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329 views181 pages

KPMG Greenhouse Gas GHG Emissions Reporting Dec 2024 1734000063

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GHG emissions

reporting
Handbook

Greenhouse Gas Protocol

March 2024
______

visit.kpmg.us/ESGreporting
Contents
Foreword ............................................................................................................... 1

About this publication ............................................................................................ 2

1. Executive summary ........................................................................................ 6

2. Foundational concepts ................................................................................. 11

3. Organizational boundary .............................................................................. 27

4. Operational boundary ................................................................................... 37

5. Emissions calculations ................................................................................. 48

6. Scope 1 emissions ....................................................................................... 56

7. Scope 2 emissions ....................................................................................... 61

8. Scope 3 emissions ....................................................................................... 77

9. Tracking emissions and setting targets ......................................................111

10. Offset credits .............................................................................................. 124

11. Reporting .................................................................................................... 150

Appendices

A. Disclosures .......................................................................................... 157

B. Example GHG emissions statement ....................................................165

Index of changes ........................................................................................ 173

KPMG resources............................................................................................... 176

Acknowledgments ............................................................................................. 178

© 2024 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent
member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.
GHG emissions reporting 1
Foreword

GHG 101: The fundamentals

The world of finance is expanding. Beyond numbers and into nature.

We increasingly find familiar concepts – accounting, reporting – with unfamiliar

elements – greenhouse gases, renewable energy. This merging of worlds has
made one thing clear: nature isn’t just for the scientists anymore; finance
professionals are living in this ecosystem too.

Climate-related disclosure requirements are now a reality in standards issued by

the International Sustainability Standards Board and the European Commission;
and in the US, the SEC has issued its final climate rule and the State of
California has mandated climate-related disclosures for thousands of
companies. These requirements are likely to shape the global climate reporting
landscape. And although different in a number of ways, these requirements
share a common anchor: greenhouse gas emissions.

More companies than ever before are facing regulatory requirements to report
the direct and indirect emissions associated with their operations. And this
reporting will be heavily informed by the Greenhouse Gas Protocol.

The Protocol has emerged as a nexus in the climate reporting ecosystem. It

provides the underlying principles, concepts and methods to develop a
greenhouse gas emissions inventory that can be used for various voluntary or
mandatory reporting purposes.

Finance professionals play a valuable role in bridging between scientific data

and investor-quality information. And because of its influence on the future of
emissions reporting, it is becoming more important for finance professionals to
understand the Protocol and the fundamentals of greenhouse gas emissions
reporting – GHG 101.

We hope this handbook helps to provide that foundational understanding.

Anchored in the Protocol. Translated to the language of Finance.

Christina Abbott and Julie Santoro

Department of Professional Practice, ESG, KPMG U.S.

About this publication

The purpose of this handbook is to assist you in understanding the accounting
and reporting of GHG emissions through the lens of the following standards and
guidance of the Greenhouse Gas Protocol:

• A Corporate Accounting and Reporting Standard

• Scope 2 Guidance
• Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

For finance professionals

This handbook provides an introductory explanation of GHG emissions
reporting. It is not intended to be exhaustive or to facilitate an expert level of
understanding.

It is written for finance professionals who are more familiar with financial
reporting and generally accepted accounting principles. As such, we explain
concepts in a way that we think will be the most understandable for this
audience.

The reporting landscape

Throughout this handbook, we provide a brief overview of how the requirements
of the GHG Protocol compare to the following:

• IFRS® Sustainability Disclosure Standards issued by the International

Sustainability Standards Board (ISSB) – ISSBTM Standards;

• European Sustainability Reporting Standards (ESRSs) developed by the

European Financial Reporting Advisory Group (EFRAG) under delegated
authority of the European Commission; and

• The Climate Rule issued by the US Securities and Exchange Commission

(SEC).

ISSB Standards ESRSs SEC Climate Rule

• IFRS S1, General • ESRS 1, General SEC Rule, The

Requirements for requirements Enhancement and
Disclosure of • ESRS E1, Climate Standardization of
Sustainability-related change Climate-Related
Financial Information Disclosures for Investors
• IFRS S2, Climate-
related Disclosures

See KPMG resources for further materials about these standards and rules.

Excerpts from the Greenhouse Gas Protocol

This handbook includes a number of excerpts from the standards and guidance
of the Greenhouse Gas Protocol. That material was developed by the World
Resources Institute and the World Business Council for Sustainable
Development.

Following a public consultation, the GHG Protocol is currently updating its

governance and standards. Read more in chapter 2 (Future developments).

March 2024 edition

This edition of our Handbook includes both new guidance (identified with **) and
updated guidance (identified with #) based on our continued experience in
responding to questions about the application of the GHG Protocol. In particular,
this edition includes new guidance on emissions factors (chapter 5) and offset
credits (chapter 10). The Index of changes includes a full listing.

References to the literature

Our commentary is referenced to the Greenhouse Gas Protocol standards
and/or guidance citing page numbers (p or pp).

The following are examples of how we reference.

Reference Short-cut name Proper title

A Corporate Accounting and
GHGP Corporate Standard
Reporting Standard
GHGP S2 Scope 2 Guidance GHG Protocol Scope 2 Guidance
Corporate Value Chain (Scope 3)
GHGP S3 Scope 3 Standard Accounting and Reporting
Standard
Technical Guidance for
GHGP S3C Scope 3 Calculation Guidance
Calculating Scope 3 Emissions
Required Greenhouse Gases in
GHGP G Required Gases in Inventories
Inventories
The GHG Protocol for Project
GHGP PA Project Standard
Accounting
GHGP MGS Mitigation Goal Standard Mitigation Goal Standard

Abbreviations and terminology

We use the following abbreviations and terminology in this handbook:

The greenhouse gases

CH4 Methane

CO2 Carbon dioxide

GHG Greenhouse Gas

NF3 Nitrogen Trifluoride

N2O Nitrous Oxide

HFCs Hydrofluorocarbons

PFCs Perfluorocarbons

SF6 Sulphur Hexafluoride

Emissions measurement

CO2e Carbon Dioxide Equivalent

kWh Kilowatt Hour (of electricity)

mt Metric tonnes

MWh Megawatt Hour (of electricity)

t Tonnes

EEIO Environmentally-extended input output

GWP Global Warming Potential

Renewable energy

EAC Energy Attribute Certificate

GO Guarantee of origin

PPA Power Purchase Agreement

REC Renewable Energy Certificate

T&D Transmission and Distribution

Organizations relevant to emissions measurement

CDP Carbon Disclosure Project

EPA Environmental Protection Agency

ESG Environmental, Social, Governance

GHGP Greenhouse Gas Protocol

ICVCM Integrity Council for the Voluntary Carbon Market

IPCC Intergovernmental Panel on Climate Change

PCAF Partnership for Carbon Accounting Financials

SBTi Science Based Targets initiative

UNFCCC United Nations Framework Convention on Climate Change

WRI World Resources Institute

WBCSD World Business Council for Sustainable Development

Organizations/standards relevant to emissions disclosures

EFRAG European Financial Reporting Advisory Group

ESRSs European Sustainability Reporting Standards

IOSCO International Organization of Securities Commissions

ISSB International Sustainability Standards Board

SEC US Securities and Exchange Commission

1. Executive summary
The following diagram provides a roadmap to the elements of emissions reporting under the GHGP that are discussed in this handbook. The
diagram illustrates business travel as the only scope 3 category included in the operational boundary and therefore in the inventory boundary.

© 2024 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee.
All rights reserved.
GHG emissions reporting 7
1. Executive summary

The following diagram organizes the above elements into a more linear
depiction of how GHG emissions data is gathered and how it is used – with
references to the relevant chapters in the handbook.

Chapter

Step 1 Define the organizational boundary 3

Gather the
Step 2 Classify sources of emissions 4, 6, 7, 8
information
Step 3 Calculate emissions 5

Step 4 Track emissions 9, 10

Use the
information
Step 5 Report emissions 11

Step 1: Define the organizational boundary

The first step toward reporting emissions is to determine the organizational
boundary. The organizational boundary is equivalent to the ‘reporting entity’
concept in preparing a set of financial statements. Once that boundary has been
determined, the sources of emissions to be reported can be identified.

The organizational boundary frames the scopes 1 and 2 emissions that fall into
the overall inventory boundary.

In setting an organizational boundary, the GHGP allows an entity-level selection

of a control approach or an equity share approach. Within the control approach,
there is a further option of a financial control or operational control approach.

These approaches drew on accounting standards in effect when the GHGP

Corporate Standard was developed. There are two factors that contribute to the

fact that these approaches cannot simply be equated to the application of

financial reporting standards even though the terms are very familiar. First, the
standards in effect when the Corporate Standard were developed are different
from the standards in place today (not least under IFRS® Accounting Standards
and US GAAP). Second, the guidance developed by the GHG has largely been
applied outside of the finance profession.

Step 2: Classify sources of emissions

The second step toward reporting emissions is to classify them by source. This
comprises two parts:

• define the operational boundary; and

• identify and categorize emissions.

Define the operational boundary

The operational boundary comprises all sources of emissions within the

organizational boundary plus scope 3 categories at the discretion of the entity.
The following diagram illustrates business travel (but not the other scope 3
categories) being included in the operational boundary.

Together, the organizational boundary and the operational boundary are called
the inventory boundary.

Identify and categorize emissions

• Scope 1: Scope 1 emissions are direct – i.e. they are from sources that are
owned or controlled by the entity – and therefore occur within the
organizational boundary.

• Scope 2: Like scope 1, scope 2 emissions occur within the organizational

boundary. However, unlike scope 1, they are indirect emissions because
they do not occur from sources that are owned or controlled by the entity.
Rather, they represent purchased electricity that is generated outside the
organizational boundary but consumed within the boundary.

• Scope 3: Unlike scopes 1 and 2, scope 3 emissions occur outside the

organizational boundary. They are indirect emissions – because they do not
occur from sources that are owned or controlled by the entity – but are part
of an entity’s upstream or downstream value chain.

In addition, they are not required to be reported if an entity is following the

GHGP Corporate Standard. Instead, an entity can elect to report one or
more categories within scope 3 – e.g. business travel and employee
commuting.

Entities that are required, or elect, to report all relevant scope 3 emissions
comply with the GHGP Scope 3 Standard in addition to the GHGP
Corporate Standard.

Step 3: Calculate emissions

The third step toward reporting emissions is to perform the calculations based
on all emissions in the inventory boundary.

Calculations are performed using the following formula.

tCO2e = Activity data × Emission factor × GWP

Tonnes of CO2 Estimated measure Factor applied to Multiplier that
equivalent of activity related to make varied makes different
a specific activities GHGs comparable
emissions source comparable

Step 4: Track emissions

The first three steps are focused on gathering the information necessary to
create the GHG inventory.

The final two steps are focused on using the GHG emissions inventory. One use
is to track emissions over time. This involves two parts:

• develop a base year; and

• set reduction targets.

Develop a base year

A base year is a benchmark that allows an entity to observe trends in emissions

information. To maintain consistency, it may be necessary to recalculate the
base year, and other historic, emissions. Such recalculations may be triggered
by a variety of circumstances – e.g. an acquisition, change in methodology.

Set reduction targets

GHG emissions reduction targets are increasingly used by entities that commit
to reduce GHG emissions by a certain amount by a certain year. The terms ‘net-
zero’ and ‘carbon neutral’ are frequently used to identify a GHG emissions
reduction commitment.

Once an entity sets a GHG emissions reduction target, it actions an emissions

reduction plan to reduce the gross emissions within its inventory boundary as
much as possible. As the GHG emissions reduction plan progresses over time,
the entity may plan to purchase offset credits that neutralize residual emissions
that cannot be eliminated.

Offset credits are the result of GHG project accounting. The GHGP Project
Standard provides guidance for quantifying and reporting GHG reductions from
GHG projects. Although this kind of accounting is separate and distinct from the
accounting for GHG inventories, there is a connection between the two.

The output of project accounting (offset credit) may be an input into a corporate
emissions inventory report if the entity elects to use offset credits. Offset credits
are not part of the calculation of gross emissions, but instead are presented
separately in an entity’s emissions statement.

Corporate emissions inventory Project accounting

the inventory boundary Define the assessment boundary

actual emissions for each source

Estimate baseline (hypothetical) emissions
within the boundary
difference between baseline
all emissions within the boundary Total
emissions and project emissions

purchase offset credits Transact sell offset credits

Read more: Chapters 9 (tracking emissions and setting targets) and 10 (offset
credits)

Step 5: Report emissions

The last step in the process is to report the information gathered and tracked.
The presentation and disclosure requirements of the GHGP differ depending on
whether an entity elects to follow just the Corporate Standard (including the
Scope 2 Amendment) or is also following the Scope 3 Standard.

2.1 How the GHGP works

2.2 Background to GHG emissions reporting
Questions
2.2.10 How did the demand for GHG emissions reporting originate?
2.2.20 What are the main GHGs that are tracked?
2.2.30 What are the sources of GHG emissions?
2.2.40 What is the unit for measuring GHG emissions?
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Main GHGs #
Unit of measure #
2.3 The role of the GHGP
Questions
2.3.10 What is the GHGP?
2.3.20 What guidance is available under the GHGP?
2.3.30 What are the generally accepted GHG accounting
principles?
2.3.40 How are GHG emissions estimated?
2.3.50 How are emissions from different GHGs reported in a
comparable way?
2.3.60 What is a GHG inventory?
2.3.70 How does the GHGP fit into the current climate reporting
ecosystem?
Future developments #
Example
2.3.10 Direct measurement of GHG emissions
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
GHGP requirements and relief #
2.4 Project accounting
Questions
2.4.10 What is GHG project accounting?
2.4.20 What are the GHG project accounting principles?

2.1 How the GHGP works

Gases that trap heat in the atmosphere are called greenhouse gases (GHGs).
Although GHGs occur naturally (e.g. from respiration and decomposition of
plants), their release is also associated with certain human activities (referred to
as anthropogenic emissions). An increase in GHGs in the atmosphere leads to
an increase in average surface temperatures, along with other effects – e.g.
ocean acidification, smog pollution, ozone depletion.

Global treaties provide guidelines for countries to develop targets to reduce their
GHG emissions at the national level. In particular, the Paris Agreement aims to
limit global warming to well below 2 degrees Celsius (above pre-industrial
levels) and pursue efforts to limit it to 1.5 degrees Celsius.

GHG emissions reduction targets at the country level are increasingly supported
by targets at the corporate level. Setting meaningful targets and tracking
progress over time requires the measurement and reporting of GHG emissions.

The GHGP is currently the most widely used framework for GHG emissions
measurement. It was formed in 1998 as a partnership between the World
Resources Institute (WRI) and the World Business Council for Sustainable
Development (WBCSD). Since that time, the GHGP has released multiple
standards and guidance documents, and has become the leading benchmark
for measuring and reporting GHG emissions.

The GHGP’s central role in GHG accounting makes it important as financial

reporting standard-setters and regulators establish their own requirements for
disclosing GHG emissions – many of which refer to or otherwise leverage the
GHGP.

This chapter provides some of the history to GHG emissions reporting and a
brief introduction to some of the concepts discussed later in this handbook.

2.2 Background to GHG emissions reporting

Question 2.2.10
How did the demand for GHG emissions reporting
originate?
Interpretive response: There has been a growing trend, fueled by stakeholder
demand and regulatory action, for corporations to report GHG inventories (see
Question 2.3.60).

To develop a corporate GHG inventory, an entity identifies emissions arising

from specified sources within a defined boundary and tracks those emissions
over time (see the roadmap diagram in the executive summary). This type of
reporting, the attribution of GHG emissions to a specific entity, is addressed by
the GHGP (see Question 2.3.10).

But first, it’s important to understand the events that have led to the growing
demand for corporate GHG reporting.

The following is a timeline of select key events, followed by definitions and

descriptions.

1990 The IPCC released its first report: Human activities contribute to
increased emissions that warm the planet.

1994 UNFCCC created: Agreement on the need to act to limit emissions.

1997 Kyoto Protocol adopted: Certain industrialized nations commit to

emissions reductions.

2015 Paris Agreement adopted: A broader group of nations commit to limit

warming to 1.5 degrees Celsius.

2021 SBTi released its Net Zero Standard: Call for corporations to transition
to net zero.

IPCC: Intergovernmental Panel on Climate Change

The IPCC is a United Nations body responsible for assessing the science
related to climate change. See Question 5.2.30.

UNFCCC: United Nations Framework Convention on Climate Change

The UNFCCC is an international treaty to reduce global warming and cope with
the consequences of climate change. While the UNFCCC encouraged
industrialized countries to stabilize GHG emissions, the Kyoto Protocol, adopted
at a UNFCCC conference, committed them to doing so.

Kyoto Protocol

The Kyoto Protocol is a climate treaty that entered into force in 2005. A group of
industrialized countries (signatories) committed themselves to the GHG
emissions reductions targets introduced by the Kyoto Protocol. These targets

were implemented in rolling emissions reductions commitment periods, with the

first period from 2008 to 2012, and the second period from 2013 to 2020.

In the first commitment period, signatories were required to report four specific
GHGs (CO2, CH4, N2O and SF2) and two classes of GHGs (PFCs and HFCs). In
the second commitment period, signatories were also required to report NF3
emissions. See Question 2.2.20.

The Kyoto Protocol was effectively replaced by the Paris Agreement.

Paris Agreement

The Paris Agreement is an international treaty on climate change. It was

adopted by 196 signatories at COP21 in Paris and entered into force on
November 4, 2016. Its central aim is to limit global warming to well below 2
degrees Celsius (above pre-industrial levels) and pursue efforts to limit it to 1.5
degrees Celsius. Unlike the Kyoto Protocol, which focused only on industrialized
countries, the Paris Agreement calls upon all countries to set emissions
reduction targets.

SBTi: Science Based Targets initiative

The SBTi enables entities in the private sector to set science-based emissions
reduction targets. When a target is ‘science-based’, it is consistent with the
goals of the Paris Agreement. See Question 9.3.40.

Question 2.2.20
What are the main GHGs that are tracked?

Interpretive response: The Kyoto Protocol identified seven GHGs that nations
would track and report. The seven main GHGs, and their predominant
anthropogenic (human-caused) sources, are identified in the following table.

Gas Predominant anthropogenic sources

• combustion of fossil fuels
Carbon dioxide (CO2) • forest clearing and other biomass burning
• cement production
• agricultural processes – e.g. wetland rice cultivation
• enteric fermentation in animals
• decomposition of animal waste
Methane (CH4) • decomposition of municipal solid waste
• distribution of natural gas and petroleum
• by-product of coal mining and incomplete fossil fuel
combustion

• production of nitrogen-fixing crops and forages

Nitrous oxide (N2O)
• use of synthetic and manure fertilizers

Gas Predominant anthropogenic sources

• manure deposition by livestock
• fossil fuel combustion, especially mobile combustion
• wastewater treatment and waste incineration
• biomass burning
• air conditioning
Hydrofluorocarbons • refrigeration
(HFCs) • aerosol propellants
• fire extinguishers and solvents
Perfluorocarbons
• aluminum and semiconductor chip manufacturing
(PFCs)

• leakage from electrical switchgear

Sulphur hexafluoride
• magnesium casting and smelting processes
(SF6)
• use in semiconductor manufacture
Nitrogen trifluoride • manufacture of semiconductors, certain types of solar
(NF3) panels and chemical lasers

The GHGP requires entities to measure and report the emissions of these
seven GHGs. See Question 11.3.30 and Appendix A.

In our experience, CO2, CH4 and N2O are likely the most prominent GHGs
emitted by an entity. The remaining GHGs are less likely to be prominent for the
following reasons.

• SF6 is primarily used by the electric power industry to manage the high
voltages in the transmission system, including circuit breakers, gas-
insulated substations and other switchgear used between generating
stations and customer load centers.

• NF3 is primarily released as process emissions from semiconductor and

other electronic production. It is likely relevant to the electronics industry,
but unlikely relevant to most other entities.

• HFCs and PFCs are considered ‘classes of GHGs’ because they are
composed of other gases. HFCs are molecules composed of carbon,
fluorine and hydrogen; PFCs are molecules composed of carbon and
fluorine. All are human-made and not produced by any processes other than
human activities.

Reporting landscape#
Main GHGs
As shown in the following table, each standard or rule requires all seven GHGs
to be reported by entities.

ISSB Standards ESRSs SEC Climate Rule

An entity reports GHG An entity reports GHG An entity reports GHG

emissions (in CO2e) emissions (in CO2e) emissions (in CO2e)
inclusive of all seven inclusive of all seven inclusive of all seven
gases in the Kyoto gases in the Kyoto gases in the Kyoto
Protocol. [IFRS S2.A, B20- Protocol. Protocol. [§229.1500]
B21] [ESRS E1.AR39(c)]

Reporting inclusive of
additional gases may be
considered when
significant.
[ESRS E1.AR39(c)]

Question 2.2.30
What are the sources of GHG emissions?

Interpretive response: To help entities make informed decisions about their

emissions, the GHGP distinguishes between direct and indirect emissions
sources and categorizes these sources into three scopes. [GHGP pp 27-29]

Scopes 1 and 2 are GHG emissions that are owned or controlled by an entity;
scope 3 emissions are a consequence of the activities of the entity (upstream or
downstream) but occur from sources not owned or controlled by it.

Scope 3 is further broken down into 15 categories (e.g. processing of sold

products, use of sold products, end-of-life treatment of sold products), which are
discussed in chapter 8.

The intent of these categorizations is to provide insights for entities to make

informed decisions about their emissions – e.g. target-setting, cost reduction,
improved efficiencies – and is integral to the reporting of GHG emissions (see
chapter 11).

Question 2.2.40
What is the unit for measuring GHG emissions?

Interpretive response: GHG emissions are measured in tonnes. The tonne, a

unit of mass based on the metric system, is equal to 1,000 kilograms (or about
2,204.6 pounds). A tonne may also be referred to as a metric tonne.

In the US, which uses the imperial system, a tonne is known as a ‘metric ton’.
This is different from the term ‘ton’, which in the US refers to 2,000 pounds.

The following diagram summarizes this information.

Metric system Imperial system (US)

Tonnes
Metric ton
(aka metric tonnes)

1,000 kilograms 2,204.6 pounds

Ton
2,000 pounds

The terms ‘tonne’, ‘metric tonne’ and ‘metric ton’ may be used interchangeably.
Throughout this handbook, we refer to tonnes of carbon dioxide equivalent
(tCO2e). This concept is further discussed in chapter 5.

CO2e may also be expressed as million metric tonnes of CO2e. This is similar to
the financial statement concept of presenting numbers in thousands. This
concept will not be used throughout this handbook, but readers should be aware
of it for regulatory or jurisdictional reporting purposes.

