When it comes to climate reporting and emissions accounting, the GHG Protocol is the standard to follow. The following article provides an overview of what the GHG Protocol is, what it is used for, how it is structured and what you need to be aware of when using the GHG Protocol. We give special attention to the three scopes of the GHG Protocol for direct, indirect and supply chain emissions.
What is the GHG Protocol?
The Greenhouse Gas Protocol (GHG Protocol) is an international standard for the accounting and reporting of greenhouse gas emissions. It has been developed by the World Resource Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) in collaboration with environmental and industry organisations since the late 1990s and has been updated in recent years.
GHG Protocol in ESG Standards and Regulations
For European companies, the GHG Protocol has gained new relevance in the context of the CSRD (Corporate Sustainability Reporting Directive) and the related ESRS (European Sustainability Reporting Standards). ESRS category E1 Climate Change requires companies to disclose their total Scope 1, 2 and 3 emissions, taking into account the requirements of the GHG Protocol or, in part, the ISO 14046 standard.
This makes the GHG Protocol an essential CSR or ESG reporting tool for companies. The GHG Protocol standards are also mentioned as guidance in the related ESRS standards for SMEs, making it relevant for smaller companies.
Other international reporting standards are the Global Reporting Initiative (GRI) and the International Financial Reporting Standards (IFRS), which many companies use or have used as a guide before implementing the ESRS. The GHG Protocol also plays an important role in these standards. Both standards require the disclosure of Scope 1, 2 and 3 emissions and are aligned in many aspects of emissions reporting, using the GHG Protocol as the basis for their requirements.
GHG Protocol reporting is also a requirement for participation in the Science Based Targets initiative (SBTi), which allows companies to set reduction targets and action plans to reduce their impact. Companies have to report their emissions and their reporting has to be in line with the GHG Protocol. However, Science Based Targets is more ambitious, and simply following the GHG Protocol for reporting is not enough to be certified, as more disclosure and commitments are required.
Whichever international standard your company chooses for ESG reporting, using the GHG Protocol as the basis for your climate reporting will ensure that you are collecting and measuring the right data. Depending on the standard, you may need to adjust your targets, format and disclosures, so be aware of the expectations of the standard you choose.
GHG protocol for different sectors
The GHG Protocol is applicable to private organisations in many different sectors as well as the public sector. The protocol has different standards such as the Corporate Standard, the Value Chain Standard, the Product Standard for private organisations, the GHG Protocol for Cities Mitigation Goal Standard, the Policy and Action Standard for countries and cities, and a Project Standard for private and public entities.
The GHG Protocol also provides guidance for different sectors, as some sectors have very specific accounting requirements. For example, there are guidelines for fossil fuel companies, agriculture, land use and electricity projects.
Tailoring the Climate Report to Your Industry
While there is no one-size-fits-all approach to identifying relevant focus areas for all industries, we have outlined some of the most interesting Scope 3 activities for various industries. They typically have the most impact on your company's emissions.
How can the GHG Protocol help you?
The GHG Protocol provides guidance on how to report. It tells you what data to include, what methodologies to use, what to disclose, and provides guidance on the different scopes and categories. So you can calculate and report your emissions even if you have limited knowledge of the subject.
By calculating your company's emissions using the GHG Protocol, you can enhance the credibility of your climate report. You are in good company using the GHG Protocol: according to the GHG Protocol, more than 9 out of 10 Fortune 500 companies use the GHG Protocol standard to report their emissions.
Emission factors
While the goal of emissions reporting is to get the most accurate numbers possible, the reality is often very different, and you may not have all the emissions data for all your processes and products. To enable your organisation to report on climate change, the GHG Protocol allows you to use average emission factors for many categories when specific emissions are not available. These emission factors can be obtained from industry databases such as DEFRA.
It can often be a question of feasibility, effort and benefit to find specific figures rather than average emission factors. Depending on the availability of data, different methods can be used for all scopes and categories.
How is the GHG protocol structured?
The GHG Protocol divides your company's emissions into 3 scopes that represent different areas of your company's energy use and emission sources. By dividing the report into 3 different scopes, you end up with 3 simple numbers and a total of your emissions.
However, finding all the data, choosing the most appropriate methodologies and deciding which parts to focus on is the real challenge behind these numbers. The following sections explain what each scope is and what to focus on when reporting for that scope.
Scope 1
Scope 1 represents your company's direct emissions. These are the emissions generated by combustion processes that are controlled by your company or by equipment owned by your company.
For example, Scope 1 emissions can result from the use of boilers or generators in your business, or from company-owned vehicles.
Scope 2
In scope 2 you look at energy that you purchase and use in your company’s operations. You account for the emissions that arise from generating that energy usually in your energy provider’s operations. The four types of energy that you normally look at are electricity, heating, cooling water and steam.
To calculate your scope 2 emissions, you preferably use emission factors from your supplier (from certificates, or contracts) to calculate so-called market base emissions. This is the most accurate way to calculate the emissions as your supplier provides you with their actual numbers. Alternatively, you could use average data from your region to get so-called location-based emissions. They are, however, less accurate as they result from averages and are often higher that the actual emissions of your supplier.
Scope 3
In Scope 3, you look at all the emissions that occur in your supply chain. This makes Scope 3 the most comprehensive scope and probably the one where you have to do the most data collection.
The scope is divided into 15 categories for different parts of your supply chain. Categories 1-8 map your upstream supply chain and categories 9-15 map the downstream supply chain. Let us take a closer look at each category.
