Feb 22 2024
Newtral
Measuring and managing greenhouse gas (GHG) emissions is a critical component of any corporate sustainability strategy. By providing a comprehensive and transparent account of a company's carbon footprint, GHG accounting enables informed decision-making, stakeholder engagement, and meaningful climate action.
However, GHG accounting is not a simple or straightforward exercise. It requires navigating a complex web of data sources, calculation methodologies, reporting frameworks, and stakeholder expectations, often with limited resources and expertise. As a result, many companies face significant challenges and pitfalls in establishing and maintaining a robust and reliable GHG inventory.
These pitfalls can range from technical issues like data gaps and errors to more strategic challenges like setting appropriate boundaries and engaging stakeholders. If left unaddressed, they can undermine the accuracy, consistency, and credibility of a company's GHG disclosures, exposing it to reputational, financial, and regulatory risks.
In this article, we'll explore some of the most common pitfalls in corporate GHG accounting, and provide practical guidance and best practices for avoiding them. By understanding and proactively managing these challenges, companies can ensure the integrity and effectiveness of their GHG accounting practices, and build trust and accountability with their stakeholders.
One of the most fundamental challenges in GHG accounting is determining which emission sources and activities to include in the inventory, and how to consistently apply those boundaries over time. Many companies struggle with scoping and boundary-setting, either by excluding relevant emissions sources, applying inconsistent approaches across different business units or regions, or failing to properly document and communicate their methodology.
These inconsistencies can arise from a variety of factors, such as:
- Lack of clear guidance or criteria for determining organizational and operational boundaries
To avoid this pitfall, companies should:
- Establish clear and consistent criteria and procedures for setting organizational and operational boundaries, aligned with recognized standards like the GHG Protocol
Another common pitfall in GHG accounting is the lack of reliable, consistent, and verifiable data on emission-generating activities and sources. Many companies struggle to collect, manage, and assure the quality of their emissions data, due to challenges such as:
1. Incomplete or inaccurate activity data from various sources (e.g. energy invoices, fuel receipts, production records)
2. Inconsistent or outdated emission factors and methodologies across different regions, products, or activities
3. Manual data entry, transcription errors, or version control issues in spreadsheets or disparate systems
4. Lack of standardized data management processes, documentation, and quality controls
5. Insufficient training or accountability for data owners and contributors across the organization
To avoid this pitfall, companies should:
- Establish clear roles, responsibilities, and procedures for data collection, validation, and management, with appropriate training and oversight
Use standardized templates, tools, and systems for data entry, calculation, and reporting, with built-in error-checking and audit trails
A third common pitfall in GHG accounting is the use of inadequate, inconsistent, or incorrect methodologies for calculating emissions from various sources and activities. Many companies face challenges in selecting, applying, and updating calculation methods, due to factors such as:
- Lack of awareness or understanding of relevant industry- or activity-specific calculation tools and guidelines
To avoid this pitfall, companies should:
- Identify and apply the most appropriate and up-to-date calculation methodologies for each emission source and activity, based on recognized standards and sector guidance (e.g. GHG Protocol, IPCC, EPA, ISO)
For many companies, the majority of their GHG emissions occur outside their direct operations, in the upstream and downstream activities of their value chain (i.e. Scope 3 emissions). However, accounting for these indirect emissions can be particularly challenging, due to the complexity, data limitations, and lack of control involved. Common pitfalls in Scope 3 accounting include:
- Inconsistent or arbitrary selection of relevant Scope 3 categories and activities to include in the inventory
To avoid this pitfall, companies should:
- Conduct a comprehensive Scope 3 screening and materiality assessment to identify the most relevant and impactful categories and activities to include in the inventory, based on criteria such as emissions magnitude, data availability, and stakeholder interest
A fifth common pitfall in GHG accounting is the failure to effectively integrate emissions data and insights into core business strategy, risk management, and decision-making processes. Many companies treat GHG accounting as a standalone sustainability reporting exercise, rather than a key input to strategic and operational decisions. This can lead to challenges such as:
- Lack of executive and board-level attention and accountability for GHG emissions performance and reduction targets
To avoid this pitfall, companies should:
- Establish clear governance and accountability structures for GHG management, with executive sponsorship, board oversight, and cross-functional steering committees or working groups
A final common pitfall in GHG accounting is the failure to effectively communicate and disclose emissions data and performance to both internal and external stakeholders. Many companies struggle to provide clear, consistent, and decision-useful information on their GHG emissions and climate strategies, due to challenges such as:
- Inconsistent or cherry-picked data, metrics, and narratives across different reporting channels and audiences
To avoid this pitfall, companies should:
- Develop a clear and consistent narrative and messaging around the company's GHG emissions performance, reduction strategies, and climate commitments, aligned with the overall sustainability and business strategy
The Path Forward
GHG accounting is a critical tool for companies to measure, manage, and ultimately reduce their climate impact and risk exposure. However, it is also a complex and evolving practice that requires careful planning, execution, and continuous improvement to avoid common pitfalls and ensure the accuracy, consistency, and credibility of emissions data and disclosures.
By understanding and proactively managing the challenges outlined in this article, from boundary-setting and data quality to Scope 3 accounting and strategic integration, companies can establish a robust and reliable GHG accounting system that supports meaningful climate action and long-term value creation.
At the same time, it is important to recognize that GHG accounting is not a static or one-size-fits-all exercise, but rather a dynamic and context-specific process that requires ongoing learning, innovation, and stakeholder engagement. As the expectations and requirements around corporate climate disclosure and action continue to evolve, so too must companies' approaches to GHG accounting and management.
Some key trends and best practices that are shaping the future of corporate GHG accounting include:
- The increasing convergence and harmonization of GHG accounting and reporting standards and frameworks, both globally and across different sectors and regions
Ultimately, the goal of GHG accounting is not just to measure and report emissions, but to drive meaningful and lasting reductions in line with the urgent need to combat climate change. By avoiding common pitfalls and embracing best practices, companies can not only enhance the integrity and value of their GHG disclosures, but also accelerate the transition to a net-zero emissions future and a more sustainable and resilient economy.
The time for action is now, and the stakes have never been higher. With the right tools, strategies, and mindset, corporate GHG accounting can be a powerful lever for change and a critical enabler of the global climate solutions we need. Let's work together to get it right.
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