Reporting landscape#
Unit of measure
As shown in the following table, each standard or rule requires reporting in the
same measure: the tonne.

ISSB Standards ESRSs SEC Climate Rule

Refers to metric tonnes of Refers to metric tonnes of Refers to metric tons

CO2e. [IFRS S2.29(a)(i)] CO2e. [ESRS E1.44] (which is equivalent to
metric tonnes) of CO2e.
[§229.1500]

2.3 The role of the GHGP

Question 2.3.10
What is the GHGP?

Interpretive response: The GHGP is currently the most widely used framework
for GHG emissions measurement. The following table provides further
information about its purpose and content.

An international set of standards, guidance, tools and training

What is it? designed to deliver a consistent method of measuring, reporting
and managing GHG emissions.
When was it
Formed in 1998; with updates made over the years.
created?
Where did it
A partnership between the WRI and the WBCSD.
originate?
Who uses it? Private and public sector entities.
To measure and manage GHG emissions associated with
How is it used?
individual products or entire value chains.
Provides a data-driven approach to help entities identify which
Why is it useful? activities in their value chains generate the most emissions,
thereby supporting global reduction of emissions.

Question 2.3.20
What guidance is available under the GHGP?

Interpretive response: The GHGP has developed two standards and

numerous guidance documents to support the measurement and reporting of
GHG emissions. The following table outlines the GHGP documents that are
relevant to this handbook.

Issued Amended Title Purpose

2004 A Corporate Provide requirements and
2001 2013 Accounting and guidance for entities preparing a
2015 Reporting Standard GHG inventory.

Provide principles, concepts and

methods for quantifying and
2005 N/A Project Accounting
reporting GHG reductions from
climate change mitigation projects.
Corporate Value Provide a methodology for entities
Chain (Scope 3) to assess their entire value chain
2011 2013
Accounting and emissions impact and identify
Reporting Standard where to focus reduction activities.
Technical Guidance Provide detailed technical
2013 N/A for Calculating guidance on relevant calculation
Scope 3 Emissions methods for scope 3 emissions.
Amend requirements regarding the
Required GHGs to include in inventories, as
2013 N/A Greenhouse Gases well as how the emissions of those
in Inventories1 GHGs should be reported within
inventories.
Provide an accounting and
Mitigation Goal
2014 N/A reporting standard for national and
Standard
subnational GHG reduction goals.
Provide standardized guidance on
how entities measure emissions
2015 N/A Scope 2 Guidance1 from purchased or acquired
electricity, steam, heat and
cooling.
Note:
1. Issued as an amendment to the Corporate Accounting and Reporting Standard
(Corporate Standard).

Chapter 11 discusses considerations around reporting in accordance with the

above standards.

The GHGP also provides other standardized frameworks (e.g. Global Protocol
for Community-Scale Greenhouse Gas Inventories, Product Life Cycle
Accounting and Reporting Standard) that are outside the scope of this
handbook.

Future developments#

March 2023 marked the closure of a five-month feedback collection process to

inform updates to the GHG Protocol’s standards and guidance. Over the course
of the last 12 months, the GHG Protocol Secretariat has published FAQs on
highlights of the update process and its plans to establish a steering committee
and an independent board, and it has taken applications to fill open positions in
these planned governance bodies.

Through a series of webinars that covered each of the surveys and the key
themes of responses submitted, the GHG Protocol Secretariat provided a view
into the points raised both for and against changing certain aspects of the
standards and guidance. New information and research studies will continue to
be solicited to inform the updates.

The GHG Protocol Secretariat is in the process of drafting workplans for the
updates to correspond to the stakeholder survey topics, while finalizing its new
governance structure.

• Drafts of revised text are expected in 2024 and final standards / guidance in
2025.
• Updated standards are expected to go into effect immediately.
• Decisions about the transition period for adoption will be made by the
planned governance bodies.

The planned update and development process is expected to be an inclusive

process that brings the standards / guidance into renewed accord with best
practice approaches to measuring and tracking emissions, as well as
accounting rules.

More information is available on the GHG Protocol’s website.

Reporting landscape#
GHGP requirements and relief
As shown in the following table, each standard or rule leverages the
requirements and guidance of the GHGP in a different way.

ISSB Standards ESRSs SEC Climate Rule

An entity uses the GHGP An entity considers the No required reporting In

to measure emissions, principles, requirements, accordance with the
subject to relief in specific guidance and provisions in GHGP, although such
circumstances.1 the following: reporting is permissible.
[§229.1505(b)(1)]
An entity uses: • Corporate Standard
(2004 version); However, the concepts of
• the Corporate Standard [ESRS E1.AR39(a)] the GHGP have been
(2004 version) to
measure GHG

ISSB Standards ESRSs SEC Climate Rule

emissions; and • Scope 2 Guidance leveraged to some extent.
[IFRS S2.29(a)(ii)] (2015 version); and [Section I.B]
[ESRS E1.AR45(a)]
• the Scope 3 Standard
(2011) to disclose • Scope 3 Standard
information about the (2011 version).
categories included. [ESRS E1.AR46(a)]
[IFRS S2.29(a)(vi)]
For Scope 3 screening
An entity applies the and category disclosures,
requirements in the an entity may consider the
Corporate Standard only relevant requirements for
to the extent they do not the quantification of
conflict with the indirect GHG emissions in
requirements of IFRS S2. ISO 14064-1.
[IFRS S2.B23] [ESRS E1.AR46(a), AR46(c)]
Note 1:
There is relief from using
the GHGP if jurisdictions
require the use of an
alternate methodology.
[IFRS S2.29(a)(ii)]

However, an entity is
required to apply the
Scope 3 measurement
framework in IFRS S2 to
prioritize inputs and
assumptions even when
the entity is required by a
jurisdictional authority to
use a method other than
the GHGP for measuring
its GHG emissions.
[IFRS S2.B41]

In addition, entities
currently using an
alternative method by
choice are given a
temporary transition relief
of one year from using the
GHGP. [IFRS S2.C4(a)]

Question 2.3.30
What are the generally accepted GHG accounting
principles?
Interpretive response: Generally accepted GHG accounting principles guide
the accounting and reporting of GHG emissions so that reported information

represents a ‘true and fair’ account of an entity’s GHG emissions. These

principles are derived in part from generally accepted financial accounting and
reporting principles. [GHGP pp 6-7]

Excerpt from GHGP Corporate Standard [p 7]

GHG accounting and reporting shall be based on the following principles:

RELEVANCE Ensure the GHG inventory appropriately reflects the GHG

emissions of the company and serves the decision-making
needs of users – both internal and external to the
company.

COMPLETENESS Account for and report on all GHG emission sources and
activities within the chosen inventory boundary. Disclose
and justify any specific exclusions.

CONSISTENCY Use consistent methodologies to allow for meaningful

comparisons of emissions over time. Transparently
document any changes to the data, inventory boundary,
methods, or any other relevant factors in the time series.

TRANSPARENCY Address all relevant issues in a factual and coherent

manner, based on a clear audit trail. Disclose any relevant
assumptions and make appropriate references to the
accounting and calculation methodologies and data
sources used.

ACCURACY Ensure that the quantification of GHG emissions is

systematically neither over nor under actual emissions, as
far as can be judged, and that uncertainties are reduced as
far as practicable. Achieve sufficient accuracy to enable
users to make decisions with reasonable assurance as to
the integrity of the reported information.

There can be significant differences in emission sources, activities and

operations across all corporate emissions inventories. The GHGP does not seek
to anticipate or address the array of uniquely complex situations that may arise.
Instead, its principles are intended to guide judgmental decisions so that the
outcomes are unbiased, relevant to end users and transparently communicated.

It may not always be possible to apply all the principles equally. For example, an
entity may sacrifice some level of accuracy to develop a more complete
inventory, or vice versa. Decisions like this are guided by the entity’s reasons for
developing the inventory.

Question 2.3.40
How are GHG emissions estimated?

Interpretive response: GHG emissions may be measured using direct

emissions measurement – e.g. source-specific emission tests or continuous
emissions monitoring. Because this method does not require the use of
estimates, there is minimal uncertainty. However, this method is not always
feasible – e.g. it may be unavailable or prohibitively expensive. As a result, it is
common for emissions to be estimated.

Within each of the three scopes outlined in the GHGP, there are activities (e.g.
electricity consumption, transportation) that contribute to the release of GHGs.
The underlying data for these activities (e.g. meter invoice, mileage record) is
unique to each activity type. For example, a meter invoice might show MWh of
electricity usage and a mileage record might show the types of vehicles and the
actual distance traveled.

To make varied activities comparable (e.g. convert different units of measure),

GHG emissions are estimated by applying an emission factor to the
corresponding activity data.

An emission factor is a calculated ratio (e.g. MWh per metric tonne (mt) of CO2)
relating GHG emissions to a proxy measure of activity (e.g. tonnes of fuel
consumed, tonnes of product produced) at an emission source. [GHGP p 42]

The formula to estimate emissions of a certain GHG for a certain activity is:

Metric tonnes (mt) of gas = Activity data × Emission factor

Example 2.3.10
Direct measurement of GHG emissions
Power Generator directly measures scope 1 CO2 emissions at its facilities using
a continuous emissions monitoring system that continuously measures CO2
emitted into the atmosphere.

The use of this system relieves the need for Power Generator to gather activity
data and emission factors for calculating the scope 1 emissions CO2 at those
facilities.

Question 2.3.50
How are emissions from different GHGs reported in a
comparable way?
Interpretive response: To make the various GHGs (e.g. CH4, N2O) comparable
for reporting purposes, the concept of carbon dioxide equivalent (CO2e) was

introduced. This is a measure that converts amounts of other GHGs to the

equivalent amount of carbon dioxide (CO2). The conversion factor is known as
Global Warming Potential (GWP).

GWP reflects the varied ability of GHGs to trap heat in the atmosphere. Each
GHG is assigned a GWP representative of its heat trapping ability relative to
that of CO2. A higher GWP value means that more infrared radiation will be
absorbed by the gas and more energy will be added to the atmosphere, leading
to more warming.

The formula to calculate reported emissions is as follows:

tCO2e = Metric tonnes of a gas × GWP of the gas

Metric tonnes of each gas is used for consistency purposes.

GWP values are determined by the IPCC. See Question 5.2.30.

Question 2.3.60
What is a GHG inventory?

Interpretive response: A GHG inventory is in effect a listing (or accounting) of

all GHG emissions within an entity’s inventory boundary. As illustrated in the
roadmap diagram in the executive summary, an entity’s inventory boundary
comprises:

• all GHG emissions within its organizational boundary (see section 3.2); plus
• GHG emissions outside its organizational boundary that it elects to include
in its broader operational boundary (see section 4.2).

The purpose of a GHG inventory is to enable decision-making that supports the

entity’s GHG objectives. An entity may have one or many objectives for
developing a GHG inventory. The following are some examples: [GHGP p 10]

• manage GHG risks and identify reduction opportunities;

• strengthen stakeholder relationships by reporting and participating in
voluntary GHG programs;
• meet mandatory reporting requirements; and/or
• participate in GHG markets, whether mandatory or voluntary.

Developing a GHG inventory is a judgmental process guided by the GHG

principles and the entity’s GHG objectives. If an entity has multiple GHG
objectives, it may need to consider whether the GHG inventory should be
tailored to each objective.

Question 2.3.70
How does the GHGP fit into the current climate
reporting ecosystem?
Interpretive response: The GHGP is a universal language supporting the
development of multi-purpose GHG inventories. Because it has been
incorporated (either directly or indirectly) into many ESG-related reporting
frameworks and regulations, a GHGP-aligned inventory is often a key first step
on any ESG reporting journey.

An increasingly common objective for preparing a GHG inventory is to satisfy

voluntary or regulatory reporting requirements. The GHGP is the nexus of
climate-related reporting, providing a common thread that underlies various
forms of reporting.

While this handbook discusses the core concepts in developing a GHGP

aligned corporate emissions inventory, it also identifies where additional
considerations may be necessary depending on the ultimate use of the
inventory – e.g. for voluntary or regulatory reporting purposes.

Throughout this handbook, we briefly identify the relationship or links between

the GHGP and the following:

• IFRS S2, Climate-related Disclosures

• ESRS E1, Climate change

• SEC Rule, The Enhancement and Standardization of Climate-Related

Disclosures for Investors.

2.4 Project accounting

Question 2.4.10
What is GHG project accounting?

Interpretive response: GHG project accounting is the quantification and

reporting of GHG reductions from climate change mitigation projects (GHG
projects). Such projects can result in: [GHGP PA p 5]

• decreases in GHG emissions – e.g. using wind, solar and geothermal

energy sources as alternatives to natural gas or coal power plants; or

• increases in removals and/or storage of GHG emissions – e.g. planting

forests to absorb GHG emissions and sequestering carbon in underground
storage.

The GHGP Project Standard provides guidance on this kind of accounting,

which is separate and distinct from the accounting for GHG inventories that is

the focus of this handbook. However, project accounting is a key component of

emissions reductions programs and its role is discussed in section 10.2.

Question 2.4.20
What are the GHG project accounting principles?

Interpretive response: The same principles that underpin GHG corporate

inventories (see Question 2.3.30) also guide decision-making in the accounting,
quantification and reporting of project-based GHG reductions. These principles
are relevance, completeness, consistency, transparency and accuracy. [GHGP PA
pp 23-24]

GHG project accounting also incorporates the added principle of

‘conservativeness’, which calls for the use of conservative assumptions, values
and procedures where uncertainty is high. The intention of this principle is that
GHG reductions are not overestimated. [GHGP PA p 24]

3. Organizational boundary
Detailed contents
Item significantly updated in this edition #

3.1 How the GHGP works

3.2 Determining the organizational boundary
Questions
3.2.10 What is the organizational boundary?
3.2.20 What approaches are available in setting the organizational
boundary?
3.2.30 How are the financial and operational control approaches
applied when there is joint financial control?
3.2.40 How is the organizational boundary approach chosen?
3.2.50 Which boundary approach is most common in practice?
3.2.60 Does the organizational boundary prevent double counting?
Examples
3.2.10 Reporting joint venture emissions
3.2.20 Double counting emissions
Reporting landscape: ISSB Standards, ESRSs, SEC Climate rule
Organizational boundary #
3.3 Comparison to financial reporting
Question
3.3.10 Do the organizational boundary approaches align with the
reporting entity for financial statement purposes?
Example
3.3.10 Organizational boundary approaches

3.1 How the GHGP works

The first step toward reporting emissions is to determine the organizational
boundary.

Step 1 Define the organizational boundary

Gather the
Step 2 Classify sources of emissions
information
Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

The organizational boundary is equivalent to the ‘reporting entity’ concept in

preparing a set of financial statements. Once that boundary has been
determined, the sources of emissions to be reported can be identified. The
following excerpt from the roadmap diagram in the executive summary
highlights the organizational boundary as framing the scopes 1 and 2 emissions
that fall into the overall inventory boundary.

In setting an organizational boundary, the GHGP allows an entity-level selection

of a control approach or an equity share approach. Within the control approach,
there is a further option of a financial control or operational control approach.

These approaches drew on accounting standards in effect when the GHGP

Corporate Standard was developed. However, they cannot simply be equated to
the application of financial reporting standards even though the terms are very
familiar.

3.2 Determining the organizational boundary

Question 3.2.10
What is the organizational boundary?

Interpretive response: The organizational boundary determines which

emission-producing activities are owned or controlled by the entity and therefore
included in reporting its scopes 1 and 2 emissions. [GHGP p 100]

It is equivalent to the ‘reporting entity’ concept in preparing financial statements.

In setting an entity’s organizational boundary, the GHGP allows three choices

(see Question 3.2.20). The choice made by an entity is equivalent to an
accounting policy election in preparing financial statements.

Question 3.2.20
What approaches are available in setting the
organizational boundary?
Interpretive response: In setting an organizational boundary, the GHGP allows
an entity-level selection of a control approach or an equity share approach.
Within the control approach, there is a further option of a financial control or
operational control approach. [GHGP p 17]

Organizational boundary policy choice

or
Control approaches Equity share approach

or
Operational Financial

Under the control approaches (operational or financial), an entity accounts for

100% of the emissions over which it has control and does not account for any of
the emissions over which it does not have control. Under the equity share
approach, an entity reflects the GHG emissions consistent with its percentage of
economic interest. [GHGP p 17]

These approaches drew on accounting standards in effect when the GHGP

Corporate Standard was developed. There are two factors that contribute to the
fact that these approaches cannot simply be equated to the application of
financial reporting standards even though the terms are very familiar. First, the
standards in effect when the Corporate Standard were developed are different
from the standards in place today (not least under IFRS Accounting Standards

and US GAAP. Second, the guidance developed by the GHG has largely been
applied outside of the finance profession. See section 3.3.

The following table depicts key considerations under each approach. [GHGP pp
17-18]

Control
Operational Financial Equity share
Include over which the entity if the entity can based on the entity’s
operations… has full authority direct the policies share of economic
regarding operating with a view to interest.
policies. gaining economic
benefits.
Key question Does the entity Can the entity direct Does the entity have
introduce and financial and significant influence
implement the operating policies of or financial control
underlying operating the operation? over the operation’s
policies? policies?

An entity may have operational control even though it does not have financial
control. For example, an entity may have operational control over an equity
accounted investee over which it does not have financial control.

Having operational control does not imply that an entity has the authority to
make all decisions concerning an operation – e.g. large capital expenditures.
Often, decisions will require approval from parties with financial control.
However, operational control does mean that an entity has the authority to
introduce and implement operating policies. [GHGP p 18]

Under the equity share approach, the economic substance of an entity’s

connection to the business takes precedence over its formal ownership
structure, such that the emissions accounted for reflects the entity’s economic
interest. [GHGP p 17]

Question 3.2.30
How are the financial and operational control
approaches applied when there is joint financial control?
Interpretive response: The financial and operational control approaches are
applied differently when joint financial control exists over an operation. [GHGP p
18]

• When the financial control approach is applied, an entity accounts for its
emissions based on the equity share approach – i.e. based on its economic
interest.

• However, when the operational control approach is applied, an entity

assesses if it has operational control to determine if the operation should be
included in the organizational boundary – i.e. an all-or-nothing approach. If
no party with joint financial control has operational control in its own right,

none of the jointly controlling partners report any emissions from the
operation.

Example 3.2.10
Reporting joint venture emissions
Owner 1 and Owner 2 each have 50% ownership interest and joint financial
control in Joint Venture.

The following table illustrates how Joint Venture’s emissions are reported in
three scenarios.

Scenario Owner 1 Owner 2

Equity share or financial control approach 50% 50%
Operational control approach; Owner 1 has
100% 0%
operational control
Operational control approach; neither Owner
0% 0%
has operational control

Because each entity chooses its own approach, double counting can occur (see
Question 3.2.60).

Question 3.2.40
How is the organizational boundary approach chosen?

Interpretive response: Entities have flexibility in choosing an organizational

boundary approach. The decision generally aligns with the entity’s objectives in
applying the GHGP (see Question 2.3.60), but there is no specific requirement.

Because the approach supports the entity’s intended GHG inventory

applications, it is important to understand upfront the type of information needed
from the inventory. The best approach is one that allows an entity to analyze its
emissions in a way that is consistent with its reasons for conducting the
inventory in the first place – e.g. reporting requirements.

To meet different goals, an entity may develop more than one inventory using
different approaches. However, it is not appropriate to mix approaches in a
single inventory. Consistent application of a single approach leads to time-series
consistency (see chapter 9) and reduces (but does not eliminate) the likelihood
of double counting amongst multiple entities with a shared asset (see Question
3.2.60).

Question 3.2.50
Which boundary approach is most common in practice?

Interpretive response: In our experience, the operational control approach is

most common. Usually, operational control is chosen when an entity believes it
is most responsible for emissions within its operational control. An entity may
also believe these are the operations where it has the most influence over
reducing emissions.

Question 3.2.60
Does the organizational boundary prevent double
counting?
Interpretive response: No. Double counting occurs when two different entities
include the same emissions in their respective inventories.

Although the GHGP is designed to prevent double counting of emissions

between different entities within scopes 1 and 2, it can still occur in certain
scenarios. For example, when two or more entities share ownership of an
operation but choose different organizational boundary approaches. [GHGP p 20]

Double counting can be avoided if the entities coordinate their choice of

approach, but generally this is not practical.

Avoiding double counting is important for trading schemes and certain

mandatory government reporting schemes, which are outside the scope of this
handbook. [GHGP p 20]

However, for many entities applying the GHGP, the goal is to accurately gather
an inventory of emissions to facilitate a strategy to reduce them. Therefore,
double counting between entities is often less important.

Example 3.2.20
Double counting emissions
Hotelier and Partner both have ownership in Hotel with a 60%, 40% ownership
structure. Hotelier also has operational control over Hotel, which had GHG
emissions of 20,000 tCO2e during the year.

The organizational boundary approach chosen by Hotelier is operational control,

and therefore it includes 100% of Hotel’s emissions in its inventory. Partner
chooses the equity share approach and it includes 40% of Hotel’s emissions.

Both entities are accounting for Hotel’s emissions, which means that 140% of
Hotel’s emissions are being recognized. Therefore, Hotel’s emissions are

double counted and overrepresented across the two entities based on their
selected organizational boundary approaches.

Hotelier Partner Total

Hotel ownership 60% 40%
Operational control? Yes No
Organizational boundary Operational
Equity share
approach control
% Hotel emissions reported 100% 40% 140%
Reported emissions (tCO2e) 20,000 8,000 28,000

Reporting landscape#
Organizational boundary
As shown in the following table, each standard or rule deals with the
organizational boundary in a different way.

ISSB Standards ESRSs SEC Climate Rule

An entity applies any of An entity’s organizational No specific approach

the three approaches in boundary consists of: prescribed.
the GHGP – i.e.
• the consolidated However, an entity
operational control,
accounting group (the describes the
financial control or equity
parent and organizational boundary
share approach.
[IFRS S2.B27] subsidiaries); and used and, if applicable,
[ESRS E1.50(a)] briefly explains any
An entity discloses its material differences
chosen approach, the • investees1 and joint between the organizational
reasons for that choice arrangements2 for boundary and the scope of
and how it enables an which the entity has entities and operations
understanding of the operational control. included in the
entity’s performance in [ESRS E1.50(b)]
consolidated financial
relation to climate-related For investees and joint statements.
risks and opportunities, arrangements for which [§229.1505(b)(1)(i)]
including progress toward the entity does not have
any climate-related operational control, their
targets. scopes 1, 2 and 3 GHG
[IFRS S2.27, B27(a)-(b)] emissions are included in
the entity’s scope 3
emissions to the extent
they are part of the entity’s
value chain.
[ESRS E1.AR46(h)(iii)]

Notes:
1. Associates, joint
ventures and
unconsolidated

ISSB Standards ESRSs SEC Climate Rule

subsidiaries that are not
fully consolidated in the
financial statements of the
consolidated accounting
group. [ESRS E1.46, 50(b)]
2. Contractual
arrangements that are joint
arrangements not
structured through an
entity (i.e. jointly controlled
operations and assets).
[ESRS E1.46, 50(b)]

3.3 Comparison to financial reporting

Question 3.3.10
Do the organizational boundary approaches align with
the reporting entity for financial statement purposes?
Interpretive response: It depends. The descriptions of operational control,
financial control and equity share in the GHGP may vary from the definitions
used in financial reporting standards. While there could be alignment between
the consolidation approach used for emissions accounting and the financial
statements, this outcome would be more by coincidence than design, and an
analysis of an entity’s circumstances would be required.

