility for consolidating budget data and maintaining visibility over its components.
In Scope 3 emissions (indirect emissions), the procurement of goods and services is consistently a major contributor. Acting on emissions from procurement means acting on suppliers. Who better than the Procurement department to engage with suppliers and drive decarbonization initiatives? The challenge lies in building alliances and synergies with ecosystem suppliers to jointly reduce carbon emissions.
How to roll out the carbon budget across teams?
Implementing a framework to manage a carbon budget is a major transformation project. Carbon becomes a measurable management indicator, tracked with the same rigor as the financial budget. To ensure effective deployment, a central team combining financial and carbon expertise should be responsible for communicating and managing the carbon budget during the initial reporting cycles. This team must also raise awareness among departments to gradually integrate them into the carbon budget management process and foster accountability.
To further align euros and carbon, some companies introduce an internal carbon price (ICP). This mechanism can take various forms—for example, applying a “penalty” to the ROI of high-emission projects during the assessment phase and/or creating a fund to invest in impact-driven initiatives. The ICP can complement the carbon budget by providing the means to meet set objectives.
