Aligning GHG Accounting with Global Reporting Initiatives for Corporates

The business case for aligning GHG accounting with global reporting initiatives is clear and compelling. As investors, regulators, customers, and other stakeholders increasingly demand more consistent, reliable, and decision-useful information on corporate climate performance and risk management, companies that fail to align their disclosures with widely accepted standards and frameworks risk losing trust, access to capital, and competitive advantage in the low-carbon economy.

Moreover, by aligning GHG accounting with global reporting initiatives, companies can tap into a wealth of best practices, resources, and benchmarking data that can help them improve the quality and efficiency of their emissions measurement and reporting processes. They can also contribute to the standardization and harmonization of sustainability disclosure across industries and regions, which is essential for enabling comparability, accountability, and collective action on the urgent challenge of climate change.

In this article, we'll provide an overview of the key global reporting initiatives that are shaping the landscape of corporate GHG accounting and disclosure, and offer practical guidance and case studies on how companies can align their practices with these frameworks to drive more credible, consistent, and impactful climate action.

The GHG Protocol: The Foundation of Corporate GHG Accounting

The Greenhouse Gas Protocol is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage GHG emissions. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol sets the global standard for how to measure, manage, and report GHG emissions from private and public sector operations, value chains, and mitigation actions.

The GHG Protocol consists of several interrelated standards and guidance documents, including:

- The Corporate Accounting and Reporting Standard, which provides requirements and guidance for companies to prepare a GHG inventory that represents a true and fair account of their emissions, through the use of standardized approaches and principles.

• The Scope 2 Guidance, which provides additional guidance on accounting for emissions from purchased electricity, heat, steam, and cooling, and introduces a "market-based" method for calculating Scope 2 emissions.
• The Corporate Value Chain (Scope 3) Accounting and Reporting Standard, which provides requirements and guidance for companies to assess their entire value chain emissions impact and identify where to focus reduction activities.
• The Product Life Cycle Accounting and Reporting Standard, which provides requirements and guidance for companies to quantify the GHG emissions associated with individual products throughout their life cycles.

To align GHG accounting practices with the GHG Protocol, companies should follow these key steps:

Define organizational and operational boundaries: Determine which facilities, operations, and emission sources are included in the GHG inventory based on the company's organizational structure and control (e.g., equity share, financial control, or operational control approach).
Categorize emissions into Scopes 1, 2, and 3: Identify and categorize all relevant direct and indirect emission sources into the three scopes defined by the GHG Protocol (Scope 1: direct emissions; Scope 2: indirect emissions from purchased energy; Scope 3: other indirect emissions in the value chain).
Collect activity data and choose emission factors: Gather data on the activities that generate GHG emissions (e.g., fuel consumption, purchased electricity) and select appropriate emission factors to convert activity data into emissions data.
Calculate GHG emissions: Use the activity data and emission factors to calculate total GHG emissions for each source and scope, following the methodologies and requirements of the relevant GHG Protocol standards.
Report GHG emissions: Prepare and disclose a GHG emissions report that is complete, consistent, accurate, and transparent, and that aligns with the principles and requirements of the GHG Protocol Corporate Accounting and Reporting Standard.
By following these steps and adhering to the GHG Protocol standards, companies can establish a robust and credible foundation for their GHG accounting practices, which can then be aligned with and reported through other global reporting initiatives.

CDP: The Global Disclosure System for Environmental Impacts

CDP (formerly the Carbon Disclosure Project) is a global non-profit organization that runs the world's largest environmental disclosure platform. Each year, CDP supports thousands of companies, cities, states, and regions to measure and manage their risks and opportunities on climate change, deforestation, and water security, and helps them to disclose this information to investors, purchasers, and other stakeholders.

The CDP climate change questionnaire, which is aligned with the TCFD recommendations (see below), provides a comprehensive framework for companies to disclose their GHG emissions, climate-related risks and opportunities, and management strategies. Companies are scored based on the completeness and quality of their disclosure, as well as their performance on key metrics such as emissions reduction targets and low-carbon investments.

