Greenhouse Gas (GHG) Accounting
Greenhouse gas (GHG) accounting is an urgent first step in moderating GHG emissions, which is essential to the long-term soundness of our environment and economy. Universally, almost 60% of listed companies disclosed their Scope 1 and 2 emissions in 2023 — and around 42% disclosed their Scope 3 emissions.
With the worldwide expansion of mandatory and voluntary emissions reporting programs, this reporting gap will likely shrink further as additional firms measure and disclose their emissions. Taking lessons from GARP’s own GHG accounting project, this article shares practical advice and guidance for beginning your organization’s GHG accounting journey.
The Practical Challenges of GHG Accounting
GHG accounting is the process of computing, recording, and reporting the emissions that occur throughout an organization’s value chain.
There are four fundamental steps:
- Determine which activities’ emissions to measure
- Collect relevant data related to those activities
- Calculate the emissions
- Verify and report the calculations
Companies may use GHG accounting for various reasons, such as meeting regulatory requirements, managing transition risks, pursuing transition opportunities, and participating in carbon markets.
Understand Your Reporting Standard
GHG-related reporting standards are often complex. The GHG Protocol Corporate Standard — the most widely used voluntary standard — exceeds 100 pages. The UK’s Streamlined Energy and Carbon Reporting (SECR), mandatory for certain large firms, includes guidance exceeding 150 pages.
While standards share similarities, each has unique rules and requirements. Rushing into implementation without reviewing the documentation may cause delays and revisions. Take time to understand the applicable standard and utilize available guidance tools.
Engage Internal Stakeholders Early
GHG accounting often requires collaboration across departments. The scope-setting stage may involve senior leadership, while data collection may require coordination with operational, administrative, and accounting teams.
Early stakeholder alignment ensures smooth execution, prevents resource constraints, and avoids reputational or compliance risks later in the process.
Work with the Best Available Data
GHG accounting requires both internal and external data. For example, calculating office electricity emissions requires power consumption data and grid emission factors.
Organizations operating in multiple countries may face differences in billing cycles, units, and emission factor sources. Be prepared to convert units, standardize data, and address gaps where necessary.
Document Everything
Carefully record all assumptions, data sources, estimates, conversions, and calculations. This ensures transparency and simplifies the verification process.
Many reporting standards require companies to justify exclusions, assumptions, and data limitations. Proper documentation makes this process significantly easier.
Plan for Continuous Improvement
GHG accounting is an ongoing process. Organizations may start with limited data or estimates but should continuously improve accuracy over time. Allocate sufficient time and resources for refinement and expansion.
Global Policy Developments
Since 2014, the number of emissions trading systems worldwide has increased significantly. According to the World Bank, approximately 24% of global emissions are now covered by carbon pricing mechanisms, up from 7% in 2013.
The International Sustainability Standards Board (ISSB) released new sustainability standards in June 2023, which are expected to accelerate mandatory GHG reporting globally.
Why Is GHG Accounting Important?
For organizations pursuing net-zero emissions, GHG accounting provides a baseline measurement to set realistic and achievable climate targets.
- Track Progress: Monitor emission reductions over time.
- Identify Reduction Opportunities: Detect areas for energy efficiency and renewable energy transition.
- Enhance Transparency: Build trust with investors and stakeholders through accurate reporting.
- Ensure Compliance: Meet regulatory and reporting obligations.
- Manage Risk: Address climate-related financial and operational risks.
- Access Sustainable Finance: Attract ESG-focused investors and funding institutions.
Conclusion
GHG accounting drives informed decision-making in energy management, supply chain optimization, and sustainable product development. It plays a crucial role in guiding organizations toward a more sustainable and resilient future.
