A beginner’s guide to greenhouse gas (GHG) accounting for business

Given the stated ambitions of various countries to reduce carbon emissions to net zero by 2050, general awareness of the importance of carbon emissions management and reduction at an organisational level has grown in recent years.

Despite this, there remains significant uncertainty around what practical steps businesses can take to reduce their carbon emissions, and also what the tangible benefits to their businesses will be. In reality, there has never been a more important time for any business to engage with the issue of environmental sustainability.

In this starter guide, we explain the basics of what constitutes an effective carbon emissions management and reduction program, and why your business needs to start taking the issue of carbon accounting seriously. In addition, we will cover some practical steps that you can take, starting today.

What gets measured, gets managed

Effective carbon emissions management requires accurate accounting of emissions. It’s impossible to make realistic emissions reductions targets without an accurate picture of your business’ emissions profile to start with.

To generate this profile, you will first need to create an accurate inventory of your emissions from various sources within and surrounding your business and its operations. The globally agreed standard framework for this is the Greenhouse Gas Protocol (GHG protocol), and businesses of any size can follow this to ensure their accounting and reporting meet approved standards of accuracy and comprehensiveness.

The GHG protocol and emissions scopes

Emissions are classified into three scopes under the GHG protocol.

Scope 1 emissions include emissions from sources directly owned or controlled by an organisation. Examples include fleet vehicles or fuel directly used for combustion. To calculate these emissions you’ll need data like gas usage and fuel consumption from company vehicles.

Scope 2 emissions include purchased electricity that is brought within the organisational boundaries of the company or organisation. Examples include electricity and gas to power and heat office buildings.

Finally, scope 3 emissions include a wide range of additional items that contribute to indirect emissions. These are emissions that fall under the responsibility of the organisation, in virtue of its operations (often referred to as the value chain), but not in virtue of its directly controlled operations. Scope 3 is an optional reporting category for the GHG protocol, however up to 90% or more of any organisation’s emissions may result from scope 3, so it is therefore important to consider reporting on these where feasible.

Focus on both accuracy and practicality

Aside from categorising emissions under these different scopes, it’s important to set accurate organisational boundaries when creating your inventory. Businesses also need to ensure they source the most relevant business records to support calculations. More information can be found within the GHG protocol standards guidance on how to set boundaries for accounting, and how to accurately calculate emissions for the various scopes. Scopes 1 and 2 are more straightforward to measure, with scope 3 more complex in certain areas for many businesses. Standardised emissions factors are used to turn raw consumption data into calculated emissions figures.

In practice, and in particular with regard to scope 3, there may be obstacles to creating a 100% full and accurate inventory of all your emissions, but the GHG protocol is clear that you can estimate emissions where needed, as long as you’re transparent in reporting your assumptions and your methodology. A scope 3 analysis is often viable even when focussed on only the major GHG generating activities within the value chain.

Accurately measuring emissions can be a potentially complex area, so it’s important to give this due care and attention. There are dedicated services that can help guide your business through the process from end to end if you’re uncomfortable doing this yourself. The crucial part is taking action, and committing to a plan of action.

Setting targets for reduction

Of course, accounting for emissions throughout your business’ value chain is one part of the process. It’s vital that businesses set themselves ambitious, but achievable goals in terms of reducing emissions. This is where target setting is very important.

Broadly, the GHG protocol outlines ten distinct steps to setting a GHG target, including deciding on a target type, a date of completion, and a base year for comparison among other things. Again, this process can feel intimidating, and a full discussion is beyond the scope of this article, but any carbon accounting initiative needs to give pre-emptive thought to an appropriate reduction strategy as well as an accounting system. Again, you can seek third party help and advice in this area.

The benefits to business

Aside from legally instantiated goals, there are a number of very good reasons that all organisations, including smaller businesses, should take carbon emissions reduction very seriously.

In addition to obvious ethical considerations, the benefits of actively committing to carbon reduction program include:

• Reduced running costs
• Commercial incentives include increased attractiveness for clients, clients and investors.
• Increased supply chain sustainability

Carbon accounting also forms a core part of any ESG governance program. The sooner your business takes active measures towards effective carbon emissions management, the better placed it will be to take advantage of the many benefits associated with it. It’s something that can no longer be ignored.