Mar 02 2024

How to Establish a Robust GHG Accounting System in Your Corporation



How to Establish a Robust GHG Accounting System in Your Corporation

The imperative for corporate climate action has never been clearer. With the latest scientific reports warning of the catastrophic impacts of unchecked global warming, and with investors, customers, and regulators increasingly demanding greater transparency and accountability on climate-related issues, companies across all sectors are under pressure to measure, manage, and reduce their greenhouse gas (GHG) emissions.

But to do so effectively and credibly, companies need a robust and reliable GHG accounting system that can accurately and consistently measure, report, and verify their emissions data across all relevant sources and boundaries. A strong GHG accounting system is the foundation for setting meaningful emissions reduction targets, identifying opportunities for improvement, and communicating progress to stakeholders.

However, establishing a comprehensive GHG accounting system is no easy feat. It requires significant investments in people, processes, and technology, as well as a commitment to ongoing learning and continuous improvement. Many companies, especially those at the beginning of their sustainability journey, struggle with common challenges such as:

- Lack of clear governance structures and accountability for GHG accounting
Inconsistent or incomplete emissions data from multiple sources and systems

  • Limited internal capacity and expertise in GHG accounting methodologies and tools
  • Difficulty setting and tracking progress against science-based emissions reduction targets
  • Evolving and fragmented external reporting requirements and stakeholder expectations
    But with the right approach and best practices, these challenges can be overcome, and the benefits of a robust GHG accounting system far outweigh the costs. By establishing a credible and efficient GHG accounting system, companies can:

- Identify opportunities for operational efficiency and cost savings through emissions reduction

  • Enhance their reputation and credibility with investors, customers, and other stakeholders
  • Manage and mitigate climate-related risks and liabilities across their value chain
  • Inform and improve strategic decision-making and capital allocation for low-carbon innovation
  • Contribute to the global effort to combat climate change and build a more sustainable future

In this guide, we'll provide a step-by-step roadmap for designing, implementing, and continuously improving a best-in-class GHG accounting system in your corporation. We'll cover the key elements and considerations at each stage of the process, as well as practical tips and case studies from leading companies that have successfully established robust GHG accounting practices.

Step 1: Establish governance and accountability

The first step in building a GHG accounting system is to establish clear governance structures and accountability mechanisms that define roles, responsibilities, and decision-making processes for GHG accounting across the organization. This includes:

Assigning a senior-level champion: Designate a senior executive, such as the Chief Sustainability Officer or CFO, to oversee and champion the GHG accounting program, and to ensure that it is aligned with the company's overall sustainability strategy and business objectives.

Defining roles and responsibilities: Clearly define the roles and responsibilities of different functions and individuals involved in GHG accounting, such as sustainability, finance, operations, procurement, and IT. Establish clear lines of communication and collaboration among these teams.

Setting up a cross-functional governance body: Create a cross-functional steering committee or working group that brings together representatives from different parts of the business to provide guidance, oversight, and accountability for the GHG accounting program. This body should meet regularly to review progress, address challenges, and ensure continuous improvement.

Engaging the Board and senior management: Regularly report on the GHG accounting program to the Board and senior management, and seek their input and approval on key decisions and disclosures. Ensure that GHG accounting is integrated into the company's overall risk management and strategic planning processes.

Documenting policies and procedures: Develop and document clear policies, procedures, and methodologies for GHG accounting, aligned with recognized standards and best practices such as the GHG Protocol. Ensure that these policies are communicated and enforced consistently across the organization.

By establishing strong governance and accountability from the outset, companies can ensure that their GHG accounting system is aligned with their overall sustainability strategy, has the necessary resources and support to be effective, and is able to withstand internal and external scrutiny.

Step 2: Determine boundaries and scope

Once the governance structure is in place, the next step is to determine the organizational and operational boundaries and scope of the GHG accounting system. This involves:

Defining organizational boundaries: Determine which entities, facilities, and operations are included in the company's GHG inventory, based on the level of ownership, control, or influence. The GHG Protocol provides three approaches for consolidating GHG emissions: equity share, financial control, and operational control.

Identifying relevant emission sources: Identify all relevant sources of GHG emissions within the established organizational boundaries, including direct emissions from owned or controlled sources (Scope 1), indirect emissions from purchased energy (Scope 2), and other indirect emissions from value chain activities (Scope 3).

