GHG Accounting 101: How Companies Measure Carbon Emissions

Have you ever wondered how businesses determine their operating costs in terms of the environment? Or how do they decide how much carbon dioxide is released into the atmosphere by their operations? Understanding how to monitor carbon emissions is not only wise but also necessary as rules tighten and concerns about climate change grow. GHG accounting can help with this.

The method by which businesses quantify and monitor their emissions is known as greenhouse gas accounting. GHG accounting is defined as "the process of measuring the amount of greenhouse gases emitted directly or indirectly by an organization, activity, or product" by the GHG Protocol, the most popular international standard for measuring carbon emissions. With the help of this accounting framework, firms can learn how their activities affect the climate and pinpoint practical ways to lessen that impact.

The Objective

The core aim of greenhouse gas (GHG) accounting is to provide companies with a clear, trustworthy, and uniform method for measuring their emissions. By recording GHG output at every stage of operations, organizations can discover which processes release the most carbon and concentrate reduction efforts where they matter most. Armed with this insight, they also find opportunities to streamline operations and cut costs while lowering their environmental footprint.

Building transparency and accountability in how businesses disclose their climate progress is a second, just as important objective. A company's environmental performance is being questioned by a number of stakeholders, including investors, employees, regulators, and customers.

By ensuring that the data supplied is accurate and comparable, GHG accounting fosters confidence and satisfies the standards of sustainability frameworks such as the TCFD, CDP, and the BRSR in India.

Scope 1: Direct Emissions

It covers emissions from sources that a company owns, controls, or directly operates. If a plant burns fuel in its boilers, runs generators, or drives company vans on diesel, the smoke and carbon come straight from its equipment. Because the releases happen inside the company fence line, tracking and measuring them is usually less complicated.

Example:

A cement works firing the coal in rotating kilns or a delivery firm steering diesel trucks both create classic Scope 1 emissions.

Scope 2: Indirect Emissions from Purchased Energy

It deals with emissions from the power, steam, or hot water that a business buys and consumes. The pollution is generated at another facility - a power plant; for instance, the user company still bears responsibility for the climate impact.

Example:

A chain of retail shops powered by grid electricity counts the generation emissions as Scope 2 even though the generation happens miles away.

Scope 3: Other Indirect Emissions

It includes every other indirect emission that pops up along a firm's value chain, whether upstream emissions tied to things like mining raw materials, shipping fabric, or staff driving to the office or downstream emissions from using the final product, charging a phone, or tossing a gadget in the bin.

Example:

Picture a clothing label importing cotton from farms across the sea (an upstream hit), or think of a smartphone maker whose gadgets steadily draw power at home and eventually end up on the scrap pile (a downstream hit).

When businesses track all three scopes together, they get a full view of their carbon story, and that wider sight lets them spot savings and cut pollution at every stage, from quarry to customer and beyond.

How Companies Collect Emission Data

When businesses want a clear picture of their greenhouse gas output, they use a step-by-step method to gather and crunch the numbers. The heart of the system can be summed up in one simple equation:

GHG emissions = Activity data × Emission factor

Activity data means obvious facts like litres of fuel burned, kilowatt-hours of power drawn, or the kilometres cars and trucks covered. Once that figure is in hand, analysts multiply it by an emission factor, a rough gauge of how much gas each unit of activity sends into the sky.

These factors usually come from respected global sources such as the Intergovernmental Panel on Climate Change (IPCC), the UK DEFRA (Department for Environment, Food & Rural Affairs), and the U.S. Environmental Protection Agency (EPA). Using a shared recipe keeps the results accurate and makes it easier to compare one firm with another.

Take a closer look at the typical steps a firm runs through to gather and sort its emissions data:

1. Define Organizational and Operational Boundaries

First, a company decides which sites, plants, or offices will show up in the greenhouse gas ledger. Then it picks a boundary rule-financial control, operational control, or equity share and spells out which emission scopes 1, 2, or 3 it plans to count.

2. Pinpoint Where Emissions Come From

The team first jots down every place emissions could be released, burned in staff vehicles (Scope 1), electricity bought from the grid (Scope 2), and even actions by suppliers or customers (Scope 3). Doing so gives a straightforward guide to the company's emission hotspots.

3. Gather Activity Records

Firms then collect records on energy bills, fuel receipts, deliveries, employee travel, raw materials bought, waste streams, and other daily actions. These figures may be pulled from utility invoices, fuel slips, travel logs, procurement files, or in-house databases such as ERP and HR systems.

