The GHG Protocol

The Greenhouse Gas Protocol (GHG Protocol) establishes standardised frameworks to measure and manage greenhouse gas emissions across businesses, governments, and products. It is the world's most widely used framework for accounting and reporting greenhouse gas emissions. The Protocol offers several complimentary standards, each tailored to address specific organisational needs:

• Corporate Accounting and Reporting (Corporate) Standard: Provides requirements and guidance for companies that are preparing a corporate-level GHG emissions inventory.
• Corporate Value Chain (Scope 3) Standard: Allows companies to assess their entire value chain emissions impact.
• GHG Protocol for Cities: Provides a framework for accounting and reporting greenhouse gas emissions for cities and municipalities.
• Product Standard: Provides a framework for calculating the full life cycle emissions of a product.
• Project Protocol: Used for quantifying emissions reductions of climate mitigation projects.
• Policy and Action Standard: Enables assessment of the impact of climate policies and actions, suitable for national or subnational levels.
• Mitigation Goal Standard: Helps countries and cities design and report on climate mitigation goals.

This article focuses on the Corporate Standard, which provides a framework for businesses to measure and report their greenhouse gas emissions. Since its introduction in 2001, it has become the de-facto international benchmark for corporate carbon accounting. The Corporate Standard is recommended for calculating emissions under key sustainability reporting regulations such as CSRD, for the disclosure requirements under ESRS E1-6: Greenhouse gas emissions, as well as voluntary standards like VSME and Environmental Lighthouse. In 2023, 97% of S&P 500 companies that reported their emissions used the GHG Protocol Corporate Standard as the basis for their corporate carbon accounting.

Corporate Accounting and Reporting Standard

The Corporate standard is designed to help businesses quantify, manage, and report their greenhouse gas emissions in a consistent, transparent, and credible manner. The standard was designed with the following objectives in mind: 

• Enable companies to prepare a GHG inventory that represents a true and fair account of their emissions.
• Simplify and reduce the costs of compiling a GHG inventory.
• Provide business with actionable information to build strategies for managing and reducing GHG emissions.
• Facilitate participation in voluntary and mandatory GHG programs.
• Increase consistency and transparency in GHG accounting and reporting across companies.

What are the key principles behind this standard?

The Greenhouse Gas Protocol Corporate Accounting and Reporting Standard is underpinned by five key principles that ensure credibility, transparency, and usefulness of greenhouse gas inventories prepared by companies:

1. Relevance: The final report should reflect the company’s actual GHG emissions profile and help support internal decision-making as well as external reporting needs.
2. Completeness: All relevant emission sources within the chosen organisational and operational boundaries must be included.
3. Consistency: The methodologies, data sources, and calculation approaches should be consistent across accounting periods to enable comparison over time.
4. Transparency: The company must clearly disclose assumptions, estimations, methodologies, and any exclusions or uncertainties.
5. Accuracy: Emissions should be quantified as closely to actual emissions as possible, minimizing uncertainties and biases.

Who should use this standard?

While the Corporate Standard is primarily designed for businesses developing a greenhouse gas (GHG) inventory, it is equally applicable to any organisation whose operations result in GHG emissions; including NGOs, government agencies, and universities.

How to use this standard?

1. Organisational boundaries

The first step is to define the organisational boundaries, a concept that is used to determine which parts of the organisation (subsidiaries, business units, joint ventures) are included in the GHG inventory. The Standard provides two approaches for setting these boundaries:

• Equity share: The company reports GHG emissions based on its ownership percentage in each operation, reflecting its economic interest and exposure to associated risks and rewards. Example: If an organisation owns 70% of a power plant, it reports 70% of the plant’s emission in its GHG inventory.
• Control share: The company reports 100% of emissions from operations where it has control (either financial or operational), but does not report emissions for operations where it only holds an interest. There are two types of control:
  • Financial control: The company can direct financial and operating policies to benefit economically.
  • Operational control: The company has full authority to implement operating policies, directly or through subsidiaries.

Here is an example scenario to help understand how the different approaches work in practice: An investor (lets name it SunVest) partners with another company (lets call it RayOps) to run a solar farm (aptly named BrightField). SunVest owns 70% of BrightField and can direct its financial and operating policies, giving it financial control. RayOps manages day-to-day operations, giving it operational control. BrightField emits 1,000 tonnes of CO₂ annually.

• Under the equity share approach,
  • SunVest reports 700 tonnes of CO₂ emissions (proportional to its stake)
  • RayOps reports 300 tonnes of CO₂ emissions (proportional to its stake)
• Under the operational control approach
  • SunVest does not report any emissions (since it does not control operations)
  • RayOps reports 1000 tonnes of CO₂ emissions (as it controls operations)
• Under the financial control approach
  • SunVest reports 1000 tonnes of CO₂ emissions (as it has financial control)
  • RayOps does not report any emissions (since it does not have financial control)
    
    

2. Operational boundaries

After organisational boundaries are set, the company must determine its operational boundaries by identifying all emissions related to its activities and categorising them as direct or indirect, based on its relationship to the sources. Direct GHG emissions are emissions from sources that are owned or controlled by the company. Indirect GHG emissions are emissions that are a consequence of the activities of the company but occur at sources owned or controlled by another company. The classification of emissions as direct or indirect depends on the chosen organisational boundary (equity share or control). 

To help distinguish between direct and indirect emission sources and improve transparency in value chains, the GHG Protocol further divides emissions into three scopes:

• Scope 1: Direct emissions from sources owned or controlled by the reporting company. For a detailed explanation of Scope 1 emissions, please see our dedicated article here.
• Scope 2: Indirect emissions from purchased energy (electricity, steam, heating, or cooling) consumed by the reporting company. For a detailed explanation of Scope 2 emissions, please see our dedicated article here.
• Scope 3: Other indirect emissions occurring in the reporting company’s value chain, including upstream and downstream activities such as supply chain emissions, business travel, or the use of sold products. For a detailed explanation of Scope 3 emissions, please see our dedicated article here.

3. Collect data and quantify emissions

After setting boundaries, collect relevant data (such as fuel usage, electricity consumption, or money spent on products and services). Combine this data with appropriate emission factors to calculate emissions for each source and allocate them to the correct scopes.

4. Prepare report

Compile a GHG inventory report, detailing your emissions by scope, organisational boundaries, methodologies, and any exclusions.

5. Third-party verification 

While not mandatory under the Corporate Standard, third-party verification is recommended to increase the credibility of the report. Results can be used to comply with regulatory requirements, and identify opportunities for emission and cost reductions.

Why should you use this standard?

Using the Corporate Standard enables organisations to reliably measure, manage and report their greenhouse gas emissions. Key benefits include:

1. Facilitating effective emission management: Accurate emissions accounting helps organisations identify emissions and cost reduction opportunities, set meaningful targets, and track progress to improve their sustainability performance.
2. Supporting regulatory and voluntary reporting: Helps companies comply with mandatory and voluntary reporting requirements.
3. Enabling participation in GHG markets: A robust GHG inventory is essential for engaging in carbon markets or trading schemes, where verified emissions data are needed for credits or allowances.
4. Ensuring standardization and credibility: It provides a globally recognized and consistent framework to measure and report greenhouse gas emissions, ensuring credibility and comparability across organisations and industries.