Most of the world is committed to limiting global temperature rises to 1.5°C above pre-industrial levels to see off the worst effects of climate change. That means halving greenhouse gas (GHG) emissions by 2030 and hitting net-zero emissions by 2050.
The demand for financial-grade greenhouse gas (GHG) accounting is rapidly growing as investors and businesses seek to demonstrate their commitment to decarbonization – already, 53% of global GDP has made an intended or actual commitment to reaching net zero by 2050. The central authority for how to track and report GHG emissions (and thus progress toward goals) is the GHG Protocol. Yet as GHG accounting continues to evolve and attract more scrutiny, complexities are emerging that can trip up even experienced reporters.
In this page we outline the basics of GHG accounting, highlight the challenges faced, and share best practice learnings from over a decade of supporting sustainability leaders to deliver finance-grade GHG emissions data.
Table of contents
- What is carbon accounting
- Why account for carbon? Disclosure for ESG reporting
- Why account for carbon? Insights for emissions reduction
- Carbon accounting challenges
- How dedicated carbon accounting software can help
- Getting started: Best practices for carbon accounting
- What to look for in a carbon accounting software platform
What is carbon accounting?
Carbon accounting is the process of quantifying the amount of greenhouse gases produced directly and indirectly from a business or organization’s activities within a set of boundaries.
Carbon dioxide (CO2) is the most common Greenhouse Gas (GHG) emitted by human activities. As a result, the word ‘carbon’ is often used as a short-hand expression to refer to a number of greenhouse gases. The more accurate term is “carbon dioxide equivalent” or CO2e. A quantity of GHG can be expressed as CO2e by multiplying the amount of GHG by it’s Global Warming Potential. The Global Warming Potential for each GHG is tracked in a series of factor tables produced by a variety of organizations.
To facilitate accurate GHG accounting, the World Resources Institute and World Business Council for Sustainable Development have developed a number of accounting standards under the umbrella of the Greenhouse Gas Protocol to help organizations track and measure their progress towards decarbonization. Businesses will typically use the GHG ‘Corporate Standard’ when accounting for emissions. Under the Corporate Standard, emissions are classified into scopes for measurement and reporting:
SCOPE 1 EMISSIONS
Emissions released to the atmosphere as a direct result of an activity or series of activities at a facility level constitute Scope 1 Emissions (also referred to as ‘direct emissions’). Examples include emissions produced from manufacturing processes, fugitive emissions such as methane emissions from coal mining, or the onsite production of electricity by burning coal.
SCOPE 2 EMISSIONS
Emissions released to the atmosphere from the purchased electricity, steam, heating and cooling are categorized as Scope 2 emissions (also called ‘indirect emissions’).
There are different methodologies used to account for Scope 2 emissions. Prior to 2015, the Greenhouse Gas Protocol recommended using location-based (also referred to as ‘grid-based’) emission factors to calculate Scope 2 emissions. In 2015, Scope 2 Guidance was revised to recommend that both a location-based (grid-based) and market-based approach is used to calculate emissions. Read more: How to start reporting Scope 2 market based emissions.
SCOPE 3 EMISSIONS
Scope 3 emissions are indirect greenhouse gas emissions other than scope 2 emissions that are generated in the wider economy. They occur as a consequence of the activities of a facility, but from sources not owned or controlled by that facility’s business.
Scope 3 emissions are sometimes referred to as ‘supply chain emissions’. This is because, according to a 2020 World Economic Forum and BCG report, just eight supply chains (food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight) account for over 50% of global emissions – with a significant share indirectly controlled by only a few companies. Furthermore, supply chain emissions account for 5.5 times more emissions on average than a company’s direct emissions.
Given their outsized impact on overall global emission, Scope 3 emissions present a significant opportunity for organizations to engage their suppliers to accelerate decarbonization globally.
