The Importance of GHG Accounting in Corporate Climate Change Mitigation

The science is clear: to avoid the worst impacts of climate change, we need to rapidly reduce global GHG emissions and limit warming to 1.5°C above pre-industrial levels. This will require an unprecedented transformation of our energy, transport, industrial, and land use systems, as well as a fundamental shift in the way businesses operate and create value.

As major contributors to global emissions, companies have a vital role and responsibility in driving this transformation. According to CDP, just 100 companies are responsible for 71% of global industrial GHG emissions, and the business sector as a whole accounts for a significant share of the remaining emissions through its value chains, products, and services.

But to effectively manage and reduce their climate impact, companies first need to understand and quantify it. This is where GHG accounting comes in – the process of measuring, reporting, and verifying a company's emissions from direct operations (Scope 1), purchased energy (Scope 2), and value chain activities (Scope 3).

By providing a comprehensive and standardized approach to emissions measurement and disclosure, GHG accounting serves as the foundation for corporate climate change mitigation. It enables companies to identify emission hotspots, set science-based reduction targets, track progress over time, and communicate their performance to stakeholders.

Beyond just a reporting exercise, GHG accounting is a strategic tool that can help companies unlock new sources of business value and competitive advantage in the low-carbon economy. By integrating climate considerations into decision-making and risk management, companies can drive operational efficiencies, spur innovation, enhance brand reputation, and build resilience against climate-related risks and regulations.

In this article, we'll explore five key reasons why GHG accounting is essential for corporate climate change mitigation, and how businesses can leverage this tool to drive meaningful emissions reductions and create long-term value for all stakeholders.

Reason 1: GHG accounting provides a common language and framework for climate action

One of the biggest challenges in corporate climate change mitigation is the lack of a consistent and comparable approach to measuring and reporting emissions. With a plethora of voluntary and mandatory reporting frameworks, standards, and methodologies, companies often struggle to navigate the complex landscape of GHG accounting and to communicate their performance in a clear and credible way.

This is where the Greenhouse Gas Protocol comes in – the world's most widely used standard for corporate GHG accounting. Developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol provides a common language and framework for companies to measure, manage, and report their emissions in a consistent and transparent manner.

The GHG Protocol categorizes emissions into three "scopes":

Scope 1: Direct emissions from owned or controlled sources, such as fuel combustion in company vehicles or boilers.
Scope 2: Indirect emissions from the generation of purchased energy, such as electricity, steam, heating, and cooling.
Scope 3: All other indirect emissions that occur in a company's value chain, such as purchased goods and services, business travel, employee commuting, and use of sold products.
By following the GHG Protocol standards and guidance, companies can ensure that their emissions inventories are complete, accurate, and comparable across different organizations and sectors. This not only helps companies track their own performance over time, but also enables external stakeholders – such as investors, customers, and policymakers – to assess and benchmark corporate climate action in a fair and transparent way.

Moreover, by aligning their GHG accounting with the GHG Protocol, companies can more easily integrate their emissions data with other climate-related reporting frameworks and initiatives, such as CDP, the Task Force on Climate-related Financial Disclosures (TCFD), or the Science Based Targets initiative (SBTi). This can help streamline the reporting process, reduce duplication and burden, and provide a more holistic and decision-useful picture of a company's climate performance and risks.

Reason 2: GHG accounting helps identify emission hotspots and reduction opportunities

Another key benefit of GHG accounting is that it helps companies pinpoint the most significant sources of emissions across their value chains, and prioritize areas for reduction and innovation. By breaking down emissions into specific scopes, categories, and activities, GHG accounting provides a granular and actionable view of a company's carbon footprint, beyond just a single aggregate number.

For example, a company may find through its GHG inventory that purchased goods and services (Scope 3 category 1) account for a large share of its total emissions, with certain high-emitting suppliers or materials driving the bulk of the impact. Armed with this insight, the company can then engage those suppliers to collect more specific data, set supplier emissions reduction targets, or explore alternative sourcing options with lower carbon intensities.