Categorizing emission sources: Categorize the identified emission sources into the appropriate scope and category, based on the GHG Protocol classification. Scope 1 and 2 emissions are typically easier to measure and control, while Scope 3 emissions are more complex and require engagement with value chain partners.

Setting operational boundaries: Determine which specific activities and processes within each facility or operation are included in the GHG inventory, based on their materiality and the availability of data. This may involve setting de minimis thresholds for certain emission sources.

Documenting assumptions and limitations: Document any assumptions, estimates, or limitations in the boundary setting process, and ensure that these are transparently communicated in the company's GHG reporting.

By carefully defining the boundaries and scope of the GHG accounting system, companies can ensure that their emissions inventory is complete, accurate, and consistent, and that it aligns with the expectations of their stakeholders and the requirements of relevant reporting standards.

Step 3: Establish data management and collection processes

With the boundaries and scope established, the next step is to set up robust data management and collection processes that ensure the quality, consistency, and auditability of emissions data. This includes:

Identifying data sources and owners: Identify all relevant data sources and owners for each emission source, including internal systems such as energy management software, fuel purchase records, and production data, as well as external sources such as supplier questionnaires and utility bills.

Determining data collection methods and frequency: Determine the most appropriate and efficient methods for collecting emissions data from each source, such as manual entry, automatic feeds, or APIs. Establish a regular frequency for data collection, such as monthly or quarterly, based on the level of materiality and variability of each source.

Developing data quality control procedures: Develop and implement data quality control procedures to ensure the accuracy, completeness, and consistency of emissions data, such as data validation checks, reconciliation with financial data, and external assurance.

Implementing a centralized data management system: Implement a centralized data management system, such as a sustainability software platform or data warehouse, to store, manage, and analyze emissions data from multiple sources and systems. Ensure that the system has appropriate access controls, backup and recovery procedures, and audit trails.

Training data owners and users: Provide regular training and support to data owners and users on the GHG accounting policies, procedures, and systems, to ensure consistent and accurate data collection and reporting.

Documenting data sources and methodologies: Document all data sources, methodologies, and assumptions used in the GHG inventory, and ensure that these are transparently disclosed in the company's reporting.

By establishing strong data management and collection processes, companies can ensure that their GHG inventory is based on reliable and verifiable data, and that they are able to efficiently and effectively manage and analyze their emissions data over time.

Step 4: Calculate and report emissions

With the data collected and managed, the next step is to calculate and report the company's GHG emissions in accordance with recognized methodologies and standards. This involves:

Selecting a calculation methodology: Select a calculation methodology that is appropriate for the company's industry, size, and reporting requirements, such as the GHG Protocol, ISO 14064, or sector-specific guidelines. Ensure that the methodology is consistently applied across all facilities and emission sources.

Applying emission factors: Apply relevant emission factors to convert activity data (e.g. fuel consumption, electricity use) into GHG emissions, based on recognized sources such as the Intergovernmental Panel on Climate Change (IPCC) or national databases. Ensure that emission factors are regularly updated to reflect changes in scientific understanding or local conditions.

Calculating GHG emissions: Calculate the company's total GHG emissions by aggregating emissions data from all sources and scopes, in accordance with the selected methodology. Ensure that emissions are reported in metric tons of carbon dioxide equivalent (CO2e), using the appropriate global warming potential (GWP) values for each GHG.

Setting a base year and recalculating emissions: Set a base year for emissions reporting and tracking, and recalculate emissions for past years as needed to ensure consistency and comparability over time. Follow recognized standards for base year recalculation, such as the GHG Protocol Corporate Standard.

Reporting emissions internally and externally: Report the company's GHG emissions internally to senior management and the Board, and externally to stakeholders through sustainability reports, CDP questionnaires, and other disclosure channels. Ensure that emissions data is presented in a clear, transparent, and consistent manner, with appropriate context and explanation.

Verifying emissions data: Consider obtaining third-party verification or assurance of the company's GHG emissions data, to enhance its credibility and reliability. Follow recognized standards for verification, such as ISO 14064-3 or the AA1000 Assurance Standard.

By calculating and reporting GHG emissions in a rigorous and transparent manner, companies can provide decision-useful information to stakeholders and demonstrate their commitment to climate action and accountability.

