Mar 06 2024
Newtral
Corporate sustainability has come a long way in recent years, evolving from a nice-to-have to a business imperative. As investors, customers, employees, and regulators demand greater action and transparency on environmental, social, and governance (ESG) issues, companies are stepping up their efforts to measure and manage their impacts, risks, and opportunities.
At the forefront of this shift is the growing focus on climate change and the urgent need to reduce greenhouse gas (GHG) emissions to limit global warming to 1.5°C above pre-industrial levels. According to the latest report from the Intergovernmental Panel on Climate Change (IPCC), achieving this goal will require rapid and far-reaching transitions in energy, land use, transportation, buildings, and industry, as well as the removal of carbon dioxide from the atmosphere.
For corporations, this means not only setting ambitious targets to decarbonize their operations and value chains, but also accurately measuring and reporting their GHG emissions to track progress and inform decision-making. This is where GHG accounting comes in - the process of quantifying and disclosing a company's direct and indirect emissions, from energy use and industrial processes to purchased goods and services and product use.
However, GHG accounting is not a simple or straightforward exercise. It requires navigating a complex landscape of methodologies, standards, and data sources, as well as engaging multiple stakeholders and overcoming organizational and technical barriers. Many companies, especially those in the early stages of their sustainability journey, struggle to build and maintain effective GHG accounting programs that deliver business value and stakeholder confidence.
To help companies overcome these challenges and unlock the full potential of GHG accounting, we've compiled a set of tips and strategies based on the experiences and insights of leading practitioners and experts in the field. Whether you're just starting out or looking to take your program to the next level, these proven tactics can help you master the art and science of GHG accounting and drive meaningful climate action and impact.
The first step in mastering GHG accounting is to develop a solid understanding of the key concepts and standards that underpin the practice. At its core, GHG accounting involves measuring and reporting emissions of seven main greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen trifluoride (NF3).
These gases are typically measured in metric tons of carbon dioxide equivalent (CO2e), which allows for comparison and aggregation based on their global warming potential (GWP) over a 100-year time horizon. For example, methane has a GWP of 28-36, meaning that one ton of methane emissions is equivalent to 28-36 tons of CO2 emissions in terms of its climate impact.
To standardize and guide the process of measuring and reporting GHG emissions, several international frameworks and methodologies have emerged, the most widely used of which is the Greenhouse Gas Protocol. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol provides a comprehensive set of accounting and reporting standards, guidance, and tools for companies and other organizations.
- Scope 1: Direct emissions from owned or controlled sources, such as fuel combustion in company vehicles or boilers.
In addition to the GHG Protocol, there are several other voluntary and mandatory frameworks that companies may need to align with or comply with, such as the Task Force on Climate-related Financial Disclosures (TCFD), the Science Based Targets initiative (SBTi), and the Carbon Disclosure Project (CDP). Each of these frameworks has its own specific requirements and guidelines for GHG accounting and reporting, which can add to the complexity and burden for companies.
To navigate this landscape effectively, it's important for companies to invest in building internal capacity and expertise on GHG accounting concepts and standards, as well as to stay up-to-date with the latest developments and best practices in the field. This may involve providing training and resources for sustainability and finance teams, engaging external experts and advisors, and participating in industry collaborations and forums.
Once you have a solid foundation in GHG accounting concepts and standards, the next step is to set clear goals and boundaries for your program. This involves defining the scope and purpose of your GHG accounting efforts, as well as the specific targets and metrics you will use to track progress and performance.
When setting goals for GHG accounting, it's important to align them with your overall sustainability strategy and business objectives, as well as with the expectations and needs of key stakeholders such as investors, customers, and regulators. Some common goals for corporate GHG accounting programs include:
- Identifying and prioritizing emission reduction opportunities across the value chain
When setting boundaries, companies should follow recognized standards and guidance, such as the GHG Protocol's equity share or control approach for organizational boundaries, and the relevance and completeness principles for operational boundaries. However, they should also consider their specific business context and stakeholder expectations, as well as the feasibility and cost-effectiveness of data collection and management.
For example, a company with a large and complex supply chain may choose to focus its initial GHG accounting efforts on the most significant and controllable Scope 3 categories, such as purchased goods and services or upstream transportation and distribution, before expanding to other categories over time. Similarly, a company with multiple subsidiaries and joint ventures may choose to consolidate emissions based on operational control rather than equity share, to align with its management approach and decision-making processes.
The key is to be transparent and consistent in your boundary-setting decisions, and to communicate them clearly to stakeholders in your GHG reporting and disclosures.
GHG accounting is not a siloed or isolated activity, but rather a cross-functional and collaborative process that involves multiple stakeholders within and beyond the company. To build a robust and effective GHG accounting program, it's essential to engage these stakeholders early and often, to gather input, build buy-in, and drive action and accountability.
Internal stakeholders for GHG accounting may include:
- Sustainability and EHS teams responsible for program design, implementation, and reporting
External stakeholders for GHG accounting may include:
- Investors and lenders seeking to assess and manage climate-related risks and opportunities
Some effective strategies for stakeholder engagement in GHG accounting include:
- Conducting materiality assessments to identify and prioritize the most relevant and impactful emission sources and reduction opportunities, based on stakeholder input and business analysis
GHG accounting involves collecting, processing, and analyzing large amounts of data from multiple sources and systems, often across complex global operations and value chains. To streamline and scale these efforts, many companies are turning to technology solutions and data management best practices to improve the accuracy, efficiency, and auditability of their GHG accounting programs.
Some common types of technology used in GHG accounting include:
- Sustainability and energy management software that automates data collection, calculation, and reporting for Scope 1 and 2 emissions, such as utility bills, meter readings, and fuel consumption data
- Establishing clear roles and responsibilities for data ownership, stewardship, and quality assurance
The key is to approach technology and data management not as a one-time investment or project, but as an ongoing and strategic enabler of GHG accounting and sustainability performance.
GHG accounting is not just an internal management tool, but also a means of communicating a company's climate performance and commitments to external stakeholders. To build trust and credibility in this communication, it's essential for companies to be transparent, consistent, and reliable in their GHG reporting and disclosure.
Some best practices for transparent and credible GHG communication include:
- Aligning with widely recognized and respected standards and frameworks for GHG accounting and reporting, such as the GHG Protocol, TCFD, CDP, or GRI
Linking GHG targets and performance to key business metrics and priorities, such as revenue growth, cost savings, risk management, or innovation
Highlighting the co-benefits of GHG reduction efforts for other sustainability issues, such as air quality, health and safety, or community development
Showcasing examples and case studies of successful GHG reduction projects or partnerships, and their impact on stakeholders and society
Engaging employees and leaders as ambassadors and advocates for the company's climate commitments and actions, through training, recognition, and incentive programs
By communicating transparently and credibly on GHG accounting and performance, companies can not only meet the growing demands and expectations of stakeholders for climate action and disclosure, but also differentiate themselves as leaders and innovators in the low-carbon economy.
Finally, to truly master GHG accounting and drive meaningful emission reductions over time, companies must embrace a mindset and culture of continuous improvement and innovation. This means going beyond compliance and reporting to actively seek out new opportunities, technologies, and partnerships that can accelerate progress towards a net-zero future.
Some strategies for continuous improvement and innovation in GHG accounting include:
- Setting science-based and stretch targets for emission reductions, aligned with the Paris Agreement goals and the latest climate science, and regularly reviewing and updating them based on progress and new developments
The key is to approach GHG accounting not as a static or isolated function, but as a dynamic and integrated part of the company's overall strategy and operations, that evolves and improves over time in response to new challenges and opportunities.
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