Example 3.3.10
Organizational boundary approaches
Scenario 1: Single-level consolidation

Parent has the following ownership interests in Subsidiary, Joint Venture and
Associate (or equity method investee).

Parent

80% 50% 20%

Sub JV Asso

These investees are classified as follows in the financial statements and for
purposes of the GHGP.

Sub JV Asso
Ownership interest 80% 50% 20%
Financial statement classification Subsidiary Joint venture Associate
GHGP entity type Subsidiary Joint venture Associate
Operational control? Yes No Yes

Parent accounts for GHG emissions from each investee differently depending
on the chosen organizational boundary approach.

Approach Sub JV Asso

Equity share 80% 50% 20%
Financial control 100% 50% 0%
Operational control 100% 0% 100%

Scenario 2: Multi-level consolidation

Parent also has an ownership interest in Small Subsidiary, Small Joint Venture
and Small Associate (or equity method investee) through Subsidiary.

Parent

80%

Sub JV Asso

80% 50% 30%

Small Small Small

Sub JV Asso

These additional investees are classified as follows in the financial statements

and for purposes of the GHGP.

Small Sub Small JV Small Asso

Subsidiary’s ownership interest 80% 50% 30%
Financial statement classification Subsidiary Joint venture Associate
GHGP entity type Subsidiary Joint venture Associate
Operational control? Yes Yes No

From the perspective of Parent, the following GHG emissions for the investees
would be reported under each organizational boundary approach.

Approach Small Sub Small JV Small Asso

Equity share1 64% 40% 24%
Financial control 100% 50% 0%
Operational control 100% 100% 0%
Note:
1. The equity share portion of emissions is calculated as Parent’s ownership interest
of Subsidiary (80%) multiplied by each of the Subsidiary’s ownership interests –
Small Sub (80%), Small JV (50%) and Small Asso (30%).

4. Operational boundary
Detailed contents
Item significantly updated in this edition #

4.1 How the GHGP works

4.2 Determining the operational boundary
Questions
4.2.10 What is the operational boundary?
4.2.20 What is the inventory boundary?
4.2.30 What are direct GHG emissions?
4.2.40 What are indirect GHG emissions?
4.2.50 How is the operational boundary chosen?
4.2.60 Which scope 3 categories are included in the operational
boundary?
Examples
4.2.10 Choosing an operational boundary (within scope 3)
4.2.20 Relationship between the organizational and operational
boundaries
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Scope 3 categories #
4.3 Contractual arrangements, including leases
Questions
4.3.10 What are the operational boundary considerations for
contractual arrangements?
4.3.20 How are leasing arrangements considered within the
operational boundary?

4.1 How the GHGP works

The second step toward reporting emissions comprises two parts. This chapter
discusses the operational boundary, while chapters 6 to 8 discuss scopes 1, 2
and 3 emissions.

Step 1 Define the organizational boundary

Classify sources of emissions:

Gather the
Step 2 • Define the operational boundary
information
• Identify and categorize emissions

Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

The operational boundary comprises all sources of emissions within the

organizational boundary plus scope 3 categories at the discretion of the entity.
The following excerpt from the roadmap diagram in the executive summary
illustrates business travel (but not the other scope 3 categories) being included
in the operational boundary. Together, the organizational boundary and the
operational boundary are called the inventory boundary.

4.2 Determining the operational boundary

Excerpt from GHGP Corporate Standard [p 26]

Setting operational boundaries

An operational boundary defines the scope of direct and indirect emissions for
operations that fall within a company’s established organizational boundary.
The operational boundary (scope 1, scope 2, scope 3) is decided at the
corporate level after setting the organizational boundary. The selected
operational boundary is then uniformly applied to identify and categorize direct
and indirect emissions at each operational level. The established organizational
and operational boundaries together constitute a company’s inventory
boundary.

Question 4.2.10
What is the operational boundary?

Interpretive response: The operational boundary determines the direct and

indirect emissions associated with operations owned or controlled by the entity.
The entity identifies which operations and sources cause direct (see Question
4.2.30) and indirect emissions (see Questions 4.2.40 and 4.2.50) and decides
which indirect (scope 3) emissions to include. [GHGP p 100]

Once an entity has determined its organizational boundary (see section 3.2), it
then:

• defines its operational boundary – i.e. determines which, if any, scope 3

emissions to include in its emissions inventory; and
• identifies and categorizes the emissions-generating activities to include in its
scope 1, 2 and 3 emissions.

Question 4.2.20
What is the inventory boundary?

Interpretive response: As illustrated in the roadmap diagram in the executive

summary, an entity’s inventory boundary comprises:

• all GHG emissions within its organizational boundary (see chapter 3); plus
• GHG emissions outside its organizational boundary that it elects to include
in its broader operational boundary.

The inventory boundary may vary from entity to entity depending on the scope 3
categories the entity elects to include in its operational boundary.

Question 4.2.30
What are direct GHG emissions?

Interpretive response: Direct GHG emissions are emissions from sources that
are owned or controlled by the entity. These are known as scope 1 emissions.
See section 6.2. [GHGP p 25]

Question 4.2.40
What are indirect GHG emissions?

Interpretive response: Indirect GHG emissions are emissions that are a

consequence of the activities of the entity but occur at sources owned or
controlled by another entity. Indirect GHG emissions are further subdivided into
scope 2 and scope 3. [GHGP p 25]

• Scope 2 accounts for indirect emissions from the consumption of purchased

or acquired electricity, heat, steam or cooling (see section 7.2). [GHGP S2 p
34]

• Scope 3 includes all emissions not within an entity’s scopes 1 and 2

organizational boundary but within the entity’s value chain. Scope 3
emissions are identified as upstream or downstream emissions. [GHGP S3 p
29]

— Upstream emissions are indirect GHG emissions related to the

purchase of goods and/or services.
— Downstream emissions are indirect GHG emissions related to the use
of products and/or services.

The GHGP Scope 3 Standard categorizes scope 3 emissions into 15 distinct

categories. The categories are designed to be mutually exclusive, resulting in no
double counting between categories or scopes 1 and 2 emissions.

The following table is a list of the 15 categories. [GHGP S3 p 32]

Upstream Downstream
1. Purchased goods and services 9. Downstream transportation
2. Capital goods and distribution
3. Fuel- and energy-related activities (not 10. Processing of sold products
included in scope 1 or 2) 11. Use of sold products
4. Upstream transportation and distribution 12. End-of-life treatment of sold
5. Waste generated in operations products

Upstream Downstream
6. Business travel 13. Downstream leased assets
7. Employee commuting 14. Franchises
8. Upstream leased assets 15. Investments

Chapter 8 discusses each category.

Question 4.2.50
How is the operational boundary chosen?

Interpretive response: An entity determines, on the basis of its business goals

and obligations, whether to account for: [GHGP p 25]

• scope 1 and scope 2 emissions only; or

• some or all of the scope 3 categories relevant to its operations in addition to
its scopes 1 and 2 emissions (see Question 4.2.60).

Question 4.2.60
Which scope 3 categories are included in the
operational boundary?
Interpretive response: Absent a reporting (e.g. regulatory) requirement, the
following steps may guide an entity in determining which scope 3 categories to
include in its inventory. [GHGP pp 30-31]

1. Understand the value chain and identify the associated GHG sources.

2. Determine which scope 3 categories are relevant in terms of size,

contributions to GHG risk exposure, stakeholder attention or potential
emissions reductions.

3. Identify partners that contribute potentially significant amounts of GHGs

along the value chain – e.g. customers, product manufacturers, energy
providers.

4. Quantify scope 3 emissions – e.g. estimate the relative magnitude to

support an entity in selecting the categories to include in its inventory
boundary. See chapter 8.

To determine which scope 3 categories to include in the inventory, the entity

may consider reporting requirements or relevance of categories in terms of size,
risk exposure, stakeholder attention or potential emissions reductions. Data
availability and reliability is also a consideration. The GHGP does not provide
any materiality threshold that allows for the exclusion of emissions from any
particular source or activity. In our experience, given the possibility of insufficient
data quality (e.g. due to lack of data or prohibitive cost of gathering data),
entities need to find the balance between inventory quality and completeness.

In our experience, common scope 3 categories included in corporate GHG

inventories are purchased goods and services (category 1), business travel
(category 6) and employee commuting (category 7). In particular, categories 6
and 7 represent a common starting point for many entities because the
underlying activity data tends to be more readily available and easily accessible
than some of the other categories. The categories that represent the greatest
risks and priorities will vary by sector.

The example in Appendix B illustrates how select scope 3 categories might be

presented.

Reporting landscape#
Scope 3 categories
As shown in the following table, each standard or rule deals with scope 3
disclosures differently.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses which An entity discloses each No required scope 3

of the 15 categories of significant scope 3 emissions disclosures.
emissions as defined in category. [ESRS E1.51] However, reporting scope
the Scope 3 Standard are 3 emissions on a voluntary
The assessment of
included in its scope 3 basis is not precluded.
significance is based on
emissions. [§229.1505(a)(1), Section
[IFRS S2.29(a)(vi)]
the magnitude of H.3.c]
estimated GHG emissions
The categories included and other criteria such as
will depend on the entity’s financial spend, influence,
facts and circumstances. related transition risks and
The entity is required to opportunities, or
consider the relevance of stakeholder views.
all 15 categories. [ESRS E1.AR46(d)]
[IFRS S2.B32, BC110]
An entity discloses a list of
included and excluded
scope 3 emissions with
justification for excluded
categories.
[ESRS E1.AR46(i)]

Example 4.2.10
Choosing an operational boundary (within scope 3)
Hotel has already identified the emissions-generating activities to include in its
operational boundary for the purposes of determining scopes 1 and 2
emissions. Hotel is now determining the categories of scope 3 emissions to
include in its operational boundary.

Hotel prioritizes scope 3 data collection efforts toward activities expected to

have the most GHG emissions and offer the highest reduction opportunities.
Based on its value chain understanding, Hotel ranks each scope 3 activity from
highest expected emissions to lowest expected emissions.

In addition to the expected amount of emissions, Hotel uses the following

factors to help determine which scope 3 categories to voluntarily include in its
inventory boundary.

• Higher priority scope 3 emissions sources are those Hotel could influence
reductions through:
— changes to sourcing decisions and using fewer resources – e.g.
switching vendors for purchased goods, services and capital goods;
— product design changes – e.g. switching shampoo containers from small
disposable plastic bottles to large refillable pumps; or
— employee incentive programs – e.g. business travel, commuting.

• Lower priority scope 3 emissions sources are sources that are extraneous
to Hotel’s corporate emissions goals.

As a result of its assessment, Hotel selects the following scope 3 categories to

include in its inventory because it has the greatest ability to influence reductions
in these areas:

• Category 1: Purchased goods and services

• Category 2: Capital goods
• Category 5: Waste generated in operations
• Category 6: Business travel
• Category 14: Franchises.

Hotel

Selected scope 3
Scope 1 Scope 2
categories: 1, 2, 5, 6, 14

Organizational boundary Operational boundary

Example 4.2.20
Relationship between the organizational and operational
boundaries
Hotel has the following ownership interest in three investees.

• Hotel has a 100% ownership interest in the US entity.

• The EU and Asia entities are operated by an affiliated luxury brand.

Hotel

40% 100% 30%

EU entity US entity Asia entity

To develop its GHG inventory boundary, Hotel first defines its organizational
boundary, then defines its operational boundary and finally identifies the
relevant emissions to include.

Step 1: Organizational boundary

Hotel determines its organizational boundary using the operational control

approach (see section 3.2).

• Hotel has operational control over the US entity and therefore includes it in
its organizational boundary.

• Hotel does not have operational control over the EU or Asia entities and
therefore does not include them in its organizational boundary.

Hotel
Organizational boundary

EU entity US entity Asia entity

Step 2(a): Operational boundary

Hotel is required to include scopes 1 and 2 emissions in its operational

boundary.

In addition, Hotel voluntarily decides to include the following scope 3 categories

in its operational boundary: purchased goods and services (category 1), capital
goods (category 2), waste generated in operations (category 5), business travel
(category 6) and franchises (category 14).

Step 2(b): Identify and categorize emissions

Based on the organizational and operational boundaries, Hotel and the US

entity have identified the following sources of emissions.

• Hotel owns and operates its head office building and a fleet of jets for
executive travel.

• US entity owns and operates a building and a fleet of vehicles for employee
travel.

As a result, the following depicts Hotel’s operational boundary and shows the
inventory boundary as the organizational and operational boundaries together.

Hotel

US entity

Buildings
Head office Car fleet Jet fleet
(owned)

Selected scope 3
Scope 1 Scope 2
categories: 1, 2, 5, 6, 14

Organizational boundary Operational boundary

Inventory boundary

Although EU entity and Asia entity are not part of Hotel’s organizational
boundary, they may be part of Hotel’s value chain. For example, the EU entity
sells its own branded mattresses, linens and bath products to US entity for use
in its hotels. To the extent such relationships are within Hotel’s selected scope 3
categories, emissions related to those relationships will be included in Hotel’s
operational boundary.

4.3 Contractual arrangements, including leases

Question 4.3.10
What are the operational boundary considerations for
contractual arrangements?
Interpretive response: The classification of scopes 1, 2 and 3 emissions for
contractual arrangements (e.g. leased assets, outsourcing, franchises) depends
on the entity’s chosen approach selected for setting the organizational boundary
(see chapter 3). [GHGP p 31]

If, based on the chosen approach, the entity excludes certain contractual
arrangements from its organizational boundary – e.g. because it has chosen the
operational control approach and it does not have operational control over
certain franchises – the entity may still include the emissions from those
contractual arrangements in scope 3. [GHGP p 31]

Question 4.3.20
How are leasing arrangements considered within the
operational boundary?
Interpretive response: To determine how emissions from leased assets are
accounted for in an entity’s GHG inventory, the Scope 3 Standard provides the
following guidance: [GHGP S3 p124]

1. Understand the types of leases relevant to the entity – finance or capital

leases, and operating leases.

2. Determine whether the emissions associated with the leased assets are
categorized as scope 1, 2 or 3 by the entity.

Emissions from leased assets are only classified as scope 3 if the selected
organizational approach (equity or control) does not apply to them. [GHGP p 29]

The following table, adapted from the GHGP Scope 3 Standard, illustrates
leasing agreements and boundaries. [GHGP S3 pp 124-125]

Type of leasing arrangement

Financial/capital lease Operating lease
Lessee has ownership and Lessee does not have ownership
financial control. or financial control.
• Emissions associated with fuel • Emissions associated with fuel
combustion are scope 1. combustion and use of
Equity • Emissions associated with use purchased electricity are scope
share or of purchased electricity are 3 (upstream leased assets).
financial scope 2. Lessor has ownership and
control Lessor does not have ownership financial control.
approach or financial control. • Emissions associated with fuel
used combustion are scope 1.
• Emissions associated with fuel
combustion and use of • Emissions associated with use
purchased electricity are of purchased electricity are
scope 3 (downstream leased scope 2.
assets).
Lessee has operational control. Lessee has operational control.
• Emissions associated with fuel • Emissions associated with fuel
combustion are scope 1. combustion at sources in the
• Emissions associated with use leased space are scope 1.
of purchased electricity are • Emissions associated with use
Operational
scope 2. of purchased electricity are
control
Lessor does not have scope 2.1
approach
used operational control. Lessor does not have operational
• Emissions associated with fuel control.
combustion and use of • Emissions associated with fuel
purchased electricity are combustion and use of
scope 3 (downstream leased purchased electricity are scope
assets). 3 (downstream leased assets).2

Notes:
1. If an entity is able to demonstrate that it does not have operational control over a
leased asset held under an operating lease, it may report emissions from the
leased asset as scope 3, with appropriate disclosure.
2. If an entity is able to demonstrate that it has operational control over an asset
leased to another entity under an operating lease, it may report emissions from
fuel combustion as scope 1 and emissions from the use of purchased electricity
as scope 2, with appropriate disclosure.

In our experience, there is some diversity in practice regarding the interpretation

of this guidance, not least because the leasing standards under both IFRS
Accounting Standards and US GAAP (IFRS 16 and ASC 842, respectively)
have been updated and leases (subject to some exceptions) generally are now
on-balance sheet.

5. Emissions calculations
Detailed contents
Item significantly updated in this edition #
New item added in this edition **

5.1 How the GHGP works

5.2 Components of the calculation
Questions
5.2.10 What are the steps in identifying and calculating GHG
emissions?
5.2.20 What is the formula for estimating GHG emissions?
5.2.30 What is a GWP value?
5.2.40 Which GWP values are used?
5.2.50 What is uncertainty in a GHG inventory?
5.2.60 Does the GHGP allow for any exclusions?
5.2.70 Are the latest available emission factors required for
calculating GHG emissions? **
Examples
5.2.10 Estimating emissions
5.2.20 Updating emission factors **
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
GWP values #

5.1 How the GHGP works

The third step toward reporting emissions is to perform the calculations based
on all emissions in the inventory boundary.

Step 1 Define the organizational boundary

Gather the
Step 2 Classify sources of emissions
information
Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

This chapter provides an overview of how the calculations are performed,

explaining the components of the following formula:

tCO2e = Activity data × Emission factor × GWP

Tonnes of CO2 Estimated measure Factor applied to Multiplier that
equivalent of activity related to make varied makes different
a specific activities GHGs comparable
emissions source comparable

This chapter provides context for the discussion in chapters 6 to 8, which

explain how to identify and measure the emissions in scopes 1 and 2, and in the
15 categories within scope 3.

5.2 Components of the calculation

Question 5.2.10
What are the steps in identifying and calculating GHG
emissions?
Interpretive response: There are five steps in identifying and calculating an
entity’s GHG emissions. [GHGP pp 41-47]

1. Identify GHG emissions sources in the inventory boundary and categorize

them as scope 1, 2 or 3 (see chapters 6 to 8). The following categories of
sources typically produce GHG emissions. [GHGP p 41]

Combustion of fuels in stationary equipment

Stationary combustion
– e.g. furnaces, boilers, heaters
Combustion of fuels in transportation devices
Mobile combustion
– e.g. automobiles, airplanes
Emissions from physical or chemical processes
Process emissions
– e.g. aluminum smelting
Intentional and unintentional releases
Fugitive emissions
– e.g. equipment leaks

2. Select a calculation approach – e.g. direct measurement or estimation using

an emission factor (see Question 2.3.40).

3. Collect data and choose emission factors (see Question 2.3.40).

4. Apply calculation tools – either cross-sector or sector-specific tools. [GHGP pp

42-43]

5. Roll-up individual data (e.g. facilities, countries, business divisions) to

corporate level. This is done using a centralized or decentralized approach.
[GHGP pp 45-47]

Question 5.2.20
What is the formula for estimating GHG emissions?

Interpretive response: When direct measurement is unavailable (see Question

2.3.40), GHG emissions (tonnes per CO2 equivalent) are estimated for each gas
within each scope using the following formula:

tCO2e = Activity data × Emission factor × GWP

Activity data is the estimated measure of activity related to a specific emissions

source, and emission factors are applied so that varied activities can be
compared.

Emission factors may be provided in various units – e.g. pounds CO2 per MWh,
kilograms of CO2 per mile. Therefore, there may be an additional step in this
calculation that involves a conversion factor – e.g. to convert pounds to tonnes.

These concepts are discussed in relation to each scope or category (scope 3) in

the following sections or Questions.

Activity data Emission factors

Scope 1 Section 6.2 Section 6.2
Scope 2 Question 7.2.40 Question 7.2.50
Scope 3 Question 8.2.40 Question 8.2.50

Questions 2.3.50 and 5.2.40 discuss the selection of GWP values, which
convert different GHGs into the equivalent of CO2. GWP values are determined
by gas regardless of scope.

Example 5.2.10
Estimating emissions
Hotel determines there are sources within its organizational boundary that emit
direct emissions of CO2, CH4 and N2O. Hotel estimates total scope 1 emissions
using the following formula.

Gas Activity Emission GWP Total

Data Factor
CH4 AD × EF × GWP = tCO2e
+
CO2 AD × EF × GWP = tCO2e
+
N2O AD × EF × GWP = tCO2e
=
Total Scope 1 tCO2e

Hotel repeats this formula to estimate emissions for scope 2 (market-based and
location-based) and scope 3 (for each category within its chosen operational
boundary).

Question 5.2.30
What is a GWP value?

Interpretive response: To reflect the varied ability of GHGs to trap heat in the
atmosphere, each GHG is assigned a GWP representative of its heat trapping
ability relative to CO2 (which has a GWP of 1).

A higher GWP value means that more infrared radiation will be absorbed by the
gas and more energy will be added to the atmosphere, leading to more
warming. For example, in the sixth IPCC assessment report, the 100-year GWP
was 27 for CH4 (non-fossil), 29.8 for CH4 (fossil) and 273 for N2O. This is
because both gases trap more heat than CO2 and N2O traps more than CH4.

By assigning GWP values, the emissions impacts of different GHGs are

comparable.

GWPs are calculated over certain time periods, typically 20, 100 and 500 years.

As updated scientific estimates become available, the IPCC periodically updates

GWP values with each of its scientific assessment reports. The following table
summarizes a timeline of the IPCC’s assessment report updates and where the
GWP values can be found within each report.

Assessment
Report title Reference to GWP table
report
Climate Change 2021:
Sixth Chp 7, Table 7.15
The Physical Science Basis
Climate Change 2013:
Fifth Chp 8, Table 8.A.1
The Physical Science Basis
Climate Change 2007:
Fourth Chp 2, Table TS.2
The Physical Science Basis
Climate Change 2001:
Third Chp 6, Table 6.7
The Scientific Basis
Climate Change 1995:
Second Chp 2, Table 2.9
The Science of Climate Change

For each IPCC assessment report, there is a corresponding synthesis report

intended to synthesize and integrate materials contained in the assessment
reports and other special reports. The Sixth Synthesis Report was released in
March 2023.

Question 5.2.40
Which GWP values are used?