Step 5: Set reduction targets and implement initiatives

With the GHG inventory established and reported, the next step is to use this information to drive emissions reductions and continuous improvement. This involves:

Conducting a gap and opportunity analysis: Conduct a gap and opportunity analysis to identify the most significant sources of emissions, the key drivers and barriers to reduction, and the potential cost-benefit of different mitigation options. Engage internal and external stakeholders in this process to ensure a comprehensive and collaborative approach.

Setting science-based reduction targets: Set ambitious yet achievable GHG emissions reduction targets that are aligned with the latest climate science and the goals of the Paris Agreement. Use recognized methodologies such as the Science-Based Targets initiative (SBTi) to ensure that targets are consistent with the level of decarbonization required to limit global warming to well below 2°C.

Developing a roadmap and action plan: Develop a clear and actionable roadmap and action plan for achieving the company's emissions reduction targets, with specific initiatives, timelines, and responsibilities. Prioritize initiatives based on their potential impact, feasibility, and alignment with business objectives.

Implementing emissions reduction initiatives: Implement the identified emissions reduction initiatives across the company's operations and value chain, such as energy efficiency measures, renewable energy procurement, low-carbon product design, and supplier engagement. Monitor and track progress against targets and KPIs, and adjust the action plan as needed based on performance and changing circumstances.

Engaging employees and stakeholders: Engage employees and stakeholders in the company's emissions reduction efforts, through regular communication, training, and incentives. Seek feedback and input on the company's approach, and collaborate with external partners such as industry associations, NGOs, and policymakers to drive systemic change and accelerate the low-carbon transition.

Reporting progress and learnings: Regularly report on progress towards the company's emissions reduction targets and initiatives, both internally and externally. Share learnings and best practices with peers and stakeholders, and continuously improve the company's approach based on new insights and developments.

By setting ambitious targets and implementing effective emissions reduction initiatives, companies can not only mitigate their climate-related risks and impacts, but also drive innovation, competitiveness, and long-term value creation in the low-carbon economy.

The Path Forward

Establishing a robust and reliable GHG accounting system is a critical step for any company that is serious about climate action and sustainability. By following the steps outlined in this guide, from governance and boundary-setting to target-setting and implementation, companies can build a comprehensive and credible GHG accounting system that meets the needs and expectations of their stakeholders and drives real emissions reductions and business value.

However, building a best-in-class GHG accounting system is not a one-time exercise, but rather an ongoing journey of continuous improvement and innovation. As the science, policy, and market landscape evolves, so too must companies' approaches to GHG accounting and climate action. This requires a commitment to ongoing learning, collaboration, and leadership, as well as a willingness to challenge business-as-usual and embrace new ways of thinking and operating.

Some key trends and best practices that are shaping the future of corporate GHG accounting include:

- The increasing focus on Scope 3 emissions and value chain engagement, as companies recognize the need to address emissions hotspots and opportunities beyond their direct operations.

  • The growing convergence and alignment of GHG accounting standards and frameworks, such as the GHG Protocol, TCFD, and CDP, which are helping to drive consistency and comparability in corporate climate disclosure.
  • The rise of digital technologies and data analytics, such as blockchain, AI, and IoT, which are enabling more automated, real-time, and actionable GHG accounting and management.
  • The integration of GHG accounting into broader sustainability and ESG management systems, such as those aligned with the UN Sustainable Development Goals and the Global Reporting Initiative.
  • The increasing scrutiny and expectations from investors, regulators, and civil society for more transparent, reliable, and decision-useful GHG disclosure and action.
    As companies navigate this complex and rapidly evolving landscape, the imperative for robust and credible GHG accounting has never been clearer or more urgent. By establishing a strong GHG accounting system and using it to drive ambitious and science-based climate action, companies can not only mitigate risks and build resilience, but also seize the enormous opportunities and benefits of the low-carbon transition.

The time for incremental change and half-measures is over. The stakes are too high, and the window for action is rapidly closing. We need all companies, across all sectors and geographies, to step up and take bold and decisive action to measure, manage, and reduce their GHG emissions in line with the goals of the Paris Agreement.

The good news is that the tools, frameworks, and best practices for effective GHG accounting are already available and rapidly evolving. What's needed now is leadership, collaboration, and a shared sense of urgency and ambition to put these into practice and scale them up across the global economy.

The path to a net-zero and climate-resilient future is ours to shape, and corporate GHG accounting is a critical enabler and accelerator of this transformation. By embracing the challenge and opportunity of this moment, and working together to build a more transparent, accountable, and sustainable economic system, we can help to create a better world for ourselves and for generations to come.

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