To align GHG accounting practices with CDP, companies should:

Register and respond to the CDP climate change questionnaire: Sign up to disclose through CDP and complete the annual climate change questionnaire, which covers governance, strategy, risk management, metrics and targets, and emissions data.
Use CDP-approved calculation methodologies: Calculate GHG emissions using methodologies that are approved by CDP, such as the GHG Protocol or ISO 14064, and disclose any deviations or assumptions.
Disclose emissions data for all relevant scopes and categories: Report emissions data for Scopes 1, 2, and 3, as well as any relevant sector-specific or product-level emissions, using the categories and boundaries defined by CDP.
Provide supporting documentation and context: Include detailed explanations and supporting documentation for emissions data, targets, and management strategies, and provide context on trends, uncertainties, and limitations.
Engage with CDP feedback and benchmarking: Review and respond to CDP's feedback and scoring of the company's disclosure, and use CDP's benchmarking data and insights to identify areas for improvement and leadership.
By disclosing through CDP and aligning GHG accounting with its requirements, companies can demonstrate their commitment to transparency and accountability on climate-related issues, and access valuable data and insights to inform their decarbonization strategies.

TCFD: The Framework for Climate-Related Financial Disclosures

The Task Force on Climate-related Financial Disclosures (TCFD) was established by the Financial Stability Board in 2015 to develop voluntary, consistent climate-related financial risk disclosures for use by companies, banks, and investors in providing information to stakeholders. The TCFD recommendations, released in 2017, provide a framework for companies to disclose clear, comparable, and consistent information about the risks and opportunities presented by climate change.

The TCFD framework is structured around four thematic areas that represent core elements of how companies operate: governance, strategy, risk management, and metrics and targets. Within each area, the TCFD has identified several recommended disclosures that companies should provide to give investors and other stakeholders the information they need to assess and price climate-related risks and opportunities.

To align GHG accounting practices with the TCFD recommendations, companies should:

Integrate climate-related considerations into governance processes: Disclose the board's oversight of climate-related risks and opportunities, and management's role in assessing and managing these issues.
Assess and disclose climate-related risks and opportunities: Describe the climate-related risks and opportunities the company has identified over the short, medium, and long term, and their impact on the company's businesses, strategy, and financial planning.
Integrate climate-related risks into overall risk management: Describe the company's processes for identifying, assessing, and managing climate-related risks, and how these processes are integrated into the company's overall risk management.
Disclose climate-related metrics and targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities, including GHG emissions (Scopes 1, 2, and 3), climate-related performance metrics, and emissions reduction targets.
Align GHG accounting with TCFD-recommended methodologies: Use GHG accounting methodologies that are consistent with the TCFD recommendations, such as the GHG Protocol, and disclose any key assumptions, methodologies, and limitations.
By aligning GHG accounting and related disclosures with the TCFD recommendations, companies can provide investors and other stakeholders with the information they need to make informed decisions about climate-related risks and opportunities, and demonstrate their readiness and resilience in the face of the low-carbon transition.

GRI Standards: The Global Standards for Sustainability Reporting

The Global Reporting Initiative (GRI) is an independent, international organization that helps businesses and other organizations take responsibility for their impacts, by providing them with the global common language to communicate those impacts. The GRI Standards are the first and most widely adopted global standards for sustainability reporting, and have been developed through a multi-stakeholder process and regularly updated to reflect the evolving landscape of ESG issues and expectations.

The GRI Standards consist of three universal standards (GRI 101: Foundation, GRI 102: General Disclosures, and GRI 103: Management Approach) and 35 topic-specific standards, organized into economic, environmental, and social categories. The most relevant standard for GHG accounting is GRI 305: Emissions, which provides disclosures on an organization's emissions-related impacts, including GHG emissions, ozone-depleting substances, nitrogen oxides, sulfur oxides, and other significant air emissions.

To align GHG accounting practices with the GRI Standards, companies should:

Apply the reporting principles and requirements of GRI 101: Follow the reporting principles of accuracy, balance, clarity, comparability, completeness, sustainability context, timeliness, and verifiability, and comply with the requirements for defining report content and quality.
Provide general disclosures according to GRI 102: Disclose information on the company's organizational profile, strategy, ethics and integrity, governance, stakeholder engagement, and reporting practices, as required by GRI 102.
Disclose management approach for emissions according to GRI 103: Explain how the company manages its emissions-related impacts, including policies, commitments, goals and targets, responsibilities, resources, grievance mechanisms, and specific actions.
Report emissions data according to GRI 305: Disclose GHG emissions (Scopes 1, 2, and 3) and other significant air emissions, using the methodologies and requirements specified in GRI 305, and provide contextual information on performance, targets, and reduction initiatives.
Obtain external assurance for GHG disclosures: Consider obtaining external assurance for the company's GHG emissions disclosures, to enhance the credibility and reliability of the reported information and align with best practices in sustainability reporting.
By aligning GHG accounting with the GRI Standards, companies can provide a comprehensive and balanced picture of their emissions-related impacts and management strategies, and contribute to the global harmonization and comparability of sustainability reporting.