But not without hard work. Scope 3 accounting is not as widely adopted or understood as Scope 1 and 2. Further, many of the following challenges exist when approaching Scope 3 reporting:
- Difficulty establishing boundaries between scopes 1 and 2 (for example – transmission and distribution loss from purchased utilities is a Scope 3 emission).
- Difficulty capturing reliable data in a systematic and auditable way across numerous suppliers and locations – especially sourcing primary data directly from suppliers
- Difficulty sourcing and selecting emission factors to derive accurate calculations
- Challenges engaging with suppliers to both report and reduce emissions
With over a decade of experience supporting sustainability leaders to streamline sustainability reporting against all emission scopes, we recommend a systematic approach that’s been tried and tested by our clients.
Why account for carbon? Disclosure for ESG Reporting
GHG emissions data is essential for organizations wishing to track and disclose their performance against commitments to achieving Net Zero. Net Zero pledges have risen 3-fold since 2019, with 1,541 committing in 2020 from around 500 recorded in 2019. Once your target is in place and your baseline has been set, the next challenge to address is how you will account for your progress.
Carbon accounting also informs the ‘E’ in Environmental, Social and Governance reporting, which has surged in prominence amid a growing realization among investors and financial institutions that sustainability risk is investment risk, as BlackRock CEO Larry Fink highlighted in his 2020 letter to CEOs.
Reporting frameworks require quantitative or qualitative information to be provided in order to receive a score or other benchmark to enable comparison among peers. This information is primarily utilized by investors, shareholders, and boards.
ESG reporting frameworks indicate how a company’s operations are likely to impact the environment as well as the likely impact of climate change on the company’s ability to generate value – financial or otherwise. This information is relevant to financial stakeholders, namely investors, insurers, and creditors, but may also be relevant to the general public.
Without exception, ESG reporting frameworks call for the disclosure of environmental impact, which most often includes GHG emissions. Given the rise of investor interest in ESG performance, the way you account for carbon needs to have the same level of rigour used for financial metrics.
Why account for carbon? Insights for emissions reduction
Access to accurate, granular GHG emissions data is essential for organizations looking to identify where to focus emissions reduction efforts, develop a strategy, and track the impact of emissions reduction initiatives.
Organizations often follow an emissions reduction journey that aims to improve efficiency, introduce renewables, and purchase offsets to achieve their Net Zero target. Granular data on where emissions are coming from will help direct organization’s emissions reduction efforts. And ongoing tracking of GHG emissions will provide a quantified feedback loop to track if initiatives are achieving the desired outcome.
Carbon accounting challenges
Carbon accounting is a complex process that requires access to accurate, real-time and historical energy data and factor sets that can be traced back to source, and independently audited for compliance. Data captured on energy must reflect the complexity and hierarchy of the organization so that emissions can be traced back to their source. Data should be regularly updated to allow comparisons across reporting periods so that organizations can benchmark their performance against their targets. Lastly, the approach to data collection and emission calculations should be rooted in internationally accepted standards.
Many organizations run their annual carbon accounting and ESG ratings calculation process with spreadsheets, which leads to enhanced risk and productivity loss – especially for complex, global organizations that report to multiple frameworks. These organizations often face the following challenges:
Metrics for carbon, energy, waste, water and social indicators are captured from different sources, making them difficult to access in a consolidated way for reporting and decision making.
Producing financial-grade reports requires confidence in the data and auditability at every step in the process, from collection at the source data through to the production of reports. Data captured manually increases the likelihood of inaccurate or incomplete data due to manual errors.
The process to capture the metrics required to calculate emissions is time and labor intensive when managed manually with spreadsheets.
Without access to consolidated, accurate data, it can be difficult to monitor and manage your sustainability performance on an ongoing basis, and track the effectiveness of your sustainability projects.
How dedicated carbon accounting software can help
With carbon accounting software, you can address many of the challenges associated with data capture, storage and analysis. With software you can automate collection of the data you need to report on your organization’s performance and consolidate it into a single system of record, allowing you to generate important insights and deliver results.