Similarly, a company may discover that business travel (Scope 3 category 6) is a significant contributor to its GHG footprint, particularly for certain teams or trip types. This may prompt the company to re-evaluate its travel policies and practices, such as by setting limits on non-essential travel, encouraging virtual meetings, or investing in lower-carbon transportation options like high-speed rail.

By shining a light on these emission hotspots, GHG accounting can help companies focus their limited resources and attention on the areas that matter most for reducing their climate impact. It can also help identify opportunities for operational efficiencies, cost savings, and innovation, such as by optimizing energy use, reducing waste, or developing new low-carbon products and services.

Of course, identifying emission hotspots is just the first step – companies then need to implement targeted reduction strategies and track progress over time to drive real impact. But without the foundation of a robust and comprehensive GHG inventory, companies would be flying blind in their efforts to mitigate climate change.

Reason 3: GHG accounting enables science-based target setting and performance tracking

To effectively contribute to the global goal of limiting warming to 1.5°C, companies need to set emissions reduction targets that are aligned with climate science and the Paris Agreement. This means going beyond incremental or arbitrary targets, and instead setting targets that represent a company's fair share of the remaining global carbon budget.

The Science Based Targets initiative (SBTi) provides a robust framework and methodology for companies to set such targets, based on the latest climate science and emissions scenarios. To date, over 1,000 companies have committed to set science-based targets through the SBTi, representing over $15 trillion in market capitalization.

But to set and track progress against a science-based target, companies first need to have a comprehensive and reliable GHG inventory that covers all relevant scopes and emissions sources. The SBTi requires companies to include Scope 1 and 2 emissions in their targets, as well as Scope 3 emissions if they account for more than 40% of the company's total GHG footprint.

By using GHG accounting to establish a baseline emissions inventory and to regularly measure and report progress, companies can ensure that their targets are grounded in real data and that they are on track to meet their climate commitments. This not only helps drive accountability and credibility with external stakeholders, but also enables companies to course-correct and adjust their strategies as needed based on changing circumstances or new opportunities.

Moreover, by aligning their GHG accounting and target-setting with the SBTi methodology, companies can tap into a growing ecosystem of tools, resources, and best practices for science-based climate action. This includes sector-specific guidance, target validation protocols, and a network of committed companies and partners working together to accelerate the transition to a low-carbon economy.

Reason 4: GHG accounting enhances transparency and stakeholder engagement

In today's world of heightened climate awareness and stakeholder activism, companies are under increasing pressure to disclose and communicate their environmental performance in a transparent and accessible way. From investors and customers to employees and civil society organizations, stakeholders are demanding more detailed and decision-useful information on corporate climate action, risks, and opportunities.

GHG accounting provides a critical foundation for meeting these growing disclosure expectations and for building trust and credibility with stakeholders. By following recognized standards and best practices for emissions measurement and reporting, such as the GHG Protocol and CDP, companies can provide consistent, comparable, and reliable data on their climate performance, which can then be used by stakeholders to make informed decisions and hold companies accountable.

Moreover, the process of GHG accounting itself can serve as a valuable tool for stakeholder engagement and collaboration. By involving key internal and external stakeholders in the development and implementation of the GHG inventory, companies can build shared understanding and ownership of the climate challenge, and identify new opportunities for partnership and value creation.

For example, engaging suppliers and customers in Scope 3 emissions accounting can help strengthen relationships and drive collective action on emissions reductions across the value chain. Collaborating with industry peers and associations on sector-specific GHG accounting methodologies and tools can help accelerate the development and adoption of best practices. And communicating GHG performance and reduction strategies to investors and other financial stakeholders can help companies access new sources of capital and align their business models with the low-carbon transition.

Ultimately, by enhancing transparency and stakeholder engagement through GHG accounting, companies can not only mitigate risks and build resilience, but also unlock new opportunities for innovation, collaboration, and value creation in the era of climate action.

Reason 5: GHG accounting is a key enabler of the low-carbon transition

Finally, and perhaps most importantly, GHG accounting is a critical enabler of the broader low-carbon transition that is needed to avoid the worst impacts of climate change. By providing a common language, framework, and platform for measuring and managing emissions, GHG accounting helps create the necessary infrastructure and incentives for decarbonization across the economy.

