Bridging the SME reporting gap: A new model for predicting Scope 1 and 2 emissions

Abstract

We present a novel statistical model for predicting Scope 1 and 2 emissions for small and medium-sized enterprises (SMEs). Trained on financial transaction data from over 100,000 UK SMEs, the model targets a business segment excluded from formal emissions reporting and often under-engaged in sustainability efforts. By leveraging scalable, objective data, our approach offers an accessible alternative to existing methods that rely on either coarse sectoral averages or detailed, resource-intensive firm-level activity data. In developing the model, we evaluate a range of predictors and find that incorporating industry-level variables beyond basic emission intensity significantly enhances predictive accuracy. We also observe diminishing returns from additional model complexity, reinforcing the value of a parsimonious, low-input design. The final model achieves RSQ values of 0.89 for Scope 1 and 0.72 for Scope 2, improves accuracy by up to 50% compared to sector-level estimates, and performs reliably on out-of-sample data. Our findings provide a simpler approach to emissions estimation for SMEs, supporting broader climate engagement among smaller actors.