Streamline data capture
Carbon accounting software can help automate the end-to-end process by systematically collecting a broad range of data types throughout the year, pre-defining data allocation and reporting rules, and providing a rich suite of tools to verify data completeness and quality before the reporting season starts.
Report with confidence
Carbon accounting software can help you produce financial-grade reports by ensuring confidence in the data and auditability at every step in the process, from collection at the source data through to the production of reports.
Drive enterprise-wide engagement
With access to a shared, trusted source of information, you can make sustainability relevant across diverse stakeholder groups by providing targeted insights, and empowering people to deliver sustainability results in their business area.
Focus on strategy
With carbon accounting software you can access a library of compliance and management reporting templates, freeing up time so you can focus your efforts on delivering strategic outcomes.
Simplify audit and assurance
Carbon accounting software can enable you to easily share your organization’s data with auditors via a single system that contains all supporting data, documentation and audit trails in one place.
Manage and track KPIs
You can’t manage what you don’t measure. With carbon accounting software, measure and track sustainability performance over time against predetermined benchmarks or KPIs.
Getting started: Best practices for carbon accounting
Over the last decade, we have supported sustainability leaders to deliver finance-grade emissions data for reporting and performance improvement. In this section we share best practice learnings from that experience.
In the first instance it’s imperative to set up structures and processes to create a solid data foundation to underpin GHG accounting and decarbonization disclosures, the aim is to create finance-grade sustainability data. From that solid foundation organizations can move to consider the actual process of GHG calculation, and further seek to understand the complexities of the GHG accounting process that have the potential to trip up even the most experienced reporters.
Focus Area 1: Establishing finance-grade sustainability data
Investors are increasingly scrutinizing sustainability performance alongside financial performance to inform investment decisions. However the highly developed and deeply embedded processes that exist to capture and disclose financial data are not yet standard practice for carbon emissions, sustainability and energy data.
In over a decade of supporting organizations on their decarbonization journey, we are constantly reminded that data capture and management present a challenge for many organizations.
There are best practices, however, to create a solid sustainability data foundation that underpins your GHG accounting and decarbonization disclosures. The first of these is to establish a system and approach that delivers finance-grade GHG emissions data.
- Review data accessibility and evaluate options for automation.
- Work with utility providers.
- Create a robust and flexible data structure.
- Develop processes for data management and ownership.
- Create a single, trusted source to store and share your data.
- Prepare up-front for audit.
- Establish consistency and reliability in reporting processes.
Review data accessibility and evaluate options for automation
The data required to calculate GHG emissions is often scattered across various internal systems throughout the organization. Many of these systems may be incompatible and don’t ‘talk’ to each other. Or the utility suppliers might not have systems and processes in place to share data. To ensure a complete and accurate data foundation to underpin your reporting and decarbonization efforts, your team needs to determine how to source data on an ongoing basis.
Best Practice Tips
- Consider outsourcing the data capture process to a specialist service provider.
- Get as close to the original data source as you can. If you have a choice between meter or billing data, use meter data.
- Aim for automated data transfer wherever possible. Minimize human intervention: files touched by people prior to data collection are more prone to failure to load, precision loss and metric confusion.
- Consider how you will store and manage the data on an ongoing basis. A cloud-based enterprise software platform is infinitely superior to spreadsheets for this task.
Work with your utility providers
Sourcing energy consumption data directly from your utility providers is the gold standard.
While not all providers offer this, it is worth striving for as the interval data quality is infinitely superior to that derived from billing data.
Best Practice Tips
- Contact your utility provider and explore data sharing options. The preference should be automated data provision via either an online portal or via an application programming interface (API) that allows data exchange.
- Consider working with a specialist partner to automate the data capture process.
- Request data-provision clauses in procurement contracts so the issue is addressed from the outset.
- If accessing utility meter data is impossible, explore sub-meter options.