At the company level, GHG accounting enables businesses to integrate climate considerations into their strategies, operations, and decision-making, and to align their activities with the goals of the Paris Agreement. By setting science-based targets, investing in low-carbon technologies and solutions, and engaging value chain partners on emissions reductions, companies can drive meaningful progress towards a net-zero future while also building long-term business value and resilience.

At the sector and system level, GHG accounting helps create a level playing field and a race to the top for corporate climate action. By enabling comparability and benchmarking of emissions performance across companies and industries, GHG accounting can spur healthy competition and innovation, and drive the development and diffusion of best practices and solutions. It can also inform the design and implementation of effective climate policies and regulations, such as carbon pricing, emissions trading, or disclosure requirements, which can further accelerate the low-carbon transition.

Ultimately, by mainstreaming the measurement, management, and reduction of GHG emissions across the corporate landscape, GHG accounting is helping to create a new normal and a new paradigm for business in the 21st century – one that recognizes the urgency and the opportunity of the climate challenge, and that places sustainability and resilience at the core of value creation.

Of course, GHG accounting is not a panacea or a substitute for the hard work and leadership that is needed to drive the low-carbon transition. Companies still need to set ambitious and science-based targets, invest in transformative solutions and technologies, collaborate with stakeholders and policymakers, and embed sustainability into their purpose and culture.

But without the foundation of robust and credible GHG accounting, none of these efforts can be effectively targeted, tracked, or scaled. GHG accounting is the bedrock upon which corporate climate action is built, and the cornerstone of a sustainable and resilient business model for the future.

The Path Forward

As the world enters a decisive decade for climate action, the importance of GHG accounting in corporate climate change mitigation has never been clearer or more urgent. With the window of opportunity for limiting warming to 1.5°C rapidly closing, companies must move beyond incremental improvements and piecemeal efforts, and instead embrace a holistic and ambitious approach to emissions measurement, management, and reduction.

GHG accounting provides a critical tool and framework for this approach, enabling companies to set meaningful targets, make informed decisions, engage stakeholders, and contribute to the broader low-carbon transition. By leveraging the power of GHG accounting to drive transparency, accountability, and innovation, companies can not only mitigate risks and build resilience, but also create new sources of value and competitive advantage in the era of climate action.

Of course, the path forward is not easy or straightforward. Implementing a robust and credible GHG accounting system requires significant investments of time, resources, and leadership, as well as a willingness to challenge business-as-usual and embrace new ways of thinking and operating. It requires collaboration and partnership across the value chain and the wider ecosystem, as well as a long-term and systemic perspective on the challenges and opportunities of the low-carbon transition.

But the alternative – a world of unchecked climate change, escalating risks and costs, and eroding social and environmental capital – is simply not an option. As the COVID-19 pandemic has starkly reminded us, our economies and societies are deeply interconnected and interdependent, and our collective well-being depends on our ability to anticipate, mitigate, and adapt to global challenges and disruptions.

Climate change is the defining challenge and opportunity of our time, and corporate GHG accounting is a key part of the solution. By embracing the full potential of this tool and integrating it into the core of their strategies and operations, companies can help lead the way towards a more sustainable, resilient, and prosperous future for all.

The time for incremental action and half measures is over. The stakes are too high, and the window of opportunity is too narrow. We need all hands on deck, and all tools in the toolbox, to accelerate the transition to a net-zero emissions economy and build a better world for current and future generations.

GHG accounting is one such tool – a crucial enabler and catalyst for the transformational change that is needed to meet the goals of the Paris Agreement and the Sustainable Development Goals. It is a matter of both business necessity and moral imperative, and a key part of the legacy that we will leave for generations to come.

So let us seize this moment, and use the power of GHG accounting to drive meaningful and ambitious climate action across the corporate landscape. Let us work together, with urgency and resolve, to create a more just, sustainable, and resilient world for all.

The path forward is ours to chart, and the destination is ours to reach. Let's make it count.

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