Interpretive response: The GHGP provides the following guidelines on

choosing GWP values. [GHGP G p 1]

Required

• Use 100-year GWP values from the IPCC

• Use GWPs from a single assessment report for any one inventory
• Report the source of the GWP values

Encouraged

• Use GWP values from the most recent assessment report – currently the
sixth assessment report
• Use the same GWPs for the current inventory period and the base year

In applying the GHGP, entities may deviate from the above if necessary. For
example, if GWPs for a particular gas are not provided in the chosen
assessment report, the entity may find it necessary to use multiple reports.
Disclosure of GWP values is required (see Appendix A).

Entity usage of GWP values may depend on jurisdictional requirements.

Reporting landscape#
GWP values
As shown in the following table, both ISSB Standards and ESRSs are more
prescriptive than the GHGP.

ISSB Standards ESRSs SEC Climate Rule

An entity uses GWP An entity uses the most No required source of

values based on a 100- recent GWP values GWP values. [§229.1500]
year time horizon from the published by the IPCC
latest IPCC assessment based on a 100-year time
available at the reporting horizon. [ESRS E1.AR39(d)]
date. [IFRS S2.B21]

Question 5.2.50
What is uncertainty in a GHG inventory?

Interpretive response: Uncertainty is a measure of data quality. Uncertainties

associated with GHG inventories can be categorized as follows. [GHGP pp 54-55]

• Scientific uncertainty arises when the science of the actual emission is not
completely understood – e.g. GWPs involve scientific uncertainty.

• Model estimation uncertainty refers to the uncertainty associated with the

mathematical equations used to estimate GHG emissions – e.g. statistical
models.

• Parameter estimation uncertainty refers to the uncertainty associated with

quantifying the parameters used as inputs into estimation models – e.g.
activity data and emission factors.

In our experience, most entities focus on estimating parameter uncertainty

because the estimation of scientific uncertainty and model uncertainty is highly
technical. The GHGP has developed supplementary guidance and calculation
tools to support ‘uncertainty assessments’. [GHGP p 56]

These assessments provide feedback on inventory quality. By understanding

the uncertainties inherent in GHG emissions data, the entity may assess
appropriate use of data and identify opportunities to improve data collection.

The example in Appendix B includes disclosure related to the use of estimates

and estimation uncertainties.

Question 5.2.60
Does the GHGP allow for any exclusions?

Interpretive response: Entities are required to disclose any specific exclusions

of sources, facilities and/or operations from their reported emissions. [GHGP p 63]

Consistent with the completeness principle (see Question 2.3.30), an inventory

includes all relevant emissions sources within the chosen organizational
boundary. Consistent with the transparency principle (see Question 2.3.30), an
entity transparently documents and justifies any instances where emissions
have not been estimated or are estimated at an insufficient level of quality – e.g.
due to lack of data, prohibitive cost of gathering data.

If an entity is unable to obtain certain data, the entity may disclose and justify
such exclusions and still report in accordance with the GHGP. See Appendix A.

Question 5.2.70**
Are the latest available emission factors required for
calculating GHG emissions?
Interpretive response: We believe an entity may develop a reasonable policy
for the frequency of updating the emission factors required for calculating its
GHG emissions that balances the following:

• the conceptual principle of achieving sufficient accuracy to support the

integrity of the reported information (see Question 2.3.30); with

• the practical need to allow sufficient time for the data required for
calculations to be incorporated into the underlying systems.

Although the GHGP recommends using the latest available emission factors
(data) at the date of publishing GHG emissions, it does not require them. In
addition, the GHGP strives to achieve ‘sufficient’ rather than ‘absolute’ accuracy.
[GHGP pp 7, 62]

Therefore, because using the latest available emission factors could result in
practical difficulties – e.g. continuous monitoring for emission factor updates
until the GHG report is issued – we believe an entity may develop a reasonable
policy (e.g. annual update of emission factors) and apply that policy
consistently.

Example 5.2.20**
Updating emission factors
Hotel is calculating GHG emissions for the year ended December 31, 2023,
which will be published in April 2024. Hotel has determined that EPA eGRID
factors and UK BEISA emission factors are the most appropriate.

Hotel applies the following policy, which it discloses in its GHG emissions report:
“Emission factors are updated in October each year based on the latest
available factors.”

This policy of updating emission factors in the last quarter of the year allows
Hotel time to embed the latest inputs into its calculations. Practically, this means
that Hotel used the following in calculating GHG emissions for the year ended
December 31, 2023.

Source Date published Rationale for use

EPA eGRID January 2023 (based Representative of the most up-to-date
factors on 2021 data) inputs as of October 2023
UK BEISA Website indicates they should be used
June 2023
emission factors for calculating 2023 GHG emissions

6. Scope 1 emissions
Detailed contents
Item significantly updated in this edition #

6.1 How the GHGP works

6.2 Identifying and measuring scope 1 emissions
Questions
6.2.10 What are scope 1 emissions?
6.2.20 How are scope 1 emissions calculated?
Examples
6.2.10 Identifying scope 1 emissions
6.2.20 Calculating scope 1 emissions
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Scope 1 emissions #

6.1 How the GHGP works

Having provided an overview of how emissions are calculated in chapter 5, this
chapter looks more closely at scope 1 emissions: what they are in the context of
identifying and categorizing emissions (part of Step 2) and calculating emissions
(Step 3).

Step 1 Define the organizational boundary

Classify sources of emissions:

Gather the
Step 2 • Define the operational boundary
information
• Identify and categorize emissions

Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

Unlike scopes 2 and 3, scope 1 emissions are direct – i.e. they are from sources
that are owned or controlled by the entity – and therefore occur within the
organizational boundary.

6.2 Identifying and measuring scope 1 emissions

Question 6.2.10
What are scope 1 emissions?

Interpretive response: Scope 1 emissions are emissions from sources that are
owned or controlled by the entity. They are principally the result of the following
types of activities undertaken by the entity. [GHGP pp 25, 27]

Activities Source of emissions

Generation of
Combustion of fuels in stationary sources – e.g. boilers,
electricity, heat or
furnaces, turbines
steam
Physical or chemical Manufacture or processing of chemicals and materials –
processing e.g. cement, aluminum, waste processing
Transportation of Combustion of fuels in entity-owned or controlled mobile
materials, product, combustion sources – e.g. trucks, trains, ships,
waste and employees airplanes, buses, cars
Intentional or unintentional releases – e.g. equipment
leaks from joints; HFC emissions during the use of
Fugitive emissions
refrigeration and air conditioning equipment; methane
leakages from gas transport

Emissions associated with the sale of own-generated electricity to another entity

are not deducted/netted from scope 1 (see section 7.2). [GHGP p 27]

Excerpt from GHGP Corporate Standard [p 41]

Identify scope 1 emissions

Process emissions are usually only relevant to certain industry sectors like oil
and gas, aluminum, cement, etc.

Manufacturing companies that generate process emissions and own or control

a power production facility will likely have direct emissions from all the main
source categories.

Office-based organizations may not have any direct GHG emissions except in
cases where they own or operate a vehicle, combustion device, or refrigeration
and air-conditioning equipment.

Example 6.2.10
Identifying scope 1 emissions
During the year, Hotel operated one jet for executive travel. This jet operates on
kerosene jet fuel, which, as it burns, emits CO2, CH4 and N2O. Because this jet
is owned and operated by Hotel, the emissions from the fuel burned in this asset
are reported as scope 1 emissions.

Occasionally, Hotel executives travel for business on commercial jets that are
not owned or operated by Hotel. Hotel includes these emissions in scope 3-
category 6 (business travel). See section 8.8.

Question 6.2.20
How are scope 1 emissions calculated?

Interpretive response: Following the standard formula (see Question 5.2.20),

scope 1 emissions are calculated based on activity data and emission factors.
For many entities, scope 1 emissions are calculated based on the purchased
quantities of commercial fuels – e.g. natural gas, heating oil. [GHGP p 42]

The Environmental Protection Agency (EPA) provides guidance on calculating

scope 1 emissions related to stationary combustion, mobile combustion and
fugitive emissions. Based on this guidance, an entity may gather activity data
from the following sources.

Type Description Activity data

Fuel burned in buildings or Fuel measurement system data,
Stationary
equipment owned or operated by fuel purchase records – e.g.
combustion
the entity – e.g. boilers monthly utility bills
Fuel purchased for owned or Fuel type, fuel use, distance
Mobile leased vehicles (see Question traveled, fuel economy, vehicle
combustion 4.3.20) and mobile equipment – type, emissions control
e.g. cars technology and/or model year
Chemicals released from air
Inventory records, purchase
Fugitive conditioning, refrigeration or fire
records, repair reports, service
emissions suppression equipment owned or
records, disposal records
controlled by the entity

The GHGP website provides calculation tools that can be used by entities at
their discretion. For example, the stationary combustion tool provides default
fuel and national average electricity emission factors. The mobile combustion
tool provides emission factors for road, air, water and rail transport. [GHGP p 44]

Example 6.2.20
Calculating scope 1 emissions
Continuing Example 6.2.10, to calculate the scope 1 emissions associated with
its corporate jet, Hotel gathers the following information.

Activity data Per fuel receipts, the volume of fuel combusted is 120,000 gallons
Emission factor Per the EPA, the jet fuel emission factor is 9.75 kg CO2/gal
Activity data × Emission factor = tCO2e
120,000 gallons × 9.75 kg CO2e/gal × 0.001 t/kg = 1,170 tCO2e
Calculation of
Because the fuel combusted is already measured in CO2, the
CO2 emissions
GWP is 1 and therefore not included in the above formula (see
Question 5.2.30). The factor applied here of 0.001 mt/kg is
converting kgs to tonnes.

Hotel performs a similar calculation to determine the amount of CH4 and N2O
emissions associated with the corporate jet. For these GHGs, Hotel adjusts the
formula to multiply by the appropriate GWP to convert the CH4 and N2O
emissions to CO2e.

Reporting landscape#
Scope 1 emissions
As shown in the following table, unlike ISSB Standards and ESRSs, the SEC
includes a materiality screen to the scope 1 disclosure.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses its An entity discloses its An entity – that is a large

gross scope 1 emissions. gross scope 1 emissions. accelerated filer or
[IFRS S2.29(a)(i)(1)] [ESRS E1.44(a)] accelerated filer (other
than a smaller reporting
company or emerging
growth company) –
discloses its gross scope 1
emissions if material.
[§229.1505(a)(1), Section
H.3.b]

7. Scope 2 emissions
Detailed contents
Item significantly updated in this edition #

7.1 How the GHGP works

7.2 Identifying and measuring scope 2 emissions
Questions
7.2.10 What are scope 2 emissions?
7.2.20 How is energy generation and distribution classified into the
different scopes?
7.2.30 What are the methods of accounting for scope 2 emissions?
7.2.40 What activity data supports scope 2 emissions?
7.2.50 Which emission factors are used to calculate scope 2
emissions?
7.2.60 What are the Scope 2 Quality Criteria?
7.2.70 When does the market-based method apply?
Examples
7.2.10 Accounting for emissions from the generation, sale and
purchase of electricity
7.2.20 Estimating energy consumption
7.2.30 Using location-based emission factors in the absence of
contractual information
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Scope 2 emissions #
Scope 2 methods #
7.3 Renewable energy
Questions
7.3.10 What is a renewable energy attribute?
7.3.20 How do consumers purposefully choose their electricity?
7.3.30 What is a power purchase agreement?
Examples
7.3.10 Unbundled RECs
7.3.20 Identifying physical and virtual PPAs

7.1 How the GHGP works

This chapter is structured similarly to chapter 6 (scope 1 emissions). Having
provided an overview of how emissions are calculated in chapter 5, this chapter
looks more closely at scope 2 emissions: what they are in the context of
identifying and categorizing emissions (part of Step 2) and calculating emissions
(Step 3).

Step 1 Define the organizational boundary

Classify sources of emissions:

Gather the
Step 2 • Define the operational boundary
information
• Identify and categorize emissions

Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

Like scope 1, scope 2 emissions occur within the organizational boundary.

However, unlike scope 1, they are indirect emissions because they do not occur
from sources that are owned or controlled by the entity. Rather, they represent
purchased electricity (including steam, heat or cooling) that is generated outside
the organizational boundary but consumed within the boundary.

7.2 Identifying and measuring scope 2 emissions

Question 7.2.10
What are scope 2 emissions?

Interpretive response: As defined in the GHGP, Scope 2 is an indirect

emissions category that includes GHG emissions from the generation of
purchased or acquired electricity, steam, heat or cooling consumed by the
entity. [GHGP S2 p 34]

These emissions are considered an indirect emissions source because they are
a consequence of activities of the entity but physically occur at sources owned
or controlled by another entity. In other words, scope 2 captures the emissions
associated with energy generated by a third-party electricity generator or utility
but consumed within the entity’s organizational boundary. [GHGP S2 p 6]

As noted in the GHGP, almost all entities generate indirect emissions due to the
purchase of electricity for use in their processes or services. For many entities,
purchased electricity represents one of the largest sources of GHG emissions.
[GHGP p 27, 41]

Reporting landscape#
Scope 2 emissions
As shown in the following table, unlike ISSB Standards and ESRSs, the SEC
includes a materiality screen to the scope 2 disclosure.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses its An entity discloses its An entity – that is a large

gross scope 2 emissions. gross scope 2 emissions. accelerated filer or
[IFRS S2.29(a)(i)(2)] [ESRS E1.44(b)] accelerated filer (other
than a smaller reporting
company or emerging
growth company) –
discloses its gross scope 2
emissions if material.
[§229.1505(a)(1)]

Question 7.2.20
How is energy generation and distribution classified into
the different scopes?
Interpretive response: Energy is either transferred via direct line transfer or the
grid. There are four components of the energy grid.

• Individual generators – e.g. coal power plant, solar panel farm

• Transmission lines – e.g. power lines, underground power cables
• Distribution network – e.g. from transformers to homes and businesses
• Energy consumer.

The transmissions lines and distribution network are collectively referred to as

the ‘transmission and distribution’ (T&D) system. The T&D system is often
owned by the utility. When energy is transferred via the grid, losses may occur
during T&D. [GHGP pp 27-28]

The emissions associated with the four components of the energy grid are
recorded in the different scopes by the following entities.

In scope 1, the energy generator accounts for GHG emissions

Generator
from energy generation.
In scope 2, the utility accounts for GHG emissions associated
Utility company
with energy lost during T&D.
In scope 2, the energy consumer accounts for GHG emissions
from the consumption of energy obtained from another entity –
Consumer
e.g. the utility. In scope 3, an end user may also report indirect
emissions associated with T&D losses (see section 8.5).

In scope 3, an entity accounts for other upstream emissions associated with the
production and processing of upstream fuels – e.g. exploration, drilling, flaring.
See section 8.5. [GHGP p 28]

Example 7.2.10
Accounting for emissions from the generation, sale and
purchase of electricity
The following example has been adapted from the GHGP. [GHGP pp 28-29]

Generator owns a coal power generation plant and sells the electricity to Utility,
a utility that owns and controls the T&D system. Hotel purchases the electricity
for consumption in its own operations.

The following table illustrates how the transactions are classified into scopes 1,
2 and 3. Each of the three entities report the emissions associated with the
electricity generation, but they do so in different scopes.

Generator Utility Hotel

(a power generator) (a utility) (energy consumer)
Transactions

Produced 500 MWh

Sold -500 MWh

Purchased 500 MWh

Consumed -50 MWh (T&D)
Sold -450 MWh

Purchased 450 MWh

Consumed -450 MWh

Reporting1
Scope 1 100 tCO2e
(100 tCO2e) (produced)
Scope 2 10 tCO2e 90 tCO2e
(100 tCO2e) (T&D) (purchased)
Scope 32 90 tCO2e 10 tCO2e
(100 tCO2e) (sold) (upstream T&D)
Note:
1. Reported tCO2e are calculated using an emission factor of 0.2 MWh/tCO2e (see
Question 5.2.20). This emission factor is used for simplicity.
2. The reporting of emissions associated with upstream T&D losses is optional for
the end user (Hotel).

Question 7.2.30
What are the methods of accounting for scope 2
emissions?
Interpretive response: There are two methods used to account for an entity’s
purchased energy:

• one that represents local electricity production and may be more closely tied
to physical energy consumption, referred to as the location-based method;
and
• another that depicts a version of energy consumption that takes contractual
decisions into account, referred to as the market-based method.

The market-based method may or may not be tied to physical energy

consumption. It is in this method that a decision to purchase renewable energy,
for example, becomes relevant.

Location-based method

The location-based method reflects the average emissions intensity of grids on

which energy consumption physically occurs. It is useful for understanding:
[GHGP S2 p 26]

• GHG intensity of grids where operations occur;

• aggregate GHG performance of energy-intensive sectors; and
• risks and opportunities aligned with local grid resources and emissions.

Market-based method

The market-based method reflects emissions from electricity that entities have
purposefully chosen (see Question 7.3.20). It is useful for understanding: [GHGP
S2 p 26]

• individual corporate procurement actions;

• opportunities to influence electricity suppliers and supply; and
• risks and opportunities conveyed by contractual relationships.

According to the GHGP Scope 2 Guidance, both methods are presented

because they illustrate changes to grid emissions over time (location-based
method) and how much zero-emission energy an entity is signaling it is willing to
buy (market-based method). Over time, this shows whether the differential
between these two methods is shrinking or growing. [GHGP S2 pp 7, 27]

Question 7.2.40
What activity data supports scope 2 emissions?

Interpretive response: According to the GHGP Scope 2 Guidance, energy

consumption activity data includes all energy purchased and/or acquired and
consumed from an entity outside of the entity or from owned and/or operated
generation facilities where energy attributes have been sold or transferred.
[GHGP S2 p 44]

Both the location- and market-based methods calculate emissions using the
same activity data. However, the two methods tell different stories about that
activity data.

The most precise activity data is metered electricity consumption or utility bills
specifying consumption in MWh or kilowatt hour (kWh) units. If this type of data
is not available, estimations are used. [GHGP S2 p 44]

Example 7.2.20
Estimating energy consumption
Hotel leases 4,000 square feet of space in a 10,000 square foot office building
that is fully occupied. There is no metering available to calculate Hotel’s own
energy consumption.

Upon inquiry with the landlord, Hotel determines that energy consumption
during the year for the entire building is 9,000 MWh. From this, Hotel estimates
its energy consumption as follows.

Usage rate 4,000 sq ft / 10,000 sq ft = 40%

Energy consumption 40% × 9,000 MWh = 3,600 MWh

Question 7.2.50
Which emission factors are used to calculate scope 2
emissions?
Interpretive response: The location-based method uses mostly grid-average
emission factors, while the market-based method derives emission factors from
contractual instruments. Certain types of contractual instruments (e.g.
renewable energy certificates or power purchase agreements) may convey an
emission factor of zero.

Location-based scope 2 emissions

Grid-average emission factors represent the average of all GHG emissions

associated with the quantity of electricity generation produced from facilities
within a specified geographic boundary. [GHGP S2 p 53]

The GHGP Scope 2 Guidance provides a hierarchy of location-based method

emission factors, starting with regional or subnational emission factors (e.g.
eGRID, Defra) and moving to national production emission factors (e.g. IEA).
[GHGP S2 p 47]

Market-based scope 2 emissions

Contractual instruments represent choices – e.g. choosing a retail electricity

supplier, a specific generator or a differentiated electricity product – that are
conveyed through agreements between the purchaser and the provider.
Contractual instruments may differ from the underlying energy flows in the grid –
e.g. may not necessarily represent the emissions caused by the purchaser’s
consumption of electricity. [GHGP S2 p 26]

These contractual instruments only convey a claim to use the emission factor
associated with a certain amount of renewable electricity generation (see
Question 7.3.10). They do not change how renewable electricity is physically
delivered or consumed.

Markets differ as to what contractual instruments are commonly available or

used by entities to purchase energy or claim specific attributes about it, but they
may include the following.

• Energy attribute certificates (EACs) represent certain information (or

attributes) about the energy generated but do not represent the energy
itself. Examples include renewable energy certificates (RECs) and
guarantees of origin (GOs). See Question 7.3.10. [GHGP S2 p 80]

• Contracts allow a consumer, typically larger industrial or commercial

entities, to form an agreement with a specific energy generator. One
example is power purchase agreements. See Question 7.3.30. [GHGP S2 p 55]

• Supplier/utility emission rates are provided by the electricity retailer and

measure the GHG intensity of delivered electricity. [GHGP S2 p 55]

• Residual mix is essentially an emission factor from which all renewable

components have been removed. For entities without any of the above
contractual instruments, the residual mix provides an emission factor for use
in a market-based method calculation. [GHGP S2 p 106]

While many contractual instruments under the market-based method represent

a zero emission rate from renewable energy (e.g. RECs), the market-based
method also includes other contractual instruments representing fossil fuel or
mixed-resource emission factors (e.g. supplier emission rates). [GHGP S2 p 63]

The following table, adapted from the GHGP Scope 2 Guidance, illustrates the
hierarchy of data from which market-based emission factors may be derived.
Entities can still apply the market-based method even if they do not have
contractual data for every site. Any data in this hierarchy – including using
location-based grid average emission factors in the absence of contractual
information – is acceptable. [GHGP S2 p 48]

Emission factors Precision

Energy attribute certificates Higher
Contracts
Supplier/utility emission rates
Residual mix
Other grid-average emission factors Lower

All of the contractual instruments in the hierarchy must meet Scope 2 Quality
Criteria (see Question 7.2.60).

Residual mix

The residual mix factor is used when an entity cannot apply emission factors
from any of the other contractual instruments – e.g. EACs, contracts, supplier-
or utility-specific. The residual mix factors are essentially location-based grid-
average emission factors, but with all the RECs, certificates and other attributes
within the market boundary removed. And so the residual mix represents the
non-renewable components of the grid.

This means the residual mix factor will typically be higher in the emissions
calculation than the grid average. This is because renewable energy attributes
are not double counted in the residual mix factor – e.g. the grid-average
emission factor is lowered by its inclusion of renewable energy attributes that
may have been claimed by certain users of the grid.

A residual mix factor may not be available in every market. The GHGP requires
entities to disclose such absence transparently. See Appendix A. [GHGP S2 p 22]

Example 7.2.30
Using location-based emission factors in the absence of
contractual information
Hotel and Restaurant operate within the same electricity grid, which is supplied
by coal and natural-gas power plants.

They each consumed the same amount of electricity during the year. Hotel
consumed electricity generated from its local power grid while Restaurant
consumed electricity generated from a solar farm near its location.

Location-based scope 2 emissions

Hotel and Restaurant both apply the same grid-average emission factor and
therefore calculate the same scope 2 location-based emissions. This is because
when consumption of energy is equal, the entities’ physical locations drive the
measurement.

