What is GHG accounting and why is it important for all companies, regardless of size?

Greenhouse Gas (GHG) accounting is what we call the cornerstone of all sustainability reporting, the 101 of reporting and the starting block: A loved child has many names.

But what is it, and why is it so important for companies?

In short, GHG accounting is when a company reports on its direct and indirect emissions, specifically all emissions related to its activities internally and in its value chain, converted to CO2-equivalents.

Now, this might sound complicated. How do you convert an activity to CO2? Well, the answer to that is a bit complex, because the task is both a lot easier and a lot more difficult than one might think at the same time. Let’s break it down a bit…

GHG accounting is divided into three categories, or scopes: Scope 1, 2, and 3. These scopes represent a company’s entire internal business and value chain activities.

• Scope 1 includes the company’s direct emissions from transportation, stationary combustion, and refrigerants.
• Scope 2 includes electricity usage, district heating, and district cooling.

These two scopes are where companies usually start their reporting journey, because the data is easily accessible and often happens within company walls.

Scope 3, on the other hand, consists of a company’s upstream and downstream value chain, broken down into 15 subcategories.

The conversion of activities to emissions is relatively straightforward.

Conversion equation:

(activity data × emission factor) / 1000 = tonnes of CO2-equivalents

(1000 litres of diesel × 2.51279) / 1000 = 2.5 tCO2e

This means if a company, for example, has some company cars that have used a combined amount of 1000 litres of diesel in a reporting year, the company has Scope 1 emissions of 2.5 tCO2e.

Globally, there are thousands of emission factors available, either for free through databases such as DEFRA or behind paywalls in specialised conversion software for GHG accounting. One must look at the company’s needs and go from there, this is not a one-size-fits-all kind of reporting practice.

Why is GHG accounting so important?

Well, there are several reasons why a company would want to account for and report its GHG emissions, but let’s focus on some key ones:

• Regulatory compliance: Of course, this has to be mentioned. More and more companies see the need to report on emissions to comply with current or upcoming government regulations or carbon reporting requirements, especially in jurisdictions moving toward stricter climate policies. This is very important. However, there are also other reasons for reporting on your emissions.
• Investor and stakeholder expectations: Many investors, clients, and partners demand transparency around environmental impact and prefer to work with companies that measure and manage their emissions.
• Reputation and brand value: Demonstrating climate responsibility can strengthen your brand image, boost customer loyalty as the general publics awareness on the climate increases, and differentiate the company from competitor – making you stand out.
• Risk management: Understanding emissions helps companies identify operational inefficiencies, anticipate risks related to climate change, and build resilience into supply chains and long-term strategies, and banks absolutely love seeing you manage your risks <3
• Access to capital: Talking about banks — by being able to provide insight on your emissions, you can gain access to green loans or bonds, offering lower interest rates and higher loan ceilings.
• Cost savings and efficiency: Emissions reporting often highlights areas of excessive energy or fuel use, other internal emissions such as waste, or external emissions from suppliers, allowing companies to cut costs through more efficient processes and resource management.

So, what are you waiting for?

Get started on your GHG accounting journey! But remember, there are no companies that manage to complete their entire GHG account in their first-ever reporting cycle.

GHG accounting can be complex and difficult when you dive into your value chain emissions. That is why we recommend you start with what you can manage. A good way to do this is by starting with your Scope 1 and 2 emissions and gradually moving your way over to Scope 3 and the low-hanging fruit categories (categories with easily accessible data).

If you are interested in learning more about GHG accounting, you can check out our YSA GHG Accounting Course and Scope 3 Course, or get in touch for a chat!

We are here to help you on your sustainability reporting journey!