Integrated Reporting: The Future of Corporate Sustainability Disclosure

In addition to the global reporting initiatives focused specifically on climate and emissions, there is a growing trend towards integrated reporting, which aims to provide a more holistic and connected view of a company's financial and non-financial performance and value creation over time. The International Integrated Reporting Council (IIRC), which recently merged with the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation, has developed the International Framework to guide companies in preparing integrated reports.

The Framework is based on the concept of "integrated thinking," which involves considering the connectivity and interdependencies between the range of factors that affect an organization's ability to create value over time, including financial, manufactured, intellectual, human, social and relationship, and natural capitals. In an integrated report, a company should disclose its governance, strategy, performance, and prospects in a way that reflects the commercial, social, and environmental context within which it operates.

While the Framework does not provide specific guidance on GHG accounting, it does emphasize the importance of disclosing material information on natural capital, including climate-related risks and opportunities, as part of a company's value creation story. To align GHG accounting practices with the principles of integrated reporting, companies should:

Apply integrated thinking to GHG management: Consider how GHG emissions and climate change impacts are connected to and interdependent with other capitals and value drivers, such as financial performance, risk management, innovation, and stakeholder relationships.
Disclose material climate-related information in the context of value creation: Provide a balanced and meaningful narrative on how the company's GHG emissions and climate strategies affect its ability to create value over the short, medium, and long term, and how they are integrated into its governance, business model, and performance management.
Use metrics and KPIs that are linked to value creation: Select and disclose GHG emissions and other climate-related metrics and key performance indicators (KPIs) that are relevant to the company's value creation story and that are used by management to monitor and manage performance.
Ensure connectivity and consistency of information: Present GHG emissions and other climate-related information in a way that is connected and consistent with the company's broader narrative on strategy, governance, performance, and prospects, and that enables comparability over time.
By embracing the principles of integrated reporting and aligning GHG accounting with a holistic view of value creation, companies can provide investors and other stakeholders with a more meaningful and decision-useful understanding of their climate-related impacts, risks, and opportunities.

The Path Forward

As the expectations and stakes for corporate climate action continue to rise, aligning GHG accounting practices with global reporting initiatives is becoming an increasingly important and mainstream practice for companies across all sectors and regions. By leveraging the standards, frameworks, and best practices provided by the GHG Protocol, CDP, TCFD, GRI, and integrated reporting, companies can enhance the quality, consistency, and credibility of their GHG emissions disclosures, and demonstrate their commitment to transparent and accountable climate action.

However, aligning GHG accounting with global reporting initiatives is not a one-time or check-the-box exercise. It requires ongoing effort, learning, and collaboration to keep pace with the rapidly evolving landscape of climate science, policy, and stakeholder expectations. Companies must stay up-to-date with the latest developments and guidance from these initiatives, and proactively engage with their peers, investors, and other stakeholders to share challenges, best practices, and solutions.

Moreover, aligning GHG accounting with global reporting initiatives is not an end in itself, but rather a means to an end - driving meaningful emissions reductions and climate action in line with the goals of the Paris Agreement and the UN Sustainable Development Goals. Companies must use the insights and feedback from their GHG disclosures to inform and enhance their climate strategies, governance, and performance management, and to collaborate with their value chain partners and other stakeholders to drive systems-level change.

As a sustainability professional and business leader, I have seen firsthand the power of aligned and credible GHG accounting and reporting to catalyze bold climate action and leadership from companies around the world. I have also seen the challenges and pitfalls that can arise when companies approach GHG accounting as a mere compliance or communications exercise, rather than a strategic imperative and driver of long-term value creation.

But I am optimistic that with the right tools, mindsets, and partnerships, any company can rise to the challenge and opportunity of aligning its GHG accounting practices with the leading global reporting initiatives. By doing so, companies can not only enhance their own resilience and competitiveness in the low-carbon economy, but also accelerate the transition to a more sustainable, just, and thriving world for all.

The time for incrementalism and fragmentation in corporate climate action is over. The stakes are too high, and the window for limiting global warming to 1.5°C is rapidly closing. We need all companies to step up and speak the common language of climate disclosure and accountability, and to use that language to drive transformative change at the pace and scale required by science and society.

Aligning GHG accounting with global reporting initiatives is a critical step on that journey - but it is only the beginning. Let us use this alignment as a springboard for deeper collaboration, innovation, and impact, and let us work together to build a future where every company, every investor, and every stakeholder is a champion and steward of our shared climate.

The road ahead is long and uncertain, but the destination is clear and the imperative is urgent. Let us walk it with courage, conviction, and compassion, and let us leave no one behind. The future of our economy, our society, and our planet depends on it.

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