Creating a robust and flexible data structure
Your data must be organized in a structured way to support your decarbonization target. Consider which types of data your organization needs to capture and how the data should be tagged and aggregated to support your reporting requirements. Your sustainability data management software should support tagging of data at the account or meter level, which can be aggregated to locations and further aggregated to reporting groups.
Once you have your target in place, the first challenge is to determine how the high-level organizational target will translate down to the level of the individual asset. There are many dimensions that can be considered when breaking down a target such as the reporting grouping structure, asset type, geography and emissions source. Whichever approach you select you must ensure your data structure is configured to match.
Each of these assets can have absolute targets applied to roll up to the high-level organization level target. An organization could also consider intensity targets for some of the assets as intensity targets can help with benchmarking emissions reductions across the organization.
The most granular data point in a data structure is usually an account or meter.
Account data is utility cost data delivered at a monthly or quarterly basis. Meter data is consumption data that’s delivered daily, in 15 to 30 minute intervals. Both account and meter data can be tracked at the same location for electricity, water and gas.
Account and meter data is assigned to a location. Locations may have multiple accounts or meters of the same utility type.
Locations are where account and meter data can be tracked and reported.
Data reported at the whole-of-organization level is an aggregate of all locations and underlying data.
Groups are used to aggregate data from multiple locations, to assist with setting boundaries for sustainability reporting.
It is important to ensure that you have a good data foundation in a flexible format to meet reporting requirements now and in the future. Central to this, is that the data collection and storage process is auditable with traceability through to the source of the data.
Equally important is that it allows for flexible boundary setting globally. Specifically, that it is easy to configure and change reporting groups, and the locations, accounts and meters that underlie them. Baseline emissions need to be recalculated when structural changes occur in the organization that change the inventory boundary (such as acquisitions or divestments).
Structuring data into a flexible organization hierarchy can simplify the process for recalculating baselines to enable more agility in ESG reporting.
It is also important to acknowledge that the data required for implementing decarbonization strategies is often scattered across various internal systems throughout an organization, many of which may be incompatible. It is also possible that the data may be held by suppliers that do not have systems and processes set-up to share it.
To address data capture challenges, companies should consider outsourcing the data capture process to a specialist service provider. Another best practice is to aim for automated data transfer whenever possible, since files handled by people prior to data collection are more prone to failure to load, precision loss, and metric confusion. Best practice is to utilize a cloud-based enterprise software platform to store and manage the data on an ongoing basis as this method is superior to spreadsheets.
Best Practice Tips
- Review the detailed reporting requirements of pledges or commitments you have made, and ensure your team understands what data it needs to support them.
- Regularly check and maintain metadata (tags, labels, opening/closing dates, etc.).
- Set minimum key performance indicators for the data management process to define thresholds such as “data completeness,” and document these decisions.
Embed processes for data management and ownership
Data-driven decision-making is only valuable if the data is accurate, complete and up-to-date. Effective data management requires dedicated attention to detail, ownership and diligence.
Best Practice Tips
- Create an accountability matrix for data management and assign responsibilities to staff. This matrix should set out a regular schedule to review data completeness to catch errors in time to address them.
- Keep a close eye on data flowing in. Set up inactivity alerts against each data source to identify data gaps early on.
- Institute a process to reconfigure formatting updates from utility supplier updates. A small change such as which column a date is located on within a bill can prevent your data from loading properly.
- Follow up promptly with parties that have not fulfilled data provision commitments.
- Set KPI’s for data completeness and currency.
Create a single, trusted source to store and share your data
Data is an increasingly valuable resource for guiding business decisions, so it should be made accessible to both internal and external stakeholders.
If this process is outsourced, remember that this data poses as much of a business risk as financial data and the governance structure to protect it should be similar.
Best Practice Tips
- Use a cloud-based application to provide password-protected access for all stakeholders.
- Supplier contracts should be worded to ensure data ownership rests with your organization.