Market-based scope 2 emissions

To calculate market-based emissions, Restaurant uses an emission factor of

zero, based on the fact that it chose to purchase offsite renewable electricity
and the associated REC conveyed an emission factor of zero. Therefore,
Restaurant’s scope 2 market-based emissions are zero.

Because Hotel operates in a market where contractual instruments are

available, it will calculate scope 2 market-based emissions. Hotel has no energy
attribute certificates (e.g. RECs) or contracts (e.g. PPAs) and there are no
supplier- or utility-specific emission rates and no residual mix factor available.

Therefore, Hotel calculates scope 2 market-based emissions using the same

grid average emission factor used to calculation scope 2 location-based
emissions. In this case, the calculated scope 2 emissions according to the
market-based method are identical to the location-based calculation. Hotel
discloses the lack of availability of a residual mix factor.

Question 7.2.60
What are the Scope 2 Quality Criteria?

Interpretive response: The Scope 2 Quality Criteria are designed to maintain

the integrity of contractual instruments. They represent the minimum features
necessary to implement the scope 2 market-based method in a consistent way
that is capable of producing accurate results and prevents double counting.
[GHGP S2 p 63]

The following tables depicts the Scope 2 Quality Criteria (adapted from the
GHGP Scope 2 Guidance). [GHGP S2 pp 60, 63-65]

All contractual instruments need to meet the following Scope 2 Quality

Criteria.

Criteria Considerations
Convey (either directly or Implicit claims may be evidenced through
implicitly) the direct GHG attestations from each owner in the chain of
emission rate attribute custody.
associated with the unit of
electricity produced.
Be the only instruments that It is typical to check with the electricity supplier or
carry the GHG emission rate relevant policy-making bodies to ensure
attribute claim associated with certificates are claimed, paired or retired in
that quantity of electricity compliance with applicable jurisdictional or
generation. program requirements.
Be tracked and redeemed, Retirement may be verified via a tracking
retired or canceled by or on system, an audit of contracts, third-party
behalf of the entity. certification or other disclosure registries,
systems or mechanisms.
Be issued and redeemed as In our experience, an entity may develop and
close as possible to the period of disclose a policy.
energy consumption to which the
instrument is applied.
Be sourced from the same Regulatory authorities and/or bodies responsible
market in which the entity’s for certificates may establish the boundaries in
electricity-consuming operations which certificates may be traded and redeemed,
are located and to which the retired or canceled.
instrument is applied.

All utility-specific emission factors need to:

Be calculated based on delivered This may be verified via receipt of the REC or
electricity, incorporating third-party certifications.
certificates sourced and retired
on behalf of customers.

All contract-sourced emission factors need to:

Be transferred to the entity only. This may be verified via receipt of the REC or
third-party certification.

Entities using contractual instruments in the market-based method need to:

Use an adjusted, residual mix See chapter 11 for disclosure considerations.

characterizing the GHG intensity
of unclaimed or publicly shared
electricity.

If contractual instruments do not meet the Scope 2 Quality Criteria, and no other
market-based method data are available, location-based data are used. [GHGP
S2 p 76]

Question 7.2.70
When does the market-based method apply?

Interpretive response: While disclosure of scope 2 emissions under the

location-based method is always required, entities assess whether the market-
based method is an additional requirement.

The market-based method applies to entities with any operations in markets

providing product or supplier-specific data (e.g. emission factors) in the form of
‘contractual instruments’ (e.g. RECs, GOs, PPAs) that meet the Scope 2 Quality
Criteria (see Question 7.2.60). [GHGP S2 p 8]

If a multi-regional entity has any operations within its organizational boundary

where the market-based method applies, the market-based method is
calculated for the entity’s entire inventory. For those regions that do not have
any market instruments to apply, that region’s location-based emissions
measurement is also included as the market-based emissions. [GHGP S2 p 44]

The market-based method is not relevant if no operations in the entity’s

organizational boundary are located in markets with contractual instruments
(e.g. RECs, PPAs, supplier-specific rates, residual mix factor) available, or
where no instruments within those systems meet the Scope 2 Quality Criteria
(see Question 7.2.60). In this case, only the location-based method (e.g. grid-
average emission factors) is used to calculate scope 2 emissions.

Reporting landscape#
Scope 2 methods
As shown in the following table, each standard or rule has different scope 2
measurement requirements.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses An entity discloses both An entity discloses

location-based location- and market- location- and/or market-
information, but also based information. based information or a
presents information about [ESRS E1.49(a)-(b)] combination. Alternatively,
contractual instruments1 another method may be
related to managing used, as long as the entity
energy it has purchased. identifies the method used
[IFRS S2.29(a)(v)] and its source in all cases.
[§229.1505(b)]
Note 1: As part of its
disclosure, an entity might
disclose information about
its market-based scope 2
emissions. [IFRS S2.B31]

7.3 Renewable energy

Question 7.3.10
What is a renewable energy attribute?

Interpretive response: Renewable energy consists of (1) power and (2)

environmental attributes (e.g. energy attribute certificates) that may be sold
together (bundled) or separately (unbundled).

The following table explains these terms. [GHGP S2 pp 100, 107]

Definition Example
Bundled Energy attribute A wind farm generates one MWh of power
certificate traded with and sells the electricity itself at a market
underlying energy rate to the local grid, bundled with one
produced. corresponding certificate at a separately
determined price sold to a consumer
operating on the same grid.
Unbundled Energy attribute A wind farm generates one MWh of power
certificate is separate, and sells the electricity itself at a market
and may be traded rate to the local grid, while separately
separately, from the selling the corresponding certificate to a

Definition Example
underlying energy consumer in another region operating on a
produced. different grid.

Renewable energy certificates

RECs are tradeable instruments that represent the clean energy attributes (e.g.
zero emissions) of renewable energy (e.g. solar, wind, hydropower,
geothermal). RECs typically represent the environmental attributes (e.g.
emission factor) from one MWh of electricity produced by a renewable energy
source.

By accounting for and assigning ownership to the attributes of renewable energy

generation and use, RECs allow energy buyers to distinguish between
renewable and non-renewable energy sources. As a result, REC owners can
claim renewable energy from a specific source.

Each REC is uniquely identified and includes data such as where it was
generated, when it was generated and by what source. When the owner of a
REC makes a renewable energy claim (e.g. claims the zero emission factor in
the scope 2 market-based method calculation) based on that REC, it is then
retired and is no longer a tradeable asset. Question 7.2.60 further discusses
REC retirement and Scope 2 Quality Criteria.

Question 7.3.20
How do consumers purposefully choose their electricity?

Interpretive response: Consumers of grid-supplied electricity cannot connect

electricity use to its generation – i.e. they cannot directly or physically
distinguish the energy generation facilities that are supplying their consumption
at any given point in time. Contractual instruments allow an entity to claim
energy produced from renewable sources as its own – even when it did not
physically consume the MWh produced. The renewable energy attributes (e.g.
zero emissions) are issued per MWh produced regardless of whether the
underlying energy is consumed by the entity. [GHGP S2 p 79]

The market-based method is based on the contractual purchase of electricity

bundled with contractual instruments (physical consumption is tied to renewable
energy attribute) or contractual instruments on their own (synthetic
‘consumption’ of renewable energy only). See Question 7.3.10.

Example 7.3.10
Unbundled RECs
A restaurant in Boston, Massachusetts powers its operations with local grid-
supplied electricity. The restaurant used 60,000 MWh of electricity during the
year.

A Texas wind farm is supplying renewable energy to the local Dallas grid. It is
also receiving RECs for each MWh of electricity generated and selling those
RECs to buyers around the country.

The Boston restaurant purchases 60,000 MWh worth of RECs from the Texas
wind farm. The RECs convey an emission factor of zero and therefore in the
Boston restaurant’s calculation of scope 2 market-based emissions, it applies an
emission factor of zero to the consumption of 60,000 MWh of electricity. As a
result, the scope 2 market-based emissions for the Boston restaurant are zero.

Question 7.3.30
What is a power purchase agreement?

Interpretive response: As defined in the GHGP Scope 2 Guidance, a power

purchase agreement (PPA) is a type of contract that allows a consumer,
typically large industrial or commercial entities, to form an agreement with a
specific energy-generating unit. The contract itself specifies the commercial
terms, including delivery, price and payment terms. In many markets, these
contracts secure a long-term stream of revenue for an energy project. [GHGP S2 p
106]

Two main types of PPA are prevalent in the renewable energy marketplace:
physical PPAs and virtual PPAs.

Physical PPA

A physical PPA is an agreement for the purchase and sale of energy between a
consumer buyer (also known as an ‘offtaker’) and energy generator (also known
as a ‘producer’). In renewable energy, PPAs typically have either fixed or
variable per-unit pricing, where variable prices are linked to an underlying
energy index. Contract quantities may be equal to all or a portion of the energy
generated by the renewable energy project. RECs corresponding to generation
of the qualifying renewable energy may or may not be transferred as part of a
bundled sale.

A renewable energy project may be located on or off the offtaker’s premises.

The producer may deliver energy directly to the offtaker through transmission
lines connected to the offtaker’s facilities, or indirectly through the regional
power grid.

Cash
Offtaker Producer
Energy and RECs

Virtual PPA

A virtual PPA (also known as a financial PPA), is an arrangement between a

producer and a buyer in which the buyer pays a fixed price per unit of generated
energy in exchange for a floating (market) price. The contract is periodically
settled net in cash and energy is not physically delivered to the buyer.

Most virtual PPAs result in the transfer of the corresponding RECs to the buyer
at settlement. Virtual PPAs create an opportunity for the buyer to receive the
corresponding RECs without committing to take delivery of physical power.

Offtaker’s local Regional

energy supplier power grid

Cash Cash
Energy Energy
(variable) (variable)

Offtaker/Buyer RECs Producer

Contract settlement based on

variable energy prices paid and
contractual fixed price

Example 7.3.20
Identifying physical and virtual PPAs
Hotel operates a hotel in Orlando with a physical PPA in place and a hotel in
Chicago with a virtual PPA in place. In both cases, Hotel receives the RECs
associated with the energy generation and calculates its scope 2 market-based
emissions by applying the emission factor from the RECs (see Question 7.2.70)
to the associated amount of energy consumption.

The distinction between the PPA and virtual PPA affects whether the energy is
physically delivered to Hotel, but it does not affect the transfer of the REC and
its corresponding treatment in Hotel’s emissions disclosures.

Hotel’s Orlando location with a physical PPA in place

Hotel contracted with a third-party developer to build on-site solar panels in an

arrangement that is not a lease. Hotel receives energy and the associated
RECs from the solar panel generation. Per the PPA contract, Hotel pays the
third-party developer a fixed price for the energy.

Cash
Orlando Solar panel
location power provider
Energy and RECs

Hotel’s Chicago location with a virtual PPA in place

The agreement is with a wind farm in southern Illinois that generates energy for
a different grid than the one on which Hotel operates. Hotel pays the wind farm
for each unit of generated energy. Hotel does not physically receive the
associated energy, but it does receive the associated RECs.

Southern
Chicago
Illinois
energy grid
energy grid

Cash Cash
Energy Energy
(variable) (variable)

Southern
Chicago RECs Illinois
location
wind farm
Contract settlement based on
variable energy prices paid and
contractual fixed price

8. Scope 3 emissions
Detailed contents
Item significantly updated in this edition #

8.1 How the GHGP works

8.2 Identifying and measuring scope 3 emissions
Questions
8.2.10 What are scope 3 emissions?
8.2.20 Are leased assets included in scope 3 emissions?
8.2.30 What periods of activity data are used to calculate scope 3
emissions?
8.2.40 What activity data supports scope 3 emissions?
8.2.50 What emission factors are used for scope 3?
8.2.60 What are environmentally-extended input output (EEIO)
models?
Examples
8.2.10 Scope 3 time boundaries
8.2.20 Primary and secondary data
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Scope 3 emissions #
Scope 3 emissions data #
8.3 Category 1: Purchased goods and services
Questions
8.3.10 What are purchased goods and services emissions
(category 1)?
8.3.20 How are purchased goods and services emissions
calculated?
Example
8.3.10 Calculating purchased goods and services emissions using
the supplier-specific method
8.4 Category 2: Capital goods
Questions
8.4.10 What are capital goods emissions (category 2)?
8.4.20 How are capital goods emissions calculated?

Example
8.4.10 Identifying capital goods emissions
8.5 Category 3: Fuel- and energy-related activities
Questions
8.5.10 What are fuel- and energy-related activities emissions
(category 3)?
8.5.20 How are fuel- and energy-related activities emissions
calculated?
Example
8.5.10 Identifying fuel- and energy-related activities emissions
8.6 Category 4: Upstream transportation and distribution
Questions
8.6.10 What are upstream transportation and distribution emissions
(category 4)?
8.6.20 How are upstream transportation and distribution emissions
calculated?
8.7 Category 5: Waste generated in operations
Questions
8.7.10 What are waste generated in operations emissions (category
5)?
8.7.20 How are waste generated in operations emissions
calculated?
Examples
8.7.10 Identifying waste generated in operations emissions
8.7.20 Calculating waste generated in operations emissions using
the waste-type-specific method
8.8 Category 6: Business travel
Questions
8.8.10 What are business travel emissions (category 6)?
8.8.20 How are business travel emissions calculated?
Example
8.8.10 Calculating business travel emissions using the distance-
based method
8.9 Category 7: Employee commuting
Questions
8.9.10 What are employee commuting emissions (category 7)?
8.9.20 How are employee commuting emissions calculated?

Examples
8.9.10 Identifying employee commuting emissions
8.9.20 Calculating employee commuting emissions using the
average-data method
8.10 Category 8: Upstream leased assets
Question
8.10.10 What are upstream leased asset emissions (category 8)?
8.11 Category 9: Downstream transportation and distribution
Questions
8.11.10 What are downstream transportation and distribution
emissions (category 9)?
8.11.20 How are downstream transportation and distribution
emissions calculated?
Example
8.11.10 Identifying downstream transportation and distribution
emissions
8.12 Category 10: Processing of sold products
Questions
8.12.10 What are processing of sold products emissions (category
10)?
8.12.20 How are processing of sold products emissions calculated?
Example
8.12.10 Identifying and calculating processing of sold products
emissions using the average-data method
8.13 Category 11: Use of sold products
Questions
8.13.10 What are use of sold products emissions (category 11)?
8.13.20 How are use of sold products emissions calculated?
8.14 Category 12: End-of-life treatment of sold products
Questions
8.14.10 What are end-of-life treatment of sold products emissions
(category 12)?
8.14.20 How are end-of-life treatment of sold products emissions
calculated?
Example
8.14.10 Identifying end-of-life treatment of sold products emissions

8.15 Category 13: Downstream leased assets

Question
8.15.10 What are downstream leased asset emissions (category
13)?
8.16 Category 14: Franchises
Questions
8.16.10 What are franchise emissions (category 14)?
8.16.20 How are franchise emissions calculated?
Example
8.16.10 Identifying and calculating franchise emissions using the
average-data method
8.17 Category 15: Investments
Questions
8.17.10 What are investment emissions (category 15)?
8.17.20 How are investment emissions calculated?
Example
8.17.10 Identifying and calculating investment emissions
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Financed emissions #

8.1 How the GHGP works

This chapter is structured similarly to chapters 6 and 7 (scopes 1 and 2
emissions). Having provided an overview of how emissions are calculated in
chapter 5, this chapter looks more closely at scope 3 emissions and the 15
categories: what they are in the context of identifying and categorizing
emissions (part of Step 2) and calculating emissions (Step 3).

Step 1 Define the organizational boundary

Classify sources of emissions:

Gather the
Step 2 • Define the operational boundary
information
• Identify and categorize emissions

Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

Unlike scopes 1 and 2, scope 3 emissions occur outside the organizational

boundary. They are indirect emissions – because they do not occur from
sources that are owned or controlled by the entity – but are part of an entity’s
upstream or downstream value chain.

In addition, they are not required to be reported if an entity is following the

GHGP Corporate Standard. Instead, an entity can elect to report one or more
categories within scope 3 – e.g. business travel and employee commuting.

Entities that are required (or elect) to report relevant scope 3 emissions comply
with the GHGP Scope 3 Standard in addition to the GHGP Corporate Standard.

8.2 Identifying and measuring scope 3 emissions

Question 8.2.10
What are scope 3 emissions?

Interpretive response: An entity’s scope 3 emissions include all emissions up

or down its value chain that are not already included in scopes 1 and 2 as part
of the organizational boundary.

Scope 3 emissions often represent the majority of an entity’s total GHG

emissions. Increasingly, stakeholders are directing more pressure on entities to
account for GHG emissions in their value chains and portfolios to manage and
identify climate-related risks and opportunities.

The following table is a list of the 15 scope 3 categories, each of which is

discussed in this chapter. [GHGP S3 p 32]

Upstream Downstream
1. Purchased goods and services 9. Downstream transportation and
2. Capital goods distribution
3. Fuel- and energy-related activities 10. Processing of sold products
(not included in scope 1 or 2) 11. Use of sold products
4. Upstream transportation and 12. End-of-life treatment of sold
distribution products
5. Waste generated in operations 13. Downstream leased assets
6. Business travel 14. Franchises
7. Employee commuting 15. Investments
8. Upstream leased assets

Reporting landscape#
Scope 3 emissions
As shown in the following table, the scope 3 disclosures under ISSB Standards
and ESRSs are similar but not the same, and the SEC does not require
disclosure.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses its An entity discloses its No required scope 3

gross scope 3 emissions.1 gross scope 3 emissions.1 emissions disclosures.
[IFRS S2.29(a)(i)(3)] [ESRS E1.44(c)]
However, reporting scope
An entity discloses scope Note 1: There is temporary 3 emissions on a voluntary
3 emissions using transition relief from this basis is not precluded.

ISSB Standards ESRSs SEC Climate Rule

information that is disclosure (one year) for [§229.1505(a)(1), Section
reasonable, supportable entities that do not exceed H.3.c]
and available at the on their balance sheet
reporting date without date an average of 750
undue cost or effort. employees during the
[IFRS S2.B39] financial year.
[ESRS 1 App C]
Note 1: There is temporary
transition relief from this
disclosure (one year).
[IFRS S2.C4(b)]

Question 8.2.20
Are leased assets included in scope 3 emissions?

Interpretive response: The inclusion in scope 3 of emissions from leased

assets (as a lessor or a lessee) depends on the approach chosen for an entity’s
organizational boundary (see Question 4.3.20). To the extent such emissions
are included in scope 3, they will be in either:

• category 8 (upstream leased assets) – see section 8.10; or

• category 13 (downstream leased assets) – see section 8.15.

Question 8.2.30
What periods of activity data are used to calculate
scope 3 emissions?
Interpretative response: An entity’s scope 3 emissions for a reporting year are
based on the activity of the entity occurring in that reporting year. [GHGP S3 p 32]

For some scope 3 activities, emissions related to the entity’s activity will occur in
the same year as the entity’s reporting year. However, for some activities,
emissions related to the entity’s activity in the current year may have occurred in
the past (e.g. when a purchased product was manufactured) or will occur in the
future (e.g. when a customer uses a sold product). [GHGP S3 p 32]

These past and/or future year emissions are included in the entity’s scope 3
emissions in the reporting year in which the entity’s activity occurs – e.g. when it
purchases a product. [GHGP S3 p 32]

The following table shows each scope 3 category and the years in which
emissions occur even though they will be measured in the entity’s reporting
year. [GHGP S3 p 33]

Past Reporting Future

Scope 3 category
years year years
1. Purchased goods & services
2. Capital goods
3. Fuel- and energy-related activities
4. Upstream transportation & distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation & distribution
10. Processing of sold products
11. Use of sold products
12. End of life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments

Example 8.2.10
Scope 3 time boundaries
The following examples illustrate two scenarios where the past and/or future
year emissions are included in the entity’s scope 3 emissions in the reporting
year in which the entity’s activity occurs.

Scenario 1: Past years’ emissions

Retailer purchases aged whiskey from Supplier, with whiskey production taking
approximately 12 years.

Retailer accounts for all emissions associated with the production of the whiskey
(from all 12 years of production) as scope 3 emissions in the reporting year in
which it purchases the whiskey.

Scenario 2: Future years’ emissions

Building Manager sends 85% of the waste from operations to the landfill. The
waste sent to the landfill during the reporting year may slowly release CO2 from
degradation of the waste over 10 years.

Building Manager accounts for all expected future emissions (for the next 10
years) associated with the waste sent to the landfill as scope 3 emissions in the
reporting year in which the waste is sent to the landfill.

Question 8.2.40
What activity data supports scope 3 emissions?

Interpretive response: There are two types of data that an entity can use to
calculate scope 3 emissions.

• Primary data may be provided directly from suppliers or other value chain
partners and include specific activity-related data or actual emissions. It can
be costly to obtain and difficult to verify the quality of data provided by a
supplier. [GHGP S3 p 71]

• Secondary data is general data that’s available, such as industry-average

data. This type of data is used to estimate scope 3 emissions when primary
data is unavailable. The disadvantage is that it may lack accuracy as to the
specific activities of the entity. [GHGP S3 p 71]

An entity will likely use a combination of primary and secondary data to

calculate scope 3 emissions. Data selection is heavily dependent on the entity’s
business goals – e.g. primary data may be most useful for tracking performance
against GHG reduction goals, while secondary data may be most useful for
identifying emissions hot spots. [GHGP S3 p 74-75]

Other instances in which secondary data may be used include activities: [GHGP
S3 p 75]

• that are not prioritized based on initial estimation methods – e.g. activities
expected to be insignificant in size, activities over which the entity has little
influence, activities with minimal financial significance;

• for which primary data is not available – e.g. supplier is unable to provide
data; or

• for which the quality of secondary data is higher than primary data – e.g.
supplier is unable to provide data of sufficient quality.

Available data likely has varying levels of detail and granularity. The GHGP
Scope 3 Standard encourages collecting data from suppliers that is as specific
as possible to the product or service purchased. The standard outlines a data
hierarchy ranked in order of specificity (see excerpt below). [GHGP S3 p 79]

Data not collected at product-level specificity may require an allocation of

emissions. Regardless, the data collection process for calculating scope 3
emissions will likely need reviewed each reporting period in an effort to improve
data quality over time; this is acknowledged in the GHGP Scope 3 Standard.
[GHGP S3 pp 65, 79]

Excerpt from GHGP Scope 3 Standard [p 80]

Levels of data (ranked in order of specificity)

Data type Description

Product-level data Cradle-to-gate1 GHG emissions for the product of interest

Activity-, process- GHG emissions and/or activity data for the activities,
or production line- processes, or production lines that produce the product of
level data interest

GHG emissions and/or activity data for the facilities or

Facility-level data
operations that produce the product of interest

Business unit-level GHG emissions and/or activity data for the business units
data that produce the product of interest

Corporate-level GHG emissions and/or activity data for the entire

data corporation

1 Cradle-to-gate GHG emissions include all emissions that occur in the life
cycle of purchased products, up to the point of receipt by the reporting
company (excluding emissions from sources that are owned or controlled
by the reporting company. [GHGP S3 p 85]

Example 8.2.20
Primary and secondary data
The following examples illustrate two scenarios where either primary or
secondary data may be better suited to the activity type.

