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.
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. It’s important to get to grips with, however, as it’s fast becoming an integral part of corporate strategies that can have a very real impact on the bottom line.
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 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:
- The company’s own and controlled sources – scope 1
- The company’s indirect emissions (e.g. from purchased energy) – scope 2
- And all indirect emissions that occur in the value chain (upstream and downstream) of the reporting company – scope 3
We’ll break them down further in terms of carbon accounting, the GHG Protocol, and their 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.
Reducing scope 1 emissions demonstrates a commitment to sustainable practices while also promoting operational efficiency. By investing in cleaner technologies, companies can mitigate their environmental footprint and achieve cost savings in the long run. 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 empowers EU companies to take responsibility for the environmental impact of their energy consumption.
By sourcing renewable energy or investing in energy efficiency measures, businesses can actively reduce their Scope 2 emissions. This not only contributes to a cleaner energy mix but also enhances their reputation and strengthens stakeholder relationships. Transparently reporting scope 2 emissions demonstrates commitment towards 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. While these emissions occur outside a company’s direct control, they are still influenced by business decisions.
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 their 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.
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 provides EU companies with the tools they need to assess their environmental impact, set targets, and drive positive change. By embracing carbon accountability, and understanding why accurate data is so important, businesses can not only 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!