- Align your data capture and management plan with audit requirements.
Prepare up-front for an audit and future-proof your data
The audit process is a critical step to validating reported decarbonization progress. Though sustainability data governance is essential to build trust in decarbonization efforts, the steps to achieve audit-proof data can be challenging.
Best Practice Tips
- Consult with your auditor up front to understand their requirements and confirm that your policies for data retention and tagging are compatible.
- Leverage a cloud-based application as a single source of truth that can be shared with external parties as required.
- Ensure your data management system has the capability to store reference documents, and meets core audit requirements such as change tracking, time stamping and trace to source capability.
Establish consistency and reliability in reporting processes
Certification is typically a multi-year process increasingly subject to third-party audit. Your GHG accounting practices must support reliable, consistent reporting that eases the audit process and allows year-on-year repeatability.
Keep detailed records
Keeping an up-to-the-minute record of calculations and their inputs will save headaches at audit time. It’s imperative that you keep track of decisions and the reasons for them, store supporting paperwork and maintain a clear record of any changes made to the data used for certification.
Maintain data quality
Effective data maintenance requires focus, regular attention and clear lines of responsibility. Sustainability reporting software can help to keep track of data gaps and regularly interrogate data quality.
Secure ongoing stakeholder engagement
While commitments, targets, strategy and GHG accounting may stem from one team within your organization, the data needs to be sourced from a much larger pool of internal stakeholders. Ideally, a diverse group will be engaged in and accountable for collecting and sharing data from their representative business units and can help flag potential gaps in the ability to collect data. Getting everyone’s buy-in can be difficult so it’s important to be mindful of the challenges and to not underestimate the effort required to address this issue up front.
Best practice tips
- Have senior level staff visibly engaged in sustainability performance.
- Have an engagement plan in place that maps the vision and criteria for stakeholder communication efforts.
- Create bespoke reports to inform and engage stakeholders using reporting tools or sustainability software.
- Stay up-to-date on changes in reporting frameworks. Decarbonization guidelines and pledge platforms are evolving and subject to regular change. Keep informed of modifications by signing up to alerts from the relevant reporting authority. Keep in regular contact with your sustainability software provider and/or consultants.
Focus Area 2: Calculating GHG emissions
After you’ve established finance-grade systems and processes to capture and manage your sustainability data, you have a solid foundation of data on which to calculate your greenhouse gas emissions for reporting, disclosure and performance improvement.
The Greenhouse Gas Protocol, developed by the World Resources Institute and World Business Council for Sustainable Development, has developed a number of accounting standards that help organizations track and measure their progress towards decarbonization. These guidelines inform the ‘E’ in ESG reporting across many frameworks such as CDP, GRESB, SASB, and DJSI.
Here are the key focus areas when preparing your data for GHG accounting, reporting and disclosure.
Establish the technical criteria and baseline
Be clear on your baseline. All reporting frameworks require organizations to draw a clear line in the sand by which to measure progress. This baseline, or existing carbon footprint, is the marker that all future improvements will be measured against, so it must be accurate and appropriate.
Be really clear on your objectives, and take the time to ensure you understand the varying technical criteria associated with each pledge platform, commitment or reporting framework and how they may conflict with each other. For example, does the pledge platform allow for the use of green energy already on the grid?
Best Practice Tips
When setting your baseline, consider:
- How will you define the boundaries of your activities.
- How will you structure your data to it can be easily compared to future activity.
- What data is most appropriate to sue (you will want to ensure your historical work on carbon reduction initiatives is not discounted).
Be diligent in selecting and applying emission factors
Emissions factors form the basis of GHG calculation. Using the correct emissions factors
is essential for GHG calculation, but the selection, sourcing, allocation and management of factors presents a range of challenges.
