What is Greenhouse Gas (GHG) Accounting
GHG accounting refers to the procedure of quantifying and tracking Greenhouse Gas emissions produced by various human activities, a few namely – manufacturing, logistics etc. GHG accounting is critical in assessing and managing the environmental impact of gases that cause greenhouse effect including carbon dioxide, methane, and nitrous oxide, among others. It helps businesses across different verticals counter the greenhouse effect caused by commercial activities.
GHG accounting helps trace emissions produced by a company through energy consumption, energy production, transportation & storage, agriculture, and other industry-related business activities.
The origins of GHG accounting can be traced back to the 19th century, when climate science was emerging, and experts on climate science were beginning to understand the impact of trapped carbon dioxide & methane in the earth’s atmosphere. In the mid-20th century, scientific research showed evidence of the potential consequences of GHGs, including global warming and climate change. In the 1970s and 1980s, early efforts to quantify and account for GHG emissions were made. In response, various international agreements, such as the Intergovernmental Panel on Climate Change (IPCC), United Nations Framework Convention on Climate Change (UNFCCC), and Kyoto Protocol (1997), created standard frameworks for GHG emissions reporting. They mandated countries to account for their GHG emissions and establish a system for emissions trading.
In the early 2000s, organizations such as the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) established the Greenhouse Gas Protocol, which mainstreamed methodologies for measuring & reporting GHG emissions. With an increase of GHGs across industries at a global scale, businesses have adopted these established methodologies to conduct GHG accounting.
The importance of GHG Accounting within the Current Market Scenario
For any business, increasing profits and creating sustainable value largely depends on its foundational strategy. These can be value creation for stakeholders, improving the environment where it operates, and creating a positive impact across all organizational levels. For instance, GHG accounting is significant in quantifying, measuring, and understanding the sources of GHG emissions.
Industrial emissions are majorly classified into scope 1, 2, and 3 emissions. Emissions coming from directly owned operations of a firm are classified into scope 1; whereas, emissions generated from purchased electricity are scope 2. Scope 3 emissions are the result of upstream and downstream activities of a firm, which fall outside the value chain of the firm’s operations and are difficult to measure. Further, scope 1 emissions are direct emissions while scope 2 and 3 are indirect emissions.
Considering the various types of GHG emissions, GHG accounting helps a business identify which part of its activity is a significant contributor and gauge baseline emissions. This helps companies, governments & international bodies set emissions reduction targets, providing a clear path for mitigating risks associated with climate change & achieving objectives as laid down in the Paris Agreement.
In addition, GHG accounting helps organizations consider perspectives on climate change-associated risks and make decisions related to such risks through data insights. Furthermore, it demonstrates an organization or business’s commitment to the environment through emissions reduction, offering a competitive edge over other businesses in the marketplace and attracting potential investors with sustainability priorities. Beyond organizational-level sustainability, GHG accounting can help businesses implement sustainable supply chain management by identifying climate change risks in the supply chain and mitigating associated risks.
How GHG Accounting Adds Value to Your Company
GHG accounting helps society and businesses address the unique sustainability challenges. Businesses, investors, governments, and countries are key stakeholders with the largest impact while addressing risks associated with climate change goals.
Corporates, Governments, large-sized, and medium-sized businesses – For energy-intensive corporations, GHG accounting is almost indispensable. GHG accounting requires the involvement of external consultants & sustainability experts for companies to manage carbon emissions, protect the business from climate-change threats, provide value addition to stakeholders, improve branding, and perform risk & opportunity assessments.
Investors and stakeholders – ESG investors and stakeholders scrutinize climate change and corporate governance risks while making investment decisions. GHG accounting can help investors and stakeholders understand the strategies & plans of an organization in materializing & executing climate change goals, reflect the commitment & impact of companies toward sustainability, and track & review their sustainability goals.
Regulatory bodies – GHG accounting provides regulatory bodies with data on emissions from different economic sectors. This data is essential for evidence-based policy development. Regulatory bodies can analyze emissions trends, identify major sources of emissions, design targeted policies to address them, and help monitor compliance with emissions reduction targets & regulations.
Industries and sectors – Different industries across the globe are focusing on gaining knowledge on emissions reduction targets, strategies, and plans. For instance, manufacturing-intensive industries, such as oil & gas, exert a significant impact on the environment through emissions due to the nature of their businesses. Companies operating in this industry require policies and practices that help achieve carbon neutrality and zero emissions. GHG accounting creates a transparent platform to understand trends & challenges in emissions reduction.
Customers to a business – GHG accounting, in its essence, may not be of any relevance to the customers of a firm. However, core aspects within this process, including emissions targets, emission programs, renewable energy programs, and scenario analyses, may be relevant in making purchase or investment decisions, which can be evident through sustainable/ESG disclosures.
How NeoImpact can help
NeoImpact employs industry expertise and in-depth analysis to develop accurate and quantifiable GHG accounting practices to improve the sustainability performance of organizations. Working hand-in-hand with the requirements of the consumers, NeoImpact provides specialized GHG accounting services, some of which are mentioned below.
GHG accounting analysis
Effective GHG emissions accounting requires exact specifications and is carried out using concise calculations with the help of internationally agreed standards. NeoImpact can help medium- to large-sized organizations report emissions footprint, provide planning & consulting on emissions reduction, develop GHG emissions inventory, and document the emissions impact.
GHG inventory
NeoImpact employs industry-specific and industry-agnostic environmental KPIs based on the consumer’s requirement for developing & quantifying GHG emissions in accordance with the ISO 14064 standard. NeoImpact’s interactive environmental KPI dashboard helps visualize more than 50 environmental KPIs, including direct & indirect emissions, emissions intensity, renewable energy consumption, percentage of waste reduction in operations, and percentage of recycled raw materials used in manufacturing, to track & develop a comprehensive GHG inventory report.
GHG auditing and reporting
Verifying raw environmental data can be time-consuming, given the comprehensiveness of emissions data and the difficulty in capturing it. NeoImpact partners with experts in ISO certification to improve due diligence of non-financial data and develop inventory reports aligned with reporting regulations. NeoImpact’s dedicated team of analysts performs collective intelligence, enabling industries & firms to determine reporting obligations & standards and create custom-made GHG reports/environmental reports.
Standardized climate-related risk disclosures
As of 2023, TCFD has around 4,000 supporters; each year, the number of companies supporting the TCFD is increasing. The importance of disclosing climate-related risks is equally increasing. Regulatory developments across the U.S., Canada, and India confirm the same. NeoImpact helps companies develop TCFD reports in compliance with regulatory requirements worldwide to improve organizational resiliency, support climate-related scenario analysis, reduce fossil-fuel-related assets in the business, and capture & disclose risk-management strategies (physical and transitional) to improve sustainability & performance.