4. Choose the Right Emission Factors

Once the activity records land on the desk, the firm picks updated, local emission factors from trusted sources. Each factor is matched to an action so it can later be multiplied and the right footprint obtained.

5. Crunch the Numbers

With records and factors lined up, the team performs the calculation, usually Value * Factor = Emissions. Many offices run these equations in familiar spreadsheets or through dedicated GHG software tools.

6. Check, Sign Off, and Share Findings

Results are double-checked, either by an internal auditor or an outside firm, to spot errors before release. Once verified, the numbers feed into sustainability reports, meet legal requests, or go out to disclosure platforms such as CDP or BRSR.

When companies follow these steps, they compile consistent and actionable emissions data that acts as a solid baseline for any serious plan to shrink carbon output.

The Significance of GHG Verification

Verification is the next critical step once a business has estimated its greenhouse gas emissions. This stage involves an independent review to check whether the reported figures are complete, accurate, and reliable. Beyond building trust with investors, employees, and the public, verification ensures compliance with evolving climate regulations and disclosure frameworks such as the EU Corporate Sustainability Reporting Directive, the Business Responsibility and Sustainability Report, and the Carbon Disclosure Project.

The greenhouse gas verification process typically moves through the steps outlined below:

Evaluation of Data

The validator reviews the company's source records-ERP reports, power invoices, travel logs, and the like-to confirm that each dataset is accurate, traceable, and formally documented.

Validation of Emission Factors

To make sure they are current, suitable for the emission source, and derived from reputable sources such as the EPA, DEFRA, or IPCC, emission factors used in computations are examined.

Samples and Site Inspections

Verifiers occasionally test a subset of the data by visiting the location or using a sampling technique, particularly in big organizations. This makes it easier to confirm that the assumptions made are accurate and that data collection techniques are consistent.

Analyzing Uncertainties

In order to determine where estimates may differ because of measurement or data quality issues, an effective verification procedure involves analyzing the data's uncertainty. Over time, this aids businesses in refining their processes.

The Last Assurance Statement

A summary of the findings and a confirmation of whether the GHG report complies with applicable standards like ISO 14064 or the GHG Protocol are provided by the verifier when the assessment is finished, usually at a restricted or reasonable assurance level.

GHG verification, in other words, is more than just a box to check in a world where climate transparency is increasingly becoming a license to operate; it is a strategic instrument that promotes effective climate action, risk management, and credible reporting.

Frequent Problems and Their Solutions

Businesses frequently have difficulties when performing GHG accounting, even with the greatest of intentions, particularly if it's their first time. Data collection, classification, and reporting errors can produce erroneous findings that impact investor trust, regulatory compliance, and sustainability goals.

The quality of the data is one frequent problem. A lot of companies use old spreadsheets or approximated data, which can lead to either overreporting or underreporting emissions. By employing trustworthy emission factors, incorporating emissions tracking into operational data, and investing in digital tools for automated data collection, internal systems can be strengthened.

Another typical issue is scope misclassification. For example, it is possible that emissions from contractor vehicles or leased assets are misclassified. Companies must accurately comprehend the GHG Protocol's Scope 1, 2, and 3 definitions and boundaries to prevent this, and they must adjust their accounting procedures appropriately.

Likewise, duplicate counting, in which the same emission is recorded by two entities or under two scopes, might skew the footprint. A centralized data management system and cross-functional departmental coordination can help with this.

Moreover, common mistakes include not including suppliers for Scope 3 data, neglecting to update emission factors regularly, and disregarding minor emissions sources that can accumulate. The secret is to approach GHG accounting as a process of ongoing improvement.

The Role of Technology in GHG Accounting

Data from utility bills, gas cards, and other sources can now be extracted automatically by software platforms. This increases efficiency by reducing repetitive operations, putting more strain on human resources, and improving data accuracy.

Real-time sensors and smart meters are used to monitor energy use. This generates detailed data and makes it possible to track opportunities for improvement instantly.

When the exact data is not available, emissions estimation is assisted by artificial intelligence to help companies. This form of tools can suggest reasonable estimates based on information at their disposal within the specific firm and the ranges of data needed that are publicly available in the given industry.

A Look into the Future

Today, organizations that take the initiative to measure their emissions will have the greatest adaptability to tomorrow's requirements and prospects. Climate change accounting is not optional anymore; it is increasingly becoming central to business strategy in an environmentally sensitive economy.

SGS, the world's leading testing and certification company, helps organizations at every stage of their emissions process. Our GHG consulting experts guarantee the significance, correctness, and compliance of your numbers from data collection to verification.

If you are ready to control your carbon footprint, convert your climate goals into measurable results by collaborating with us.