Pay close attention to the following criteria when selecting emission factors:
Consider location factors that are as granular as possible. Assuming you have a presence in multiple locations, consider setting state-level regions over a full country-based region. This allows for more nuanced accounting relative to state policies, guidelines, private utility companies, etc.
Reporting period vs factor period
Emission factor updates don’t always line up with reporting timelines. Address this by setting schedules for when to source and update factors. A schedule prevents confusion and maintains consistency between reporting periods and versions, even in years that the commitments are shifting.
Make sure to follow GHG accounting principles closely; choosing incorrect factors can cause significant errors. For example, for ground travel emissions, are vehicles running on diesel or gasoline? If gasoline, is there a biofuel content?
Stay organized when calculating GHG emissions
Many organizations run their annual GHG accounting process using spreadsheets, which leads to enhanced risk and productivity loss – especially for complex, global organizations that report to multiple frameworks. Sustainability software can help you stay organized by automating data capture directly from the source and maintaining an emission factor engine for nationally-recognized carbon emissions factor data tables such as the US EPA (Climate Leaders), e-GRID USA, IPCC, IEA National Electricity Factors, Australian National Greenhouse Accounts, DEFRA (UK), and NZ Ministry for the Environment.
Dedicated software is of particular value for the complex record keeping related to renewable energy certificate allocation, and the calculation of your emissions inventory, including your market-based emissions.
Focus Area 3: Mastering the complexities of GHG accounting
As ESG reporting becomes increasingly complex, so too have GHG accounting methodologies. The complexities of GHG accounting can trip up even the most experienced reporters.
Earlier in this page we outlined the three emissions scopes for measurement and reporting. Within these broad classifications, the nuances of accounting continue to evolve. The most recent material changes relate to the way in which organizations account for renewable energy purchases (typically part of scope 2), the expansion and development of approaches to measure and account for scope 3 emissions, and the nascent development of a new category of emissions – Scope 4. In this section we explore these three complexities of GHG accounting.
Accounting for renewable energy purchases with the market-based method
Several years ago, the GHG protocol updated the reporting standard to require two methods of Scope 2 emission calculations: the location-based method and a newer, market-based method.
Before 2015, organizations were required to report their Scope 2 emissions based on a standard set of grid-average emissions factors. This approach, known as the location-based method, dictated that all emission-reduction efforts should be excluded from the GHG inventory. Initially this made sense, as it enabled organizations to be compared fairly. It did, however, prevent some organizations from showcasing their efforts, or taking credit for their green power purchases in their emissions totals. The Scope 2 market-based approach addresses this issue.
The market-based approach instructs organizations to apply Energy Attribute Certificates, or EACs, such as renewable energy certificates (RECs) or guarantees of origin to their consumption and then source emission factors from contracts or suppliers where available.
In instances where consumption is not covered by EACs or other factors, residual mix factors are applied to consumption. Residual mix factors are similar to grid-average factors but are calculated based on electricity generated from non-renewable sources (oil, gas, coal, etc.) or other sources not backed by EACs. If residual mix factors are not available for a region, then standard grid-average factors should be used, as they are in the standard location-based method.
Using the market-based method should prove helpful as your organization pursues intentional procurement of clean and renewable energy.
The first step of this accounting process is to understand your organization’s electricity purchases. There may be a mix of sources, especially if the organization works across various regions. Once tallied, contact each supplier and collect their emissions factors as comprehensively as possible.
If your organization purchases renewable electricity directly, the EACs already should exist and are known as “bundled certificates.” These certificates also can be purchased separately from electricity and are known as “unbundled certificates.” Use GHG Protocol’s Scope 2 Quality Criteria to ensure that these certificates can be used. Unbundled certificates must be allocated across your organization according to the Quality Criteria, with careful attention to points 4 and 5.
Point 4 requires that certificates are “issued and redeemed as close as possible to the period of energy consumption to which the instrument is applied.” This means it would be incorrect to allocate certificates issued in 2018 to electricity consumption from 2021.