Scenario 1: Primary data

An airline provider includes in a booking confirmation the expected tCO2e for an

individual for a purchased flight based on the size of aircraft and distance. This
is primary data because it is provided directly from the supplier.

Scenario 2: Secondary data

A car manufacturer purchases steel from various suppliers, none of which have
available data associated with steel production emissions. The manufacturer
estimates purchased steel emissions by applying an industry-average emission
factor to the amount of steel purchased. This is secondary data because it is not
provided directly from the supplier.

Reporting landscape#
Scope 3 emissions data
As shown in the following table, the ISSB Standards and ESRSs are similar but
not the same.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses An entity discloses the No required scope 3

information about the percentage of scope 3 emissions disclosures.
characteristics of data emissions calculated using
inputs (e.g. primary versus primary data obtained from
secondary data) and the suppliers or other value
extent to which it has used chain partners.
verified data. [ESRS E1.AR46(g)]
[IFRS S2.B40(a)-(b), B46–
B49, B55, B56(b)]

An entity prioritizes the

use of primary data. If
secondary data is used, an
entity considers the extent
to which the data faithfully
represents the entity’s
activities.1 Faithful
representation means the
information is complete,
neutral and accurate.
[IFRS S2.B47, B49, IFRS
S1.D10]

Note 1: In rare cases when

it is impracticable for an
entity to estimate scope 3
emissions using
secondary data and
industry averages, the
entity discloses how it is
managing its scope 3
emissions. [IFRS S2.B57]

Question 8.2.50
What emission factors are used for scope 3?

Interpretive response: Scope 3 emissions include a wide range of activities

and therefore an inventory preparer can expect a wide range of applicable
emission factors. The following table adapted from the GHGP Scope 3 Standard
provides some examples. [GHGP S3 p 68]

Activity data Emission factor

Liters of fuel consumed kgCO2e per liter of fuel consumed
Kilowatt-hours of electricity
kgCO2e per kWh of electricity consumed
consumed
Hours of time operated kgCO2e per hour of time operated
Kilogram of product sold kgCO2e per kg of product sold
Quantity of money spent kgCO2e per unit of currency spent

Throughout this chapter, we provide various illustrative examples. For simplicity,

we have used emission factors that portray tCO2e per unit of activity – e.g.
tCO2e per mile, tCO2e per tonne of product. Therefore, these illustrative
examples do not demonstrate the unit conversion calculation (e.g. converting
pounds to tonnes; see Question 5.2.20) or the GWP conversion calculation (e.g.
converting CH4 to CO2e; see Question 2.3.50).

The GHGP Scope 3 Calculation Guidance includes further details on the types
of emission factors available. For example, life cycle emission factors or cradle-
to-gate emission factors are used for calculating emissions associated with a
material or product, while life cycle emission factors or combustion emission
factors are used for calculating emissions associated with energy. [GHGP S3C p
14]

A detailed discussion of these emission factors is outside the scope of this

handbook, but it should be emphasized that a key component of emission
factors used in the scope 3 calculation is that they often have a life cycle or
‘cradle-to-gate’ component. Questions 8.2.30 and 8.2.40 discuss how past year
and future year emissions are incorporated into the scope 3 calculation.

Question 8.2.60
What are environmentally-extended input output (EEIO)
models?
Interpretive response: As defined by the GHGP Scope 3 Standard, EEIO
models estimate energy use and/or GHG emissions from production and
upstream supply activities of different sectors and products. These models are
typically based on allocation of national GHG emissions to groups of finished
products. [GHGP S3 p 66]

The result of applying such a model is an EEIO emission factor that can be used
by an entity to calculate an estimate of scope 3 emissions for an industry or
product. [GHGP S3 p 66]

8.3 Category 1: Purchased goods and services

Question 8.3.10
What are purchased goods and services emissions
(category 1)?
Interpretive response: Scope 3-category 1 accounts for emissions related to
the production of products (both goods and services) purchased or acquired by
the entity during the reporting year. [GHGP S3 p 38]

The category includes all upstream emissions (cradle-to-gate) of a product up to

the point of purchase by an entity (see Question 8.2.30). [GHGP S3 p 38]

Emissions can be differentiated between purchases of production-related

products (e.g. materials, components) and non-production-related products (e.g.
office furniture, office supplies, IT support). [GHGP S3 p 38]

The following table identifies emissions that may be related to purchased

products, but which are not included in scope 3-category 1.

Emissions source Classification Reference

Use of purchased goods by the
Scope 1 or 2 Chapters 6 and 7
entity
Scope 3-category 2
Purchased capital goods Section 8.4
(purchased capital goods)
Scope 3-category 4
Transportation and distribution
(upstream transportation and Section 8.6
of purchased goods
distribution)

Question 8.3.20
How are purchased goods and services emissions
calculated?
Interpretive response: There are four methods used to calculate scope 3
emissions from purchased goods and services. [GHGP S3C p 21]

Calculation method Description

Supplier-specific Product-level cradle-to-gate data
Hybrid Supplier-specific data and secondary data to fill gaps
Average-data Mass (or other unit) × emission factor
Spend-based Cost × emission factor

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate. See
Question 8.2.40.

Example 8.3.10
Calculating purchased goods and services emissions
using the supplier-specific method
Hotel decides to repaint the walls of its lobby as part of an ongoing renovation.
The emissions associated with the production of the purchased paint are
included in scope 3-category 1.

Using the supplier-specific method, the formula to calculate emissions

associated with purchased goods and services during the reporting period is:
Activity data: Σ (quantities of goods purchased)
×
Supplier-specific product emission factor of purchased good or service

To perform this calculation, Hotel gathers the following information.

Type Source Data Unit

Activity data Purchased paint 50 tonnes
Supplier emission factor Direct from supplier 0.1 tCO2e per tonne

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

50 tonnes × 0.1 tCO2e per tonne = 5 tCO2e

8.4 Category 2: Capital goods

Question 8.4.10
What are capital goods emissions (category 2)?

Interpretive response: Scope 3-category 2 accounts for emissions related to

the production of capital goods purchased or acquired during the reporting year.
Capital goods are likely used to manufacture a product, provide a service, or
sell, store and deliver merchandise. [GHGP S3 p 39]

The category includes all upstream emissions (cradle-to-gate) of a capital good

up to the point of purchase by an entity (see Question 8.2.30). [GHGP S3 p 39]

Assets that are typically depreciated or amortized in financial accounting, such

as fixed assets or plant, property and equipment, are examples of capital goods.
[GHGP S3 p 39]

Purchased goods that are not identified as capital goods are included in only
category 1 to avoid double counting.

The following table identifies emissions that may be related to capital goods, but
which are not included in scope 3-category 2.

Emissions source Classification Reference

Use of capital goods Scope 1 or 2 Chapters 6 and 7
Scope 3-category 1
Purchased goods (that are not
(purchased goods and Section 8.3
capital goods)
services)

Example 8.4.10
Identifying capital goods emissions
Hotel purchases new king-sized mattresses for deluxe rooms, which it
capitalizes and will depreciate over five years for financial reporting purposes.

The production of each mattress is performed in a single factory and includes

materials such as cotton, steel coils, plastic and foam. Hotel includes in scope
3-category 2 the emissions associated with factory production and the lifecycle
emissions of each material used in production.

Question 8.4.20
How are capital goods emissions calculated?

Interpretive response: The calculation methods for scope 3-category 2 are

consistent with category 1. See Question 8.3.20.

8.5 Category 3: Fuel- and energy-related activities

Question 8.5.10
What are fuel- and energy-related activities emissions
(category 3)?
Interpretive response: Scope 3-category 3 accounts for emissions related to
the production of fuels and energy purchased and consumed during the
reporting year, which are not included in scopes 1 or 2. [GHGP S3 p 41]

The category includes all upstream emissions (cradle-to-gate) related to

activities up to the point of purchase by an entity (see Question 8.2.30). [GHGP
S3 p 41]

There are typically three activities that end users of fuel and purchased
electricity may need to consider. [GHGP S3 p 41]

• Upstream emissions of purchased fuels. Extraction, production and

transportation of fuels consumed by the entity.

• Upstream emissions of purchased electricity. Extraction, production and

transportation of fuels consumed in the generation of electricity, steam,
heating and cooling that is consumed by the entity.

• Transmission and distribution (T&D) losses. Generation of electricity,

steam, heating and cooling that is lost in a T&D system.

Note: Electricity generated by a power station will not match the energy
distributed to consumers because of energy losses in a distribution network
resulting from a variety of possible factors – e.g. long distribution lines,
deficient network infrastructure. See chapter 7 for further discussion.
Category 3 includes emissions associated with the loss.

A fourth activity included in category 3, but generally only applicable to utility

companies and energy retailers, is the generation of purchased electricity that is
subsequently sold to end users. [GHGP S3 p 41]

Example 8.5.10
Identifying fuel- and energy-related activities emissions
The following example illustrates three scenarios of activities that are included in
scope 3-category 3.

Scenario 1: Upstream emissions of purchased fuels

Hotel purchases gasoline for consumption in an owned and operated shuttle

bus between Hotel and Airport.

• The combustion of the gasoline is included in scope 1 (see section 6.2).

• The emissions from extraction, production and transportation of the

purchased gasoline, supplied by Oil, are included in scope 3-category 3.

Scenario 2: Upstream emissions of purchased electricity

Hotel purchases electricity from an energy grid, which is heavily reliant on coal
as an energy source.

• The emissions from burning the coal that generates the purchased
electricity are included in scope 2 (see section 7.2).

• The emissions from mining the coal used in the energy grid are included in
scope 3-category 3.

Scenario 3: Transmission and distribution (T&D) losses

Hotel, which is in a remote rural location, purchases electricity from an energy

grid. Due to lengthy distribution lines, 4% of energy generated by the power
station is lost before reaching consumers.

The emissions from the generation of energy by the power station that are lost
(T&D losses) are included in scope 3-category 3.

Note: Example 7.2.10 illustrates a single set of transactions between a power

generator, utility and end consumer, and how the GHG emissions (including
T&D losses) are classified between scopes 1, 2 and 3.

Question 8.5.20
How are fuel- and energy-related activities emissions
calculated?
Interpretive response: There are two methods used to calculate scope 3
emissions from fuel- and energy-related activities. [GHGP S3C p 40]

Calculation method Description

Supplier-specific Data from energy providers
Average-data Estimation using secondary data

Each of the four activities (see Question 8.5.10) has a calculation methodology,
as detailed in the GHGP Scope 3 Calculation Guidance, which is outside the
scope of this handbook.

8.6 Category 4: Upstream transportation and

distribution

Question 8.6.10
What are upstream transportation and distribution
emissions (category 4)?
Interpretive response: Scope 3-category 4 accounts for emissions related to
the transportation and distribution of products purchased in the reporting year in
vehicles not owned or operated by the entity. The category also includes third-
party transportation and distribution services (inbound, outbound and between
facilities) purchased by the entity. [GHGP S3 p 44]

Emission sources may include air, rail, road and marine transport. Emissions
from the storage of purchased products in warehouses, distribution centers and
retail facilities can also be a source. [GHGP S3 p 44]

The category relates to transportation and distribution with Tier 1 suppliers.

Emissions associated with Tier 2 suppliers are included in category 1
(purchased goods and services; see section 8.3). [GHGP S3 p 44]

The following table defines Tier 1 and Tier 2 suppliers. [GHGP S3 p 57]

Supplier
Description
classification
Tier 1 Entity has a direct purchase order for goods and services
Tier 2 Tier 1 supplier has a purchase order for goods and services

The following table identifies emissions that may be related to transportation

and distribution emissions.

Emissions source Classification Reference

Transportation and distribution
in vehicles owned or controlled Scope 1 or 2 Chapters 6 and 7
by the entity
Transportation and distribution
Scope 3-category 1 (purchased
between Tier 1 and Tier 2 Section 8.3
goods and services)
suppliers
Scope 3-category 3 (fuel- and
Transportation of fuels and
energy-related emissions not Section 8.5
energy consumed
included in scope 1 or 2)
Transportation and distribution
Scope 3-category 4 (upstream
between Tier 1 supplier and Section 8.6
transportation and distribution)
entity
Transportation and distribution Scope 3-category 8 (upstream
Question 8.2.20
in vehicles leased by the entity leased assets) or scope 1 or 2

Emissions source Classification Reference

Scope 3-category 9
Transportation and distribution
(downstream transportation Section 8.11
of sold products
and distribution)

Question 8.6.20
How are upstream transportation and distribution
emissions calculated?
Interpretive response: There are three methods used to calculate scope 3
emissions from upstream transportation and distribution. [GHGP S3C p 51]

Calculation method Formula

Fuel-based Fuel consumed × Emission factor
Distance-based Distance × Emission factor
Spend-based Cost × Emission factor

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate. See
Question 8.2.40.

8.7 Category 5: Waste generated in operations

Question 8.7.10
What are waste generated in operations emissions
(category 5)?
Interpretive response: Scope 3-category 5 accounts for emissions related to
third-party disposal and treatment of waste generated from operations in the
reporting year. Emissions sources may include landfill disposal, incineration and
composting or wastewater treatment. It also includes the transportation of waste
in third-party vehicles. [GHGP S3 p 44]

The category includes all downstream future emissions of waste sent to the
landfill during the reporting year (see Question 8.2.30). [GHGP S3 p 44]

Example 8.7.10
Identifying waste generated in operations emissions
Property Manager has a service agreement with a waste management entity,
which collects accumulated tenant waste from properties on a weekly basis. All
waste is sent to the landfill for disposal.

Property Manager includes the emissions associated with the future emissions
of waste sent to the landfill during the reporting year in scope 3-category 5.

Question 8.7.20
How are waste generated in operations emissions
calculated?
Interpretive response: There are three methods to calculate scope 3
emissions from waste generated in operations. [GHGP S3C p 73]

Calculation method Formula

Supplier-specific Collect waste-specific emission data directly from waste
treatment provided
Waste-type-specific Waste type × Emission factor
Average-data Total waste per treatment method × Average emission factor

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate. See
Question 8.2.40.

Example 8.7.20
Calculating waste generated in operations emissions
using the waste-type-specific method
Hotel generates three broad categories of waste: plastic, general waste and
paper. Plastic is recycled, generate waste is sent to landfill and paper is
incinerated.

Hotel includes in scope 3-category 5 the emissions related to the disposal of

these waste categories.

Using the waste-type-specific method, the formula to calculate emissions

associated with waste generated in operations during the reporting period is:
Activity data: Σ (waste produced (tonnes or m3))
×
Waste type and waste treatment specific emission factor (kg CO2e/tonne or m3)

To perform this calculation, Hotel gathers the following information.

Waste
Waste type Data Source Data Unit
treatment
Waste
Activity
Hauler 750 Tonnes
data
Report
Plastic Recycled National
Emission Emission tCO2e /
0.2
factor Factor tonne
Report
Waste
Activity
Hauler 2,500 Tonnes
data
Report
General
Landfill National
waste
Emission Emission tCO2e /
1.5
factor Factor tonne
Report
Waste
Activity
Hauler 20 Tonnes
data
Office and Report
mixed Incinerated National
paper Emission Emission tCO2e /
0.4
factor Factor tonne
Report

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

(750 × 0.2) + (2,500 × 1.5) + (20 × 0.4) = 3,908 tCO2e

8.8 Category 6: Business travel

Question 8.8.10
What are business travel emissions (category 6)?

Interpretive response: Scope 3-category 6 accounts for emissions related to

the transportation of employees for business-related activities during the
reporting year (in vehicles not owned or operated by the entity). Emissions
sources may include air, rail, bus, automobiles and hotels. [GHGP S3 p 46]

The inclusion in category 6 of emissions from business travelers staying in

hotels is optional. These are emissions related to the operations of a hotel

during a stay, allocated to an individual or room (based on its size). [GHGP S3 p

46]

The following table identifies emissions that may be related to business travel,
but which are not included in scope 3-category 6.

Emissions source Classification Reference

Entity-owned vehicles Scope 1 or 2 Chapters 6 and 7
Transportation of employees to Scope 3-category 7
Section 8.9
and from work (employee commuting)
Scope 3-category 8
Leased vehicles Question 8.2.20
(upstream leased assets)

Question 8.8.20
How are business travel emissions calculated?

Interpretive response: There are three methods used to calculate scope 3

emissions from business travel. [GHGP S3C p 82]

Calculation method Formula

Fuel-based Fuel consumed × Emission factor
Distance-based Distance × Emission factor
Spend-based Cost × Secondary (EEIO) emission factor

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate and
for that reason, the distance-based calculation method is generally the most
common. See Question 8.2.40.

Example 8.8.10
Calculating business travel emissions using the
distance-based method
Hotel’s executive and corporate events teams, among others, regularly travel for
work purposes. Hotel includes the associated emissions in scope 3-category 6.

Using the distance-based method, the formula to calculate emissions

associated with business travel during the reporting period is:
Activity data: Σ (distance traveled by vehicle type (vehicle-km or passenger-km))
×
Vehicle-specific emission factor (kg CO2e/vehicle-km or kg CO2e/passenger-km)

To perform this calculation, Hotel gathers the following information.

Type Source Data Unit

Activity data Travel records 3,245,000 miles
National Emission
Emission factor 0.000088 tCO2e per mile
Factor Report

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

3,245,000 miles × 0.000088 tCO2e per mile = 286 tCO2e

8.9 Category 7: Employee commuting

Question 8.9.10
What are employee commuting emissions (category 7)?

Interpretive response: Scope 3-category 7 accounts for emissions related to

the transportation of employees between their homes and worksites. Emissions
sources may include air, rail, bus, automobiles and remote working – e.g.
employee electricity consumption at their personal residence. [GHGP S3 p 46]

This category can optionally include (i.e. they are not required) the following:
[GHGP S3 p 57]

• employees of other relevant entities that are outside the organizational

boundary – e.g. franchises, outsourced operations; and

• consultants, contractors and other individuals who are not employed by the
entity but who commute to facilities owned and operated by the entity.

Example 8.9.10
Identifying employee commuting emissions
The following example illustrates two scenarios of activities that are included in
scope 3-category 7.

Scenario 1: Work commute

Hotel’s employees commute via local bus service to the office four days a week.
The emissions associated with the bus are included in scope 3-category 7.

Scenario 2: Remote work (optional reporting)

Hotel‘s employees work remotely three days a week. The additional activities
resulting from remote work (e.g. heating or air conditioning during the day) are
included in scope 3-category 7. However, activities that would occur regardless
of an employee working remotely (e.g. refrigeration energy) are not included.

Question 8.9.20
How are employee commuting emissions calculated?

Interpretive response: There are three methods used to calculate scope 3

emissions from employee commuting. [GHGP S3C p 87]

Calculation method Formula

Fuel-based Fuel consumed × Emission factor
Distance-based Distance × Emission factor
Average-data Average data on commuting patterns

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate (see
Question 8.2.40). Because of the availability of national data on employee
commuting patterns in many countries, in our experience the average-data
method is common.

Example 8.9.20
Calculating employee commuting emissions using the
average-data method
Hotel has 150 employees that commute from their homes to the worksites using
personal modes of transport. Hotel includes in scope 3-category 7 the emissions
associated with these commutes.

Using the average-data method, the formula to calculate emissions associated

with employee commuting during the reporting period is:
Activity data: Σ (total number of employees × % of employees using mode of transport)
×
Round-trip commuting distance (vehicle-m or passenger-m) × working days per year ×
emission factor of transport mode (kg CO2e/vehicle-m or kg CO2e/passenger-m)

To perform this calculation, Hotel gathers the following information.

Type Source Data Unit

Activity data Headcount 150 Employees

Type Source Data Unit

Regional statistics (average commuting
57 miles
distance round trip)
Calendar (working days per year,
230 days
inclusive of holidays and personal days)
Emission factor National Emission Factor Report
0.00021 tCO2e/m
(gasoline car)

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

(150 employees × 100% × 57 miles × 230) x 0.00021 = 310 tCO2e

8.10 Category 8: Upstream leased assets

Question 8.10.10
What are upstream leased asset emissions (category
8)?
Interpretive response: Scope 3-category 8 accounts for emissions that are
leased by the entity in the reporting year and not already included in scopes 1
and 2. This category applies to lessees only. [GHGP S3 p 47]

The inclusion in scope 3 of emissions from leased assets depends on the

approach chosen for an entity’s organizational boundary (see Question 4.3.20).
[GHGP S3 p 47]

8.11 Category 9: Downstream transportation and

distribution

Question 8.11.10
What are downstream transportation and distribution
emissions (category 9)?
Interpretive response: Scope 3-category 9 accounts for emissions related to
transportation and distribution of sold products in the reporting year. This
category also includes future emissions from retail and storage (see Question
8.2.30). [GHGP S3 p 47]

Example 8.11.10
Identifying downstream transportation and distribution
emissions
Paper manufactures office paper that is sold at office supply retailers. The office
paper is transported from Paper to Retailer using a third-party transportation
service. The emissions associated with the transportation and distribution of the
paper are accounted for differently depending on whether Paper pays for the
transportation.

The following table, adapted from the Scope 3 Calculation Guidance, illustrates
how Paper accounts for the scope 3 emissions from the transportation and
distribution of sold products. [GHGP S3C p 103]

Scenario Transportation Retailer

Paper does not
Scope 3-category 9 (upstream Scope 3-category 9 (upstream
pay for
transportation and distribution) transportation and distribution)
transportation
Scope 3-category 4
Paper does pay for Scope 3-category 9 (upstream
(downstream transportation
transportation transportation and distribution)
and distribution)

Question 8.11.20
How are downstream transportation and distribution
emissions calculated?
The calculation methods for category 9 are consistent with category 4. See
Question 8.6.20.

8.12 Category 10: Processing of sold products

Question 8.12.10
What are processing of sold products emissions
(category 10)?
Interpretive response: Scope 3-category 10 accounts for emissions related to
the processing of sold products that require further processing or inclusion in
another product once sold before use by the end consumer. [GHGP S3 p 47]

The GHGP acknowledges that an entity may sell products to many intermediary
third parties, and is therefore unable to estimate emissions associated with
processing prior to end use. [GHGP S3 p 47]

In such cases, an entity may disclose and justify its exclusion of reporting
category 10. [GHGP S3 p 60]

Question 8.12.20
How are processing of sold products emissions
calculated?
Interpretive response: There are two methods used to calculate scope 3
emissions from processing of sold products. [GHGP S3C p 107]

Calculation method Description

Site-specific method Third-party processing emissions data
Average-data method Estimation based on secondary data – e.g. average
emissions per product

A single method or a combination of methods can be used to calculate

emissions. [GHGP S3C p 13]

Data availability will likely determine which methods are most appropriate. See
Question 8.2.40.

