One of the most recognised and widely used standards for calculating and reporting greenhouse gas emissions is the Greenhouse Gas Protocol (GHG Protocol). As it is widely regarded as the leading standard, it’s also the standard we use at comundo – right on!

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The GHG Protocol is a result of a partnership between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD – one hell of an acronym). The first edition of the GHG Protocol Corporate Accounting and Reporting Standard was introduced in 2001. 

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We know that carbon accounting can be pretty tricky. Not only is it fairly new to many people, from recently appointed ESG managers to CFOs, but it also contains a high degree of complexity. However, it’s important to get to grips with it as it’s fast becoming an integral part of corporate strategies that can have a very real impact on the bottom line. 

What is the GHG Protocol?

The GHG Protocol is a global standard for public and private entities (businesses, corporations, cities, and countries) to measure GHG emissions. It is an integral part of carbon accounting worldwide and a precursor for companies and governments to set carbon targets. 

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According to the GHG Protocol, there are three different areas of emissions – so-called scopes – where a distinction is made between direct emissions from the company's own and controlled energy sources, the company's indirect emissions (e.g., from purchased energy) and all indirect emissions that occur in the value chain of the reporting company, both upstream and downstream emissions. These, you guessed it, are the GHG Protocol scope 1, 2 and 3.

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Put simply:

• Scope 1: The company’s own and controlled sources
• Scope 2: The company’s indirect emissions
• Scope 3: All indirect emissions that occur in the value chain (upstream and downstream) of the reporting company

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We’ll break them down further in terms of carbon accounting, the GHG Protocol, and its importance for EU-based companies.

Scope 1: Direct emissions

Scope 1 emissions encompass all direct greenhouse gas (GHG) emissions originating from sources owned or controlled by a company. These emissions are produced through activities such as burning fossil fuels on-site, operating company-owned vehicles, or manufacturing processes. By identifying and quantifying Scope 1 emissions, EU companies gain valuable insights into their own environmental impact.

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Scope 1 emissions accounting is fairly simple, as companies can more easily calculate the GHG emissions from their operations. That’s also the reason why Scope 1 emissions are relatively more accurate than value chain emissions. 

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Reducing Scope 1 emissions demonstrates a commitment to sustainable practices while also promoting operational efficiency. And by investing in cleaner technologies, companies can mitigate their environmental footprint and achieve cost savings in the long run. What's not to like? Scope 1 reporting ensures transparency, allowing businesses to evaluate their progress in reducing emissions and set ambitious targets for the future.

Scope 2: Indirect emissions

Scope 2 emissions are indirect GHG emissions associated with the consumption of purchased electricity, heat, or steam. Companies have limited control over the generation of this energy but can influence the choice of suppliers and support the adoption of renewable sources. Reporting Scope 2 emissions enables companies to take responsibility for the environmental impact of their energy consumption.

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By sourcing renewable energy or investing in energy efficiency measures, businesses can actively reduce Scope 2 emissions. This not only contributes to a cleaner energy mix but also enhances its reputation and strengthens stakeholder relationships. Transparently reporting Scope 2 emissions demonstrates a commitment to reducing the carbon intensity of operations.

Scope 3: Value chain emissions

Scope 3 emissions represent the indirect GHG emissions occurring throughout a company's value chain, including both upstream and downstream activities. This includes emissions associated with the extraction and production of raw materials, transportation, product use, and disposal. It also includes data on tenants in any properties owned. While these emissions occur outside a company's direct control, they are still influenced by business decisions.

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It’s estimated that 75% of a company’s carbon footprint comprises its Scope 3 emissions. Since publishing the first GHG Protocol reporting guidelines in the early 2000s, the calculation and reporting of Scope 3 emissions has been optional in many countries, including the EU member states. However, that’s changing with the introduction of tougher regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD). 

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Reporting Scope 3 emissions is a comprehensive approach that considers the entire life cycle of products and services. EU companies that account for Scope 3 emissions demonstrate a commitment to sustainability and adopt a holistic view of its environmental impact. By engaging suppliers, optimising transportation networks, and promoting circular economy practices, businesses can reduce Scope 3 emissions and contribute to a greener future.

The importance of GHG Protocol 

The GHG Protocol’s standards emerged when efforts to reduce emissions and control global warming began. As an organisation, the GHG Protocol and its standards have proven instrumental in creating and implementing ESG frameworks worldwide. More importantly, it has been used in many climate regulations, mandating carbon reporting at a much larger scale.

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A survey by the Carbon Disclosure Project (CDP) in 2016 found that 92% of Fortune 500 companies reported using the GHG Protocol in some form. The GHG Protocol also publishes entity-specific standards that are continuously updated as new technologies in carbon accounting emerge. These include standards for the corporate sector, non-government organisations (NGOs), cities, and countries. Then, there are the standards for products and projects. 

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Even though the GHG Protocol has had wide success as a de facto standard for carbon accounting, its shortcomings haven’t gone unnoticed. The standard for value chain emissions (Scope 3) provides guidance for calculating downstream and upstream emissions in 15 distinct categories. However, the standard allows for estimation based on industry averages, which experts believe has left room for inaccuracies. 

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Still, it’s the most comprehensive standard for carbon accounting, one that’s helped countries implement tougher regulations and resulted in initiatives such as the CDP and Science-based Targets Initiative (SBTi). 

Wrapping up

And there you have it. The GHG Protocol scope 1, 2 and 3. In the EU, carbon accounting and reporting have become paramount for companies aiming to foster sustainability and combat climate change. Understanding the distinctions between Scope 1, Scope 2, and Scope 3 emissions is the first step for companies when looking to assess their environmental impact, create a net-zero strategy, and drive positive change.

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By embracing carbon accountability and understanding why accurate data is so important, businesses can safeguard the planet but also gain a competitive edge and forge meaningful connections with stakeholders. Let's move towards a greener future, one emission report at a time!

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