Point 5 requires that certificates are “sourced from the same market in which the reporting entity’s electricity-consuming operations are located and to which the instrument is applied.” This means that it would be incorrect to allocate certificates issued in the U.S. to consumption in the U.K.
If your organization has power purchase agreements, the certificates may not exist. In this scenario, determine the emissions factor tied to the contract and document accordingly. Only use the publicly available residual mix emission factors that are within the region that is being accounted for if the supplier’s direct information is not accessible.
This calculation method can prove complex, so it’s essential that your sustainability reporting platform can support both location and market-based calculation methods.
Approaching Scope 3 supply chain emissions
CDP’s 2019 Supply Chain Report cites that supply chain emissions are 5.5x greater than emissions from the direct operation of an average business. This statistic is a reminder that organizations must consider climate impacts beyond the sphere of their own direct operations if they wish to make a difference.
Impacts may include quantifying GHG emissions throughout the supply chain (Scope 3) and savings from corporate-level strategic goals.
Reporting Scope 3 emissions is more difficult than Scope 1 and Scope 2, but the process to ascertain what is within your organization’s scope is quite clear.
While significant in emissions impact, the process of sourcing and accurately capturing data for Scope 3 can be a challenge. The breadth of the data types can be large, and the size and complexity should not be underestimated. While a cloud-based data collection tool such as Envizi can help to collect and sort the information, this process often requires manual data input and cross-functional stakeholder cooperation.
Best Practice Tips
- Sustainability software can automate what otherwise would be a painstaking manual data collection process, using electronic data interchange (EDI) and artificial intelligence (AI) technology.
- Be prepared to rely on manual surveys and conversations with individuals that represent your organization’s supply chain for some of the data collection.
- Maintain flexibility in the data structure between various factors. Data files provided from various supply chain members will be formatted in different ways, and your data framework must be flexible enough to ingest, process and analyze this data.
- During each step, keep a detailed, thorough audit trail to explain the approach and document decisions.
- Use project management and engagement tools such as Kanban boards to keep the group of stakeholders informed of the process.
- Consider seeking advice from a specialist or consultant. They can help resolve the challenges related to geographic spread and data management confusion.
- Consider adopting Envizi’s four step systematic approach to accounting for scope 3 summarized in the diagram below, and covered in detail in our Guide to Scope 3 Emissions Reporting ebook.
Planning for Scope 4 emissions
There is growing interest in creating a fourth emission scope for calculation and reporting the impact of emissions avoided by using an organization’s products.
These so-called Scope 4 emissions are not established in standardized reporting, but it is expected that guidance will be released in the future. Because this is a new scope to the GHG accounting process, the structure and process have not yet been formalized.
The GHG Protocol guidelines for reporting the comparative emissions impacts of products details the complexity that must be addressed to account and report on Scope 4 emissions:
- There is no accepted framework for estimating and publicly reporting comparative impacts, and data availability is inconsistent.
- The impacts of products may be positive or negative. So far, it seems that negative impacts are equally as common as positive in accounting for ‘Scope 4’.
- Many methodological issues have yet to be commonly agreed. The GHG Protocol is recommending the consequential approach to estimate comparative impacts, but many organizations are using the attributional approach.
What to look for in a carbon accounting software platform
With carbon accounting software, you can automate collection of the data you need to report on your organization’s performance and consolidate it into a single system of record, allowing you to generate important insights and deliver results.
Investors are evaluating sustainability performance alongside financial performance when making investment decisions. Organizations are making public commitments to deliver on these outcomes. Therefore, the processes and tools to capture and manage emissions reduction performance must meet the same robust requirements that are already in place for financial data.
Data must lie at the heart of any effective decarbonization strategy — to inform strategy and tactics and to deliver robust and verifiable reporting. Organizations that engage teams, establish robust governance processes for sustainability and energy data, and use technology to derive insights will accelerate progress toward decarbonization goals and reap the rewards of a low carbon future.