Example 8.12.10
Identifying and calculating processing of sold products
emissions using the average-data method
Timber sells wood to a bed manufacturer, where the wood is processed to build
a bed that is sold to end consumers. Timber obtains from the manufacturer an
average emission factor for the production of a bed. Timber includes the
emissions associated with the manufacturing and packaging of a bed in scope
3-category 10.

Using the average-data method, the formula to calculate emissions associated

with processing of sold products during the reporting period is:
Sum across all intermediate products:

Activity data: Σ (mass of sold intermediate product (kg))

×
Emission factor of processing of sold products (kg CO2e/kg of final product)

To perform this calculation, Timber gathers the following information.

Type Source Data Unit

Activity data Manufacturer 450 tonnes
Emission factor National Emission Factor Report 1.3 tCO2e / t

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

450 tonnes × 1.3 tCO2e/t = 585 tCO2e

8.13 Category 11: Use of sold products

Question 8.13.10
What are use of sold products emissions (category 11)?

Interpretive response: Scope 3-category 11 accounts for emissions related to

the use of goods and services sold (to end users including consumers and
business customers) by the entity in the reporting year. End users include both
consumers and business customers that use final products. This includes all
lifetime emissions following the point of sale of a product (see Question 8.2.30).
[GHGP S3 p 48]

There are two types of emissions from the use of sold products: [GHGP S3 p 48]

• direct use-phase emissions – e.g. emissions of expected fuel use in the

lifetime of planes a manufacturer sells to airline providers; and
• indirect use-phase emissions – e.g. emissions associated with energy
required for washing and drying clothing a manufacturer sells to consumers.

Entities are required to include direct use-phase emissions in category 11, but
the inclusion of indirect use-phase is optional. In addition, it is optional to include
emissions associated with the maintenance of sold products during use. [GHGP
S3 p 48]

Question 8.13.20
How are use of sold products emissions calculated?

Interpretive response: There are three direct use-phase subcategories under

which a sold product may fall. [GHGP S3C p 114]

Subcategory Examples
Products that directly consume energy Cars, washing machines, televisions
Fuels and feedstock Crude oil, coal, biofuels
GHG and products that contain or form
HVAC, refrigerators, fire extinguishers
GHG that are emitted during use

To calculate optional indirect use-phase emissions, an entity creates or obtains

a typical use-phase profile over the lifetime of the product and multiplies by
relevant emission factors. [GHGP S3C p 120]

Each category has a calculation methodology, as detailed in the GHGP Scope 3

Calculation Guidance, which is outside the scope of this handbook.

8.14 Category 12: End-of-life treatment of sold

products

Question 8.14.10
What are end-of-life treatment of sold products
emissions (category 12)?
Interpretive response: Scope 3-category 12 accounts for the emissions related
to the end-of-life treatment of sold products sold in the reporting year. [GHGP S3 p
49]

Category 12 shares similarities to category 5 (waste generated in operations),

with consistent end-of-life treatment methods – e.g. landfill, recycling. See
section 8.7.

Example 8.14.10
Identifying end-of-life treatment of sold products
emissions
Cellphone Manufacturer sells 100 million cellphones during the reporting year,
with an expected average lifetime of four years following sale to end consumers.

The cellphone manufacturer predicts consumers will dispose of cellphones via

either landfill or a recycling program. The estimated emissions associated with
landfill disposal and recycling treatment are included in scope 3-category 12.

Question 8.14.20
How are end-of-life treatment of sold products emissions
calculated?
Interpretive response: The calculation methods for category 12 are consistent
with category 5. See Question 8.7.20.

8.15 Category 13: Downstream leased assets

Question 8.15.10
What are downstream leased asset emissions (category
13)?
Interpretive response: Scope 3-category 8 accounts for emissions that are
leased by the entity in the reporting year and not already included in scopes 1
and 2. This category applies to lessors only. [GHGP S3 p 50]

The inclusion in scope 3 of emissions from leased assets depends on the

approach chosen for an entity’s organizational boundary (see Question 4.3.20).
[GHGP S3 p 50]

8.16 Category 14: Franchises

Question 8.16.10
What are franchise emissions (category 14)?

Interpretive response: Scope 3-category 14 accounts for the emissions related

to franchise operations that are not otherwise included in scopes 1 or 2. This
category applies to franchisors only. [GHGP S3 p 51]

A franchisor sells or grants a franchise license to a franchisee for the sale of

goods or the operation of a service. The franchisor owns trademarks and
business models and receives payments from entities who hold the franchise
license. [GHGP S3 p 138]

The following table shows how the emissions associated with a franchise are
classified by each party. [GHGP S3 p 51]

Emissions source Party Classification

Franchise Franchisee Scopes 1 and 2 emissions

operations Franchisor Scope 3-category 14
Franchisor Scope 3-category 1 (purchased goods and
Franchisee
operations services)1
Note:
1. Optional under scope 3-category 1.

Question 8.16.20
How are franchise emissions calculated?

Interpretive response: There are two methods used to calculate scope 3

emissions from franchises. [GHGP S3C p 130]

Calculation method Description

Franchise-specific method Collecting site-specific data activity
Average-data method Estimation based on average statistics (e.g. average
emissions per square foot)

A single method or a combination of methods can be used to calculate

emissions. Data availability will likely determine which methods are most
appropriate. See Question 8.2.40. [GHGP S3C p 13]

Example 8.16.10
Identifying and calculating franchise emissions using the
average-data method
Hotel operates a franchise-based model. It grants a franchise license to hotel
operators, which includes use of the brand name. Hotel includes the emissions
associated with the operations of each hotel using its franchise license in scope
3-category 14.

Using the average-data method, the formula to calculate emissions associated

with franchises during the reporting period is:
Sum across building types:

Activity data: Σ (total floor space of building type (m3))

×
Average emission factor for building type (kg CO2e/m3/year)

To perform this calculation, Hotel gathers the following information.

Emission factor
Franchise Source Data Unit
(tCO2e / sq ft)
Franchise A 40,000
Franchise B Floor plan 50,000 sq ft 0.007
Franchise C 100,000

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

(40,000 + 50,000 + 100,000) × 0.007 = 1,330 tCO2e

8.17 Category 15: Investments

Question 8.17.10
What are investment emissions (category 15)?

Interpretive response: Scope 3-category 15 accounts for the emissions related

to investments in the reporting year. The category applies to investors and
entities that provide financial services. [GHGP S3 p 51]

Investments may be included in scope 1 or 2 depending on the organizational

boundary applied (see section 3.2). [GHGP S3 p 51]

A common name used in the financial industry for emissions in this category is
‘financed emissions’.

The GHGP Scope 3 Standard covers four investment asset classes: [GHGP S3 p
51]

• equity investments
• debt investments
• project finance
• managed investments and client services.

Question 8.17.20
How are investment emissions calculated?

Interpretive response: Investment emissions are allocated to the entity based

on its proportional share of the underlying investment in the investee. [GHGP S3C
p 137]

Investments reported in category 15 emissions are identified by choosing a fixed

point in time (e.g. December 31) or using a representative average over the
course of the reporting year. [GHGP S3C p 137]

Each asset class has a calculation methodology, as detailed in the GHGP

Scope 3 Calculation Guidance, which is outside the scope of this handbook.

In 2020, the Partnership for Carbon Accounting Financials (PCAF) published

The Global GHG Accounting and Reporting Standard for the Financial Industry,
which provides emission calculation guidance for a wider range of asset
classes. The first edition of the Standard was reviewed by the GHGP and is in
conformance with the requirements of the Scope 3 Guidance. The second
edition of the Standard, released in December 2022, is pending GHGP review
and approval. Inventory preparers with significant scope 3-category 15
emissions may wish to consider the PCAF Standard when preparing financed
emissions.

Example 8.17.10
Identifying and calculating investment emissions
Investment Manager, which primarily provides investment advisory services to
clients, has a small portfolio of four investments on its balance sheet at
December 31.

Investment Manager obtains investee scopes 1 and 2 emissions from publicly

available GHG reporting by each underlying investment entity and the equity
share from financial records.

The formula to calculate emissions associated with investments during the

reporting period is:
Sum across investees:

Activity data: Σ (scope 1 and scope 2 emissions of investments)

×
Share of equity %)

To perform this calculation, Investment Manager gathers the following

information.

Scopes 1 and 2
Investment emissions in reporting % equity share
year (tCO2e)
Maple Leaf Inc 45,000 35
Thistle Inc 70,000 15
Rose Inc 100,000 10
Cherry Blossom Inc 20,000 25

Based on this data, emissions are calculated as:

Activity data × Emission factor = tCO2e

(45,000 × 35%) + (70,000 × 15%) + (100,000 × 10%) + (20,000 × 25%)
= 15,750 + 10,500 + 10,000 + 5,000 = 41,250 tCO2e

Reporting landscape#
Financed (investment) emissions
As shown in the following table, the ISSB Standards and ESRSs take different
approaches.

ISSB Standards ESRSs SEC Climate Rule

Financed emissions Financial institutions are No required scope 3

disclosures are required if required to consider emissions disclosures.

ISSB Standards ESRSs SEC Climate Rule

the entity’s activities PCAF, specifically part A
include commercial ‘Financed Emissions’
banking, insurance or (version Dec 2022), when
asset management. measuring gross scope 3
[IFRS S2.29(a)(vi)(2), B59(a)- emissions.
(c)] [ESRS E1.AR46(b)]
An entity discloses the
methodology used,
including how its share of
emissions was allocated
relative to investment size
and its gross exposure.
[IFRS S2.B61(d), B62(d),
63(d)]

9. Tracking emissions and setting targets

Detailed contents
Item significantly updated in this edition #

9.1 How the GHGP works

9.2 The base year and tracking emissions
Questions
9.2.10 How are emissions tracked over time?
9.2.20 How is a base year chosen?
9.2.30 When are recalculations necessary?
9.2.40 What is a significance threshold? #
Examples
9.2.10 Setting a base year
9.2.20 Recalculating prior year emissions
9.3 Goals and targets
Questions
9.3.10 What is a GHG emissions target?
9.3.20 What are the steps in setting a GHG emissions target?
9.3.30 What are the different GHG emissions target types?
9.3.40 What is a science-based target?
9.3.50 What is the difference between carbon neutral and net-zero?
Example
9.3.10 Differentiating between carbon neutral and net-zero targets
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
GHG intensity metrics #
GHG emissions targets #

9.1 How the GHGP works

Until this point, the handbook has dealt with gathering the information necessary
to create the GHG inventory. This chapter discusses tracking emissions, which
is part of how the information is used.

Step 1 Define the organizational boundary

Gather the
Step 2 Classify sources of emissions
information
Step 3 Calculate emissions

Track emissions
• Develop base year
Step 4
Use the • Set targets
information • Purchase offset credits

Step 5 Report emissions

Develop a base year

A base year is a benchmark that allows an entity to observe trends in emissions

Set reduction targets

9.2 The base year and tracking emissions

Question 9.2.10
How are emissions tracked over time?

Interpretive response: To make meaningful and consistent comparisons of

emissions over time, an entity sets a base year (see Question 9.2.20) to which it
compares current emissions. Such comparisons may support a variety of
business goals – e.g. reporting, target setting, risk management. [GHGP p 35]

A base year is a benchmark that allows an entity to observe trends in emissions

information. To maintain consistency, it may be necessary to recalculate base
year, and other historic, emissions. Such recalculations may be triggered by a
variety of changes to the entity. See Question 9.2.30.

Question 9.2.20
How is a base year chosen?

Interpretive response: Absent reporting requirements (e.g. SBTi’s Net-Zero

Standard requires a base year no earlier than 2015; see Question 9.3.50), the
following steps provide guidelines for choosing a base year.

First, the entity decides whether to select one base year for its entire emissions
inventory or different base years for each source of emissions – e.g. scope 1,
scope 2, scope 3.

Second, the entity selects an approach for calculating base year emissions.
[GHGP p 35]

• Single year: Select one single year against which to compare all future
emissions.

• Multi-year: Average annual emissions data over a set number of

consecutive years.

Third, the entity selects the base year. Typically this is the earliest relevant point
for which reliable data is available. [GHGP p 36]

A base year can be changed, but it may affect future inventory comparisons. For
example, an entity may need to reconsider its base year if it has an acquisition
for which historical data is unavailable. See Question 9.2.30.

The inventory base year may also be used as the target base year (see
Question 9.3.30).

Example 9.2.10
Setting a base year
Hotel set its base year as 2019 for scopes 1, 2 and 3 emissions. The following
table shows the base year emissions and the comparison one year later. Hotel
would continue tracking in future years to reveal the trend in its emissions over
time.

Measures in tCO2e 2019 (base year) 2020 Trend

Scope 1 1 0.8 -20%
Scope 2 3 4.5 +50%
Scope 3 6 7.5 +25%

Question 9.2.30
When are recalculations necessary?

Interpretive response: To maintain consistency over time (‘like with like’) so

that meaningful emissions comparisons can be made, it may be necessary to
recalculate historic emissions; such recalculations may impact historic
emissions, including base year emissions. To reflect changes in the entity that
would otherwise compromise the consistency and relevance of GHG emissions
information, historic emissions are retroactively recalculated. [GHGP p 34]

Recalculations may be triggered by:

• the rapid evolution in sustainability reporting – e.g. new data, new

measurements, new methodologies; or
• structural changes within the entity itself – e.g. divestments.

A historic emissions recalculation may be necessary in the following

circumstances, if they are significant (see Question 9.2.40): [GHGP p 35]

• improvements in the accuracy of emission factors or other data;

• discovery of errors;
• outsourcing or insourcing of emitting activities;
• refinement in the calculation methodology applied; and/or
• a structural change in the entity (e.g. merger, acquisition, divestment).

In addition, new scope 3 categories may be added to the operational boundary

in the current year (see chapter 4) with prior year information added for
comparability.

A historic emissions recalculation is not made in the following circumstances:

[GHGP pp 38-39]

• changes (e.g. acquisition) involving facilities or operations that did not exist
in base year;

• organic growth or decline from increases or decreases in production output,

change in product mix, and closures or openings of operating units owned
or controlled by the entity; and
• outsourcing or insourcing if the relevant indirect emissions are reported.

The example in Appendix B includes illustrative disclosures when a

recalculation is triggered.

The following diagram illustrates the philosophy of the GHGP in requiring

recalculations. If ABC sells part of its business to DEF, total emissions have not
changed – they have simply been redistributed between the two entities. By
recalculating past emissions for the effect of the transaction (disposal for ABE
and acquisition for DEF), the emissions tracking over time maintains its integrity
relative to the current year.

Year 1 Year 2
ABC DEF Total ABC DEF Total

However, if DEF built a new plant instead of acquiring it from ABC, total
emissions would increase and therefore there is no recalculation.

This approach is very different from financial reporting and means that
recalculations of prior year information can be common in GHG emissions
reporting, and it does not mean that there was an error in prior period
information. However, historical emissions are not recalculated if they fall below
a ‘significance threshold’.

Question 9.2.40#
What is a significance threshold?

Interpretive response: A significance threshold is a point at which a

recalculation of historic emissions is triggered. When a significance threshold
has been reached, historic emissions are recalculated. A significance threshold
comprises qualitative and/or quantitative criteria (and it may be based on
cumulative changes) that an entity establishes in a recalculation policy.
Particular care should be taken in assessing the qualitative nature of errors that
are discovered. This threshold is at the entity’s discretion and is not prescribed
by the GHGP. [GHGP p 35]

As defined in the GHGP Scope 3 Standard, significant changes result not only
from single large changes, but also from several small changes that are
cumulatively significant. [GHGP S3 p 104]

Although the GHGP makes no specific recommendation as to what constitutes

‘significant’, some external GHG programs may specify certain numerical
thresholds.

Example 9.2.20
Recalculating prior year emissions
Hotel establishes an emissions recalculation policy that defines a significance
threshold of 5%. Any positive or negative changes outside the 5% threshold are
considered significant and trigger a recalculation.

Scenario 1: The cumulative impact of multiple events triggers a base year

recalculation

In the current year, Hotel monitors the following events.

• Operations makes a recommendation to change the calculation

methodology. For consistency purposes, the change will also be made in
the base year. This results in a 3% decrease in total base year emissions.

• Internal Audit discovers an error in the current year emissions calculation

and determines that the same error was made in the base year calculation.
This results in a 1% increase in total base year emissions.

• Management divests from a manufacturing facility. This results in a 4%

decrease in total base year emissions.

Individually, none of these changes exceed the 5% significance threshold.

However, cumulatively the 5% significance threshold is exceeded and Hotel
determines a base year recalculation is necessary.

+1%
-3% -4%

Scenario 2: A single event triggers a base year recalculation

Hotel purchased Subsidiary in 2023. The purchase resulted in an increase in the

emissions within Hotel’s inventory boundary. Because this increase exceeded
Hotel’s significance threshold, Hotel determined it necessary to recalculate prior
year emissions.

Hotel’s prior year emissions have been recalculated to reflect the inclusion of
Subsidiary’s emissions.

Measures in 2019 2019 2019 (adjusted

tCO2e (base year) (subsidiary) base year)
Scope 1 1 0.2 1.2
Scope 2 3 0.5 3.5
Scope 3 6 2 8

9.3 Goals and targets

Question 9.3.10
What is a GHG emissions target?

Interpretive response: A GHG emissions reduction target is a planning tool

that can be used to manage GHG risks, enhance cost savings and drive
research and development. GHG emissions targets are increasingly used by
entities that commit to reduce GHG emissions by a certain amount by a certain
year. The rest of this section discusses the different types of targets and some
of the common phrases used by entities in making commitments – e.g. net zero.

Question 9.3.20
What are the steps in setting a GHG emissions target?

Interpretive response: Target-setting is a process that is informed by relevant

policy and stakeholder discussions. It is typically an iterative process involving
the following steps.

Excerpt from GHGP Corporate Standard [p 75]

Steps in setting a GHG target:

1. Obtain senior management commitment

2. Decide on the target type

3. Decide on the target boundary

4. Choose the target base year

5. Define a target completion date

6. Define the length of the target commitment period

7. Decide on the use of offsets or credits

8. Establish a target double counting policy

9. Decide on the target level

10. Track and report progress

This remainder of this chapter focuses on Steps 2 and 7.

Question 9.3.30
What are the different GHG emissions target types?

Interpretive response: The two types of GHG emissions targets are absolute
and intensity-based. [GHGP p 77]

• Absolute targets refer to reductions of absolute emissions over time – e.g.

50% reduction in the entity’s scope 1 emissions by 2030.

• Intensity targets refer to reductions of the ratio of emissions relative to a

business metric over time – e.g. 50% reduction in the entity’s scope 1
emissions intensity per square foot of facility space by 2030.

An entity chooses the type of reduction target that make sense for its operations
and reporting goals. It may focus on tracking a year-over-year trend (absolute or
intensity) within the entity or it may focus on comparing (or benchmarking) its
own intensity metrics to that of peers. Some entities may have multiple targets,
both absolute and intensity-based.

Even with decreased GHG intensity, absolute emissions may still rise. An entity
may meet an intensity target by improving energy efficiency throughout its
facilities, while also building more facilities that increase consumption and lead
to a rise in absolute emissions.

Intensity metrics

There is no standard metric upon which to base an intensity value. This is

because of the significant diversity in what entities do and how they do it. Unless
production processes are homogenous, it is difficult to develop indicators that
allow for useful comparisons across facilities or entities.

In our experience, common denominators for intensity metrics are:

• production output – e.g. mileage, kWh, metric tonnes of products;

• financial basis – e.g. revenue, costs; and
• other – e.g. office space.

An entity chooses a denominator that allows for meaningful tracking of a trend

for the intended purpose – e.g. measuring progress toward a reduction target. It

is important to understand the context for an intensity metric when using it for
analyses and comparisons.

Reporting landscape#
GHG intensity metrics
As shown in the following table, only ESRSs require disclosure of GHG intensity
metrics in all cases.

ISSB Standards ESRSs SEC Climate Rule

No explicit requirement. An entity discloses total No requirement.

However, an entity GHG emissions in metric
discloses GHG intensity tonnes of CO2e per net
metrics if such metrics are revenue. [ESRS E1.53]
determined to be useful to
The intensity metric is
users of general purpose
calculated using total GHG
financial reports.
[IFRS S1.15(b), IFRS
emissions measured using
S2.BC84] the location-based and
total GHG emissions
measured using the
market-based method.
[ESRS E1.AR53(b)]

Question 9.3.40
What is a science-based target?

Interpretive response: A target is considered ‘science-based’ if it is in line with

what the latest climate science (e.g. IPCC) says is necessary to meet the goals
of the Paris Agreement – limiting global warming to 1.5 degrees Celsius above
pre-industrial levels.

There are several science-based target frameworks, the most commonly known
being the Science Based Targets initiative (SBTi).

SBTi provides guidance and tools for entities to set science-based targets
(SBTs) by, among other things, defining and promoting best practice in SBT-
setting across sectors. SBT submissions are validated against the SBTi’s
science-based criteria.

According to the SBTi Criteria guidance, near-term SBTs need to:

• cover a minimum of 5 years and a maximum of 10 years from the date the
target is submitted to the SBTi;

• follow the GHGP Corporate Standard, Scope 2 Guidance and Scope 3

Standard (to the extent scope 3 categories are included);

• cover scopes 1 and 2;

• cover scope 3 for entities whose scope 3 emissions cover more than 40% of
their combined scope 1, 2 and 3 emissions;

• be based on emissions reductions through direct action within the entity’s

own boundaries or value chains (see chapter 4);

• not count avoided emissions (see Question 10.3.10););

• not count offsets (see Question 10.3.10); and

• only count renewable instruments such as RECs to meet reductions of

scope 2 emissions using the market-based approach (see Question 7.3.10).

The SBTi recommends that annually entities publicly disclose their emissions
inventory and progress against their targets – e.g. in the annual report,
sustainability report, corporate website, CDP annual questionnaire.

The SBTi is currently developing a process to track entity progress against

targets and plans to issue more specific guidance on annual reporting
requirements for entities.

Question 9.3.50
What is the difference between carbon neutral and net-
zero?
Interpretive response: The terms ‘net-zero’ and ‘carbon neutral’ are frequently
used to identify a GHG emissions reduction commitment. The United Nations
Framework Convention on Climate Change (UNFCCC) has developed
definitions for these two terms, among others, which are commonly used in
sustainability reporting.