1 Purchased goods and services
Purchased goods are all products that are bought and consumed in the company's operations. This includes any consumables your company buys, such as parts used in your production or office supplies, such as toner or paper.
Purchased services are any services that your company buys that are not included in any other category. For example, this could be consultancy, marketing, insurance or training.
Capital goods 2
Capital goods are durable products that your company buys. They can be fixed assets, plants, property and equipment. The emissions you account for are those that occur during the production of the capital good, before you buy it.
3 Fuel and energy related activities not included in scope 1 and 2
For companies that are not fuel or energy producers, category 3 covers emissions from the production and distribution of fuel or any energy losses. While the combustion of fuel in the company's operations or the emissions from the production of energy are covered by Scopes 1 and 2, there are other emissions associated with fuel and energy.
For example, fuel has to be produced and transported, and there is always a percentage of energy lost in the transport of electricity, which falls under your scope 3.
Upstream transportation and distribution 4
In the Upstream Transportation and Distribution category, you report all transport from your direct suppliers. In addition, you report emissions from all transport and distribution of goods that your company pays for but does not own or operate (for example, external warehouses, transport between your sites, or outbound logistics).
5 Waste generated in operations
In this category, you account for the emissions resulting from the treatment of the waste you produce in your activities. You can usually obtain emission factors for different types of waste or waste treatments from your waste supplier.
Business travel 6
Category 6 covers emissions from all business travel in vehicles not owned or operated by your company. For example, if your employees travel by train or scheduled flight.
7 Employee commuting
In this category you look at the emissions from your employees commuting in vehicles that are not owned or operated by your company. This could be the emissions from your employee's own car, or if they use public transport to get to work.
Upstream leased assets 8
Category 8 includes all emissions from assets that your company leases from a third party. These could be leased cars or office space, for example.
9 Downstream transportation and distribution
In category 9, you account for all transport and distribution emissions that occur downstream in your supply chain, i.e. after your own operations. This is basically all outbound transport and distribution if your customers pay for it, and your customer's transport and distribution before the product reaches the end user.
Processing of sold products 10
Your company may produce intermediate products that are not sold directly to an end user, but require further processing. If this is the case, you will need to account for the emissions from processing before a final product is produced.
11 Use of sold products
Category 11 is for all emissions associated with your product once it is used by the end user. You account for the expected emissions from the whole life cycle of a product in the year you sell it. These can be direct emissions, such as from a car, or indirect emissions, such as from using a washing machine for a jumper.
End-of-life treatment of sold products 12
If your company sells products, they and their packaging will normally be disposed of at some point. In this category, you consider the emissions from the expected waste treatment of all components and packaging of your company's products. You consider all waste from the products your company sold during the reporting period.
13 Downstream leased assets
This category is relevant to your company if you lease assets out to companies or people. How you use this category depends on the type of lease and your consolidation approach. You could also report emissions from leased assets in Scope 1 and 2 or together with the emissions from your sold products. Be careful to avoid double counting.
Franchises 14
Category 14 only applies if your company grants franchise licences. If this applies to you, report the Scope 1 and 2 emissions of your franchisees in this category.
15 Investments
This category is mainly relevant for private financial institutions or other entities with investments. Depending on organisational boundaries, investments may already be included in scope 1 and 2. If not, your organisation will report the Scope 1 and 2 emissions of the investee in this category.
Before collecting emissions data
GHG accounting under the GHG Protocol should be relevant, complete, consistent, transparent and accurate. While the GHG Protocol provides guidance on calculation methods and data, there are some decisions you need to make before you start calculating emissions to comply with these principles.
The GHG Protocol identifies business objectives, organisational boundaries for inventory design and operational boundaries. These will help you decide what data to report and to what extent. There are often several approaches you can take, and the most appropriate one will depend on your organisation's structure and business model.
For organisational boundaries, there are some general approaches mentioned in the GHG Protocol.
The equity approach: The company reports emissions according to its share of equity in the operation, which reflects its economic interest. The principle of economic substance takes precedence over legal form, which is consistent with international accounting standards.
The control approach: The company reports all emissions from operations over which it has control. This excludes emissions from operations in which it has an interest but over which it has no control.
The best way to be sure of how to approach the organisational boundaries is to align your approach with the financial reporting approach and keep your reporting objectives in mind.
Operational boundaries are most often defined in the scopes of the GHG Protocol. This means that you need to look closely at the scope boundaries and how they apply to your organisation.
After calculating emissions
Preparing a GHG Protocol report is not a one-off exercise. Producing a report is just the beginning. Setting targets and tracking emissions over time are important parts of the GHG Protocol.
When tracking emissions over time, your company sets a baseline year. Most companies use a single year to start reporting, but it could be an average of years to account for fluctuations in individual years. Your company may go through structural changes such as acquisitions and mergers over the years. In such cases, you may need to recalculate your base year to reflect the changes.
How to get started
Climate reporting can seem overwhelming at first, with so many aspects to cover, data to collect and methodologies to choose from. In our experience, getting started is the most important part. As you go through the process, you will become more experienced and knowledgeable, and you will be able to produce next year's climate report with more expertise.
To help you understand the data and methods for the different scopes, we at NIVI have created a free climate reporting tool where you can see exactly what data you need for different methods. This way you can choose what is most appropriate for your organisation.
Contact
You can also contact our experts to hear more about how we can support you in your ESG-reporting journey.
