Initiating GHG Accounting: Your First Step


Greenhouse Gas (GHG) accounting involves measuring and reporting an organisation’s greenhouse gas emissions using established standards and protocols. Many companies are adopting GHG accounting due to its numerous benefits, such as building stakeholder trust, identifying emission hotspots, and reducing environmental impact. Furthermore, GHG accounting offers a competitive edge by attracting consumers who prefer sustainable products and services.
The trend of companies opting for GHG accounting is on the rise, with over 92% of companies already reporting to the CDP using the GHG protocol. This surge is driven by increased regulatory pressure and new mandates, such as the US SEC’s proposal on “Enhancement and Standardization of Climate-Related Disclosures for Investors”, the European Union’s “Corporate Sustainability Reporting Directive” (CSRD), and California’s new “Climate Corporate Data Accountability Act” (SB 253).
These regulations require disclosure of greenhouse gas emissions, including scopes 1, 2, and 3. While GHG accounting may not yet be mandatory for everyone, taking the first step now is a prudent move.
Key Steps in the GHG Accounting Journey

Embarking on a GHG accounting journey involves several critical steps:
1. Defining System Boundaries of the Organisation
● Setting organisational boundaries
● Setting operational boundaries
2. Selecting a GHG Emission Calculation Approach
3. Collecting Data and Using Calculation Tools
4. Setting a Reduction Target and Tracking Progress
5. Assurance and Verification for Carbon Emissions
6. Reporting GHG Emissions
Let’s delve into the first step in detail: defining the system boundaries of the organisation.
Defining System Boundaries of the Organisation

Defining system boundaries is the first and most crucial step in GHG accounting. It involves drawing imaginary lines around the organisational structure to decide which emissions will be included in the GHG inventory. These boundaries are divided into organisational and operational boundaries.
Organisational Boundaries
When setting organisational boundaries, companies need to consider:
● Which operations are included in GHG emissions calculations?
● What percentage of the company’s operations are considered?
According to the GHG protocol, there are two approaches to setting organisational boundaries: the control approach and the equity share approach.
Control Approach:
The control approach is suitable when an organisation has practical control over another entity, whether operational or financial.
Operational Control:
If the organisation has the authority to implement new operating policies, it accounts for 100% of the emissions. For example, if Company A manages the supply chain of Company B, Company A will report 100% of Company B's emissions.
Financial Control:
If the organisation controls financial policies, it accounts for 100% of the emissions, regardless of equity ownership. For instance, if Company A can approve budgets for Company B, Company A will report 100% of Company B's emissions.
Equity Share Approach:
The equity share approach is used when an organisation has direct ownership in terms of equity percentage. The emissions accounted for are proportional to the ownership percentage. For example, if Company A owns 35% of a joint venture with emissions of 30,000 tCO2e, it will account for 35% of those emissions, i.e., 10,500 tonnes.
Operational Boundaries
When setting operational boundaries, companies address:
● Which emissions are associated with operations within the selected organisational boundary?
● Which categories of ‘scope’ do these emissions belong to?
The GHG protocol outlines three scopes:
Scope 1: Direct emissions owned or controlled by the reporting organisation, such as on-site activities emitting directly into the atmosphere. This includes stationary combustion, mobile combustion, fugitive emissions, and process emissions.
Scope 2: Indirect emissions from purchasing electricity, steam, and heating/cooling. These can be disclosed using location-based or market-based methods.
Scope 3: Indirect emissions from the company’s value chain, both upstream and downstream. These are the most challenging to calculate due to the complexity of gathering supply chain data. Companies new to GHG accounting should initially focus on scopes 1 and 2, moving to scope 3 as they gain experience.
Methods for Setting Organisational Boundaries

Choosing the appropriate approach for setting organisational boundaries can be challenging. A company should select an approach that maximises scope coverage. For instance, a company with significant investment holdings might choose the equity share approach, while one with practical control over its assets might opt for the control approach.
Example Calculations
Equity Share Approach
If a company has three assets:
1. Factory B with 60,000 tCO2 per year (70% equity share)
2. Fleet with 7000 tCO2 per year (30% equity share)
3. Business Unit A with 3000 tCO2 per year (100% equity share)
Total emissions would be:
● Factory B: 42,000 tCO2e (70% of 60,000)
● Fleet: 2,100 tCO2e (30% of 7000)
● Business Unit A: 3000 tCO2e (100% of 3000)
Total: 47,100 tCO2e
Financial Control Approach
For the same assets:
1. Factory B: 0 tCO2e (no financial control)
2. Fleet: 7000 tCO2e (100% financial control)
3. Business Unit A: 1500 tCO2e (50% financial control)
Total: 8500 tCO2e
Operational Control Approach
For the same assets:
1. Factory B: 60,000 tCO2e (100% operational control)
2. Fleet: 7000 tCO2e (100% operational control)
3. Business Unit A: 0 tCO2e (no operational control)
Total: 67,000 tCO2e
Additional Considerations

Data Collection and Tools
After defining the boundaries, the next step is to collect relevant data. This can include utility bills, fuel consumption records, and other operational data. Using specialised GHG accounting tools can streamline this process. Software solutions like can automate data compilation, ensuring accuracy and saving time.
Setting Reduction Targets
Once the data is collected and emissions are calculated, companies should set reduction targets. These targets should be SMART (Specific, Measurable, Achievable, Relevant, Time-bound). For instance, a company might aim to reduce scope 1 and 2 emissions by 20% over the next five years.
Tracking Progress
Regular monitoring and reporting are essential to track progress against the reduction targets. Companies should establish a system for periodic reviews and updates to ensure continuous improvement.
Assurance and Verification
Assurance and verification are critical for ensuring the credibility of GHG reports. External audits by third-party organisations can provide verification, enhancing the reliability of the reported data and boosting stakeholder confidence.
Reporting GHG Emissions
Finally, companies need to report their GHG emissions. This can be done through sustainability reports, CDP disclosures, or other reporting frameworks. Transparent reporting demonstrates a commitment to sustainability and can enhance a company’s reputation.

Defining organisational and operational boundaries, selecting appropriate calculation methodologies, and gathering data can be daunting tasks. However, tools like can automate data compilation and formatting, making GHG reporting more efficient and accurate.
Starting GHG accounting is a significant step towards sustainability. By clearly defining system boundaries, organisations can effectively measure, report, and ultimately reduce their greenhouse gas emissions, contributing to a healthier planet and a more sustainable future.

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