The ‘Race to Zero Lexicon’ is not intended to be a mandate for standardization,

but was created to facilitate further alignment of how terms are used in reporting
to limit user confusion. Many of the definitions refer to the IPCC definitions.
There are various other frameworks that also define these terms – e.g. Net Zero
Initiative Framework, ISO Net Zero Guidelines.

Because each term may be defined differently, it is important for the entity to:

• have a clear understanding of the terms used in making commitments; and

• consider regulatory and jurisdictional implications – e.g. an EU directive on

‘green claims’ was proposed in 2023 and is progressing through the
legislative process. [EU Briefing]

The following table compares the two concepts, leveraging the carbon neutral
definition from PAS 2060 and the net-zero definition from SBTi.

Carbon neutral Net-zero SBTi

Reduce emissions in line with 1.5-
Reduce emissions through a
degree Celsius pathway – i.e.
Overview target-driven carbon
consistent with the Paris Agreement
management plan
(see Question 2.2.10)
Residual carbon emissions
Use of Residual emissions can be offset by
can be offset by high quality
offsets carbon removal projects or credits
certified carbon credits
Scopes 1 and 2, and scope 3
emissions that contribute Scopes 1, 2 and 3
Scope
more than 1% of the total
footprint
Gases Includes all GHGs Includes all GHGs
Can refer to a specific
Boundary product or service, or the Encompasses the whole entity
whole entity

Types of Carbon reduction, avoidance Carbon removal projects

offsets or removal projects

Applicable
PAS 2060 SBTi Corporate Net-Zero Standard
standard

Entities that commit to emissions reduction targets often have discretion in the
extent and ambition of those targets. These targets are often influenced by
regulators, public policy and other stakeholders.

For example, many signatories to the Paris Agreement have set net-zero
targets. These targets align with the IPCC’s 2018 Special Report on Global
Warming of 1.5 degrees Celsius, which explains that to limit the global
temperature increase to 1.5 degrees Celsius, global net anthropogenic CO2
emissions need to decline by about 45% from 2010 levels by 2030, reaching
net-zero around 2050.

As more countries set targets in line with this goal, more entities are facing
pressure to set similar targets.

Scope 2

Many entities set a target for scope 2 market-based emissions because the only
way to reduce scope 2 location-based emissions is to reduce overall energy
usage, or potentially increase on-site renewable generation used directly on the
entity’s premises. The market-based approach allows an entity to take credit for
green electricity purchases, giving it more options to demonstrate a reduction in
reported emissions. See Example 7.2.30.

The difference between Scope 2 market-based versus location-based emissions

is discussed in section 7.2.

Example 9.3.10
Differentiating between carbon neutral and net-zero
targets
The following are example policies.

Restaurant has established a carbon neutral target

We have signed the UN’s carbon neutral pledge and are committed to reducing
our carbon footprint to the extent possible. We are reducing our carbon footprint
by serving a vegan menu and using stipends to incentivize employee use of
public transportation. We offset unavoidable emissions through investment in a
carbon reduction project to develop fuel-efficient cookstoves in Africa.

Hotel has established a net-zero target

We plan to achieve net-zero GHG emissions by the end of 2035, and every year
thereafter. We will start by reducing emissions within our organizational
boundary. For emissions we cannot avoid, we plan to fully neutralize them by
investing in forest conservation projects that prevent carbon from entering the
atmosphere. We will further invest in grassland restoration projects that capture
and store carbon. These actions are consistent with SBTi obligations for 90%
reductions and carbon removal offsets on the remaining 10% of emissions.

Reporting landscape#
GHG emissions targets
As shown in the following table, ISSB Standards and ESRSs require disclosure
about any targets or goals that have been set while the SEC has an additional
materiality screen.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses any An entity discloses An entity discloses any

targets it has set to assess whether and how it has set climate-related target that
progress toward achieving GHG emissions reduction has materially affected or
its strategic goals, and any targets and, if it has, is reasonably likely to
targets it is required to specified information is materially affect the
meet by law or regulation. disclosed – e.g. the targets entity’s business, result of
Specified information is disclosed in absolute value operations or financial
disclosed in relation to and, where relevant, in condition. [§229.1504(a)]
those targets – e.g. the intensity value; the targets
period over which the disclosed for scopes 1, 2
target applies, the base and 3 emissions either
period from which separately or combined;
progress is measured. the base year and
[IFRS S2.33–36] baseline value; whether
the targets are science-
based and compatible with
limiting global warming to

ISSB Standards ESRSs SEC Climate Rule

1.5 degrees Celsius.
[ESRS E1.33-34]

If a net-zero target has

been set, an entity
discloses the scope,
methodologies and
frameworks applied and
how residual emissions
(after 90-95% reduction)
will be neutralized – e.g.
GHG removals in the
entity’s own operations
and its upstream and
downstream value chain.
[ESRS E1.60]

10. Offset credits

Detailed contents
Item significantly updated in this edition #
New item added in this edition **

10.1 How the GHGP works

10.2 GHG offsets and projects
Questions
10.2.10 How are GHG offsets referred to in practice? #
10.2.20 What is a GHG offset?
10.2.30 What is a GHG project?
10.2.40 What is a GHG assessment boundary?
10.2.50 How are GHG offsets quantified?
10.2.60 How are baseline emissions calculated?
10.2.70 What is additionality?
10.2.80♦ What are GHG trading programs?
Examples
10.2.10 Identifying the GHG assessment boundary
10.2.20 Demonstrating additionality
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
GHG offsets #
10.3 Offset credits
Questions
10.3.10 What is an offset credit?
10.3.20 How are offset credits used to meet GHG emission reduction
targets?
10.3.25 What is the process by which offset credits are derived from
a GHG project? **
10.3.27 What if GHG emissions reductions are reversed after offset
credits are issued? **
10.3.30 What are the considerations around the credibility of offset
credits?
10.3.35 What considerations are relevant in assessing the quality of
offset credits in the voluntary market? **
10.3.37 How does an ex-ante offset credit differ from an ex-post
offset credit? **

10.3.40 Are offset credits different from RECs?

10.3.50 How are offset credits reported?
Examples
10.3.5 Offset credits buffer reserve **
10.3.10 Double counting offset credits
10.3.20 Purchasing RECs to reduce scope 2 market-based
emissions
10.3.30 Purchasing offset credits to meet GHG emission reduction
goals
Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Offset credibility #
Emissions Trading Schemes #
Future developments **

♦ Previously Question 10.3.60

10.1 How the GHGP works

Having provided an overview of how emissions are tracked in chapter 9, this
chapter looks more closely at the use of offset credits to meet GHG emissions
targets. This chapter provides a foundational overview of how offset credits
originate.

Step 1 Define the organizational boundary

Gather the
Step 2 Classify sources of emissions
information
Step 3 Calculate emissions

Track emissions
• Develop base year
Step 4
Use the • Set targets
information • Purchase offset credits

Step 5 Report emissions

Once an entity sets a GHG emissions reduction target, it actions an emissions

reduction plan to reduce the gross emissions within its inventory boundary as
much as possible. As the plan progresses over time, the entity may plan to
purchase offset credits that compensate for residual emissions that cannot be
eliminated.

Offset credits are the result of GHG project implementation. The GHGP Project
Standard provides guidance for quantifying and reporting GHG reductions from
GHG projects. Although this kind of accounting is separate and distinct from the
accounting for GHG inventories, there is a connection between the two.

Corporate emissions inventory Project accounting

the inventory boundary Define the assessment boundary

actual emissions for each source

Estimate baseline (hypothetical) emissions
within the boundary
difference between baseline
all emissions within the boundary Total
emissions and project emissions

purchase offset credits Transact sell offset credits

10.2 GHG offsets and projects

Question 10.2.10#
How are GHG offsets referred to in practice?

Interpretive response: In our experience, there are differences between the

technical explanations of offsets under the GHGP and the use of offset
terminology for financial reporting purposes.

This chapter refers to the following.

• Scope 2 contractual instruments. These are certificates or other evidence

that allow the receiving entity to take credit for the use of renewable energy
(RECs in the US market). These instruments are an inherent part of scope 2
market-based emissions calculations. See chapter 7.

• Offset credits. These are instruments used by entities to reduce their

reported emissions footprint. They are not part of the calculation of gross
emissions, but instead are presented separately in an entity’s emissions
statement (see Question 10.3.50).

The remainder of this chapter adheres to the terminology presented in the

GHGP standards – GHG offset and offset credit – while acknowledging that
other terms may be used interchangeably to mean the same thing. GHG offsets
may be related to a reduction, removal or avoided GHG emission. This chapter
sometimes uses the term ‘reduction’ where removal or avoided GHG emission
could be used instead.

Reporting landscape#
GHG offsets
As shown in the following table, terminology differs.

ISSB Standards ESRSs SEC Climate Rule

Refers to ‘carbon credit’ as Refers to ‘carbon credit’ as Refers to ‘carbon offsets’

an “emissions unit that is “a transferable or as “an emissions
issued by a carbon tradeable instrument that reduction, removal or
crediting programme and represents one metric avoidance of greenhouse
represents an emission tonne of CO2e emission gases (‘GHGs’) in a
reduction or removal of reduction or removal and manner calculated and
greenhouse gases. is issued and verified traced for the purpose of
Carbon credits are according to recognized offsetting an entity’s GHG
uniquely serialised, issued, quality standards.” emissions.” [§229.1500]
tracked and cancelled by [ESRS Annex II, Table 2]
means of an electronic
registry.” Carbon credits
are transferrable or

ISSB Standards ESRSs SEC Climate Rule

tradeable instruments.
[IFRS S2.A, B70]

Question 10.2.20
What is a GHG offset?

Interpretive response: A GHG offset represents the reduction, removal or

avoidance of GHG emissions from a specific GHG project that is used to offset
GHG emissions that occur elsewhere. They may be used to meet a voluntary or
mandatory GHG trade or cap. See Question 10.2.80. [GHGP p 59]

The following table depicts the types of projects from which GHG offsets may be
derived.

Type Avoidance Removal

Capture emissions from the
Reduce emissions to the
Definition atmosphere and store them via
atmosphere
natural or technological processes
Compare to what most likely would Via either natural or technological
Method
have happened absent the project processes
Renewable energy, convert
Reforestation, afforestation, direct
Examples methane captured from landfill to
air capture
energy, limit timber harvest levels

Question 10.2.30
What is a GHG project?

Interpretive response: According to the GHGP Project Standard, a GHG

project comprises a specific activity or set of activities intended to reduce GHG
emissions, increase the storage of carbon or enhance GHG removals from the
atmosphere. [GHGP PA p 11]

A project activity is a specific intervention intended to change GHG emissions,

removals or storage. [GHGP PA p 11]

These changes are associated with processes that either: [GHGP PA p 11]

• release GHG emissions into the atmosphere (GHG source) – e.g. fossil-fuel
powered vehicles; or
• remove and store GHG emissions from the atmosphere (GHG sinks) – e.g.
trees.

These changes are either intentional (primary effects) or unintentional

(secondary effects). For example, the primary effect of a reforestation project is
to increase storage or removals of CO2 and a secondary effect may be the
release of GHG emissions from the machinery used to prepare the land for
planting. [GHGP PA p 11]

Question 10.2.40
What is a GHG assessment boundary?

Interpretive response: The GHG assessment boundary comprises all of the

primary and significant secondary effects associated with a GHG project. The
primary and significant secondary effects are included within the assessment
boundary regardless of whether they occur at GHG sources or sinks owned or
controlled by the project entity. [GHGP PA p 12]

Within the assessment boundary, a GHG reduction is either a reduction in GHG

emissions or an increase in removals or storage of GHGs from the atmosphere,
relative to baseline emissions. [GHGP PA p 12]

Excerpt from GHGP Project Standard [p 29]

Defining the GHG assessment boundary

The GHG assessment boundary encompasses GHG effects, regardless of
where they occur and who has control over the GHG sources or sinks
associated with them. This inclusive GHG assessment boundary is intended to
encourage a more comprehensive assessment of the GHG project’s effect on
GHG emissions and to minimize the possibility of overlooking any significant
GHG effects that may occur outside the project’s physical location or beyond
the control of the project developer. However, what constitutes significant is left
to the discretion of the project developer.

Example 10.2.10
Identifying the GHG assessment boundary
This following example has been adapted from the GHGP Project Standard by
adding significant secondary effects. [GHGP PA p 31]

Project undertakes a project to capture methane gas at a landfill. This project

captures GHGs that would otherwise be emitted to the atmosphere.

Project identifies the project’s assessment boundary as follows.

GHG project assessment boundary

Significant
GHG project Project activities Primary effects secondary effects

Install equipment
Reduction in Construction of the
to capture
waste emissions equipment
methane

Landfill gas project

Reduction in
Generate grid- combustion
Methane leaks
connected emissions from
from gas transport
electricity from generating grid-
and storage
captured methane connected
electricity

Insignificant secondary effects are outside the assessment boundary.

Question 10.2.50
How are GHG offsets quantified?

Interpretive response: GHG offsets are quantified relative to a baseline that

represents a hypothetical scenario for what emissions would have been in the
absence of the GHG project. The GHGP Project Standard focuses on the
quantification of GHG reductions from GHG mitigation projects that will be used
as offsets (see Question 10.2.20). [GHGP p 59]

This is different from reductions in a corporate emissions inventory, which

calculates reductions by comparing changes in the entity’s emissions inventory
over time relative to a base year. The GHGP Corporate Standard focuses on
the accounting and reporting of GHG emissions at the entity level. [GHGP p 59]

The following figure portrays how reductions are quantified differently in terms of
GHG offsets versus corporate inventories.

for corporate GHG

base year
emissions inventories
Reductions relative to
are calculated
for GHG mitigation projects
baseline
used as offsets

Excerpt from GHGP Corporate Standard [p 59]

Reductions in indirect emissions

Reductions in indirect emissions (changes in scope 2 or 3 emissions over time)
may not always capture the actual emissions reduction accurately. This is
because there is not always a direct cause-effect relationship between the
activity of the reporting company and the resulting GHG emissions.
For example, a reduction in air travel would reduce a company’s scope 3
emissions. This reduction is usually quantified based on an average emission
factor of fuel use per passenger.
However, how this reduction actually translates into a change in GHG
emissions to the atmosphere would depend on a number of factors including
whether another person takes the “empty seat” or whether this unused seat
contributes to reduced air traffic over the long term.

Question 10.2.60
How are baseline emissions calculated?

Interpretive response: Baseline emissions are calculated using a baseline (or

hypothetical) scenario of what would have most likely occurred in the absence
of the GHG project. [GHGP PA p 12]

Baseline emissions associated with primary effects are derived from a baseline
scenario, either developed via the project-specific standard or a performance
standard. [GHGP PA p 13]

• A project-specific standard is linked to the specific circumstances of the

project activity. [GHGP PA p 48]

• A GHG emission performance standard is not tied to the specific project

activity; rather it represents an analysis of the GHG emission rates of all
baseline candidates. An example may be energy efficiency. [GHGP PA p 60]

The GHGP Project Standard defines baseline candidates as alternative

technologies (both existing and potential) or practices within a specified
geographic area or temporal range that could provide the same product or
service as the project activity. [GHGP PA p 38]

For example, for a project activity that substitutes a low GHG-emitting fuel for a
high GHG-emitting fuel in vehicles, the service provided would be energy used
for transportation, not transportation itself. Therefore, alternative fuels would be
considered as baseline candidates, but alternative modes of transportation
would not. [GHGP PA p 39]

Baseline emissions associated with secondary effects are estimated – e.g.

using existing data or emission factors – and linked to the project-specific
baseline scenario. [GHGP PA p 13]

Excerpt from GHGP Project Standard [pp 15-16]

Defining the GHG assessment boundary

Though the presumption is generally that a project activity differs from its
baseline scenario, in some cases, a project activity (or the same technologies
or practices it employs) may have been implemented “anyway.” In these cases,
the project activity and its baseline scenario are effectively identical.
While such a project activity may appear to reduce GHG emissions relative to
historical emission levels, compared to its baseline scenario the project activity
does not reduce GHG emissions. In the context of GHG programs, it is
important to count only GHG reductions from project activities that differ from –
or are additional to – their baseline scenarios.

Question 10.2.70
What is additionality?

Interpretive response: Distinguishing a project activity from its baseline

scenario is referred to as determining additionality. [GHGP PA p 16]

Additionality means beyond ‘business as usual’. Additionality is a term

specifically associated with offsets and project level accounting – separate from
corporate GHG accounting. [GHGP PA p 16]

As defined in the GHGP Project Standard, it is a criterion stipulation that project-

based GHG reductions should only be quantified if the project activity ‘would not
have happened anyway’ – i.e. the project activity (or the same technologies or
practices it employs) would not have been implemented in its baseline scenario
and/or that project activity emissions are lower than baseline emissions. [GHGP
PA p 130]

The GHGP Project Standard acknowledges that there is no common agreement

about how to prove that a project activity and its baseline scenario are different.
[GHGP PA p 16]

The GHGP Project Standard does not explicitly require a demonstration of

additionality. Rather, additionality is an implicit part of the baseline emissions
estimation procedures – via either the project-specific or performance standard.
See Question 10.2.60. [GHGP PA pp 8]

Example 10.2.20
Demonstrating additionality
Project undertakes a landfill gas project with the intention of developing offset
credits that can be sold to third parties.

Project determines that the baseline scenario involves the continuation of

current activities – e.g. in the absence of this project, methane from the landfill
would continue to be released to the atmosphere. Therefore, baseline emissions
are equal to the GHG emissions sequestered by the methane capture
technology.

To further demonstrate additionality, Project verifies the following:

• there are no laws or regulations that require the capture of landfill methane;
and
• there are no laws against the capture of landfill methane.

Project claims that “1,500 tCO2e have been avoided at a global level.”

Project supports the credibility of this claim by demonstrating the undertaking of

an ‘intervention’ to capture the methane from the landfill – and that without this
intervention, the methane capture would not have happened.

Question 10.2.80
What are GHG trading programs?

Interpretive response: GHG trading programs determine compliance by

comparing emissions with an emissions reduction target or cap. They may be
implemented on a mandatory or voluntary basis. Such programs often have
specific accounting and reporting requirements. As a result, it is necessary to
check relevant programs for additional requirements when developing an
inventory. [GHGP p 13]

GHG trading programs use GHG registries, where entities report GHG
emissions in a public database. These registries allocate a serial number to all
traded offsets or credits, and the serial numbers are retired once they are used.
This prevents double counting of offset credits. [GHGP p 82]

The following are examples of GHG programs:

• European Union Emissions Trading System uses a compulsory carbon

market to reduce emissions in high-intensity carbon-emitting industries.

• The Climate Registry operates the voluntary Carbon Footprint Registry for
entities in North America.

Reporting landscape#
Emissions Trading Schemes
As shown in the following table, only ESRSs require disclosure related to
Emissions Trading Schemes.

ISSB Standards ESRSs SEC Climate Rule

No requirement. An entity discloses the No requirement.

percentage of scope 1
emissions from regulated
emissions trading
schemes. [ESRS E1.48(b)]

10.3 Offset credits

Question 10.3.10
What is an offset credit?

Interpretive response: A GHG offset is an outcome from an action, which can

be associated with a transferrable instrument that represents the avoided or
removed GHG emissions – a GHG credit. A GHG credit is a transferrable
instrument certified by a GHG program and may be used to meet an externally
imposed target. Question 10.2.80 further discusses GHG programs. [GHGP p 98]

One offset credit represents 1 tonne of CO2e. [GHGP MGS p 148]

Excerpt from GHGP Corporate Standard [p 60]

Project based reductions and offsets/credits

[Credits] are typically generated from an activity such as an emissions

reduction project and then used to meet a target in an otherwise closed system,
such as a group of facilities with an absolute emissions cap placed across
them. Although a credit is usually based on the underlying reduction
calculation, the conversion of an offset into a credit is usually subject to strict
rules, which may differ from program to program.

In the remainder of this chapter, we refer to offset credits.

Question 10.3.20
How are offset credits used to meet GHG emission
reduction targets?
Interpretive response: A GHG emissions target may be met entirely from
internal reductions at sources included in the inventory boundary. For remaining
emissions that cannot be eliminated, offset credits may be used. [GHGP p 81]

Offset credits represent emissions reductions generated from sources external

to the inventory boundary. They must be reported separately from an entity’s
gross emissions. The example in Appendix B illustrates the presentation of
offset credits.

The purchaser of an offset credit can ‘retire’ it to claim the underlying reduction
toward its own GHG emissions goals. [GHGP p 82]

Question 10.3.25**
What is the process by which offset credits are derived
from a GHG project?
Interpretive response: The following series of steps identifies the typical
process from GHG project inception through offset credits being retired under a
high-quality program. The highlighted steps are explored further in this question
as background in understanding the discussion about the quality of carbon
offsets later in this section.

Step Description Party performing

1 Create project description Project Proponent
2 Review project description Registry / Program
3 Review project description Validation & Verification Body
4 Validate final project description Validation & Verification Body
5 Submit final project description Project Proponent
6 Register project Registry / Program
7 Implement project Project Proponent
8 Verify performance of project Validation & Verification Body
9 Issue credits Registry
10 Receive credits to sell / hold Project Proponent
11 Buy credits Buyer
12 Retire credits (to offset emissions) Buyer
13 Record retirement of credits Registry / Program

Most discussion about the presentation of offset credits in GHG emissions

reporting focuses on the purchase and retirement of offset credits (Steps 11 to
13). In theory, Steps 12 and 13 happen simultaneously.

However, the concepts of validation (Step 4) versus verification (Step 8) and the
timing of credits being issued (Step 9) are particularly relevant in understanding
the factors contributing to the quality of offset credits (see Question 10.3.35).
The following descriptions are included in the GHGP Mitigation Goal Standard.
[GHGP MGS p 123]

• Validation provides assurance of goal design, base year emissions or

emissions intensity, baseline scenario emissions and allowable emissions,
among other accounting steps.

• Verification provides assurance of progress assessments undertaken

during the goal period and assessments of goal achievement undertaken at
the end of the goal period.

While validation is concerned with the design and set-up of the project, it is
verification that drives the issuance of credits (Step 9). Verification is carried out
periodically (e.g. every three to five years) and its purpose is to provide a level
of assurance over whether the registered project (Step 6) is achieving its stated
outcomes.

Without verification, a buyer (Steps 11 and 12) has no assurance that the GHG
emissions reductions (or removals) underpinning the credits did, in fact, occur.
Therefore, verification is an indicator of quality and important in assessing
whether reductions for which credits have already been issued were realized or
reversed (see Question 10.3.35).

Question 10.3.27**
What if GHG emissions reductions are reversed after
offset credits are issued?
Background: As explained in Question 10.3.25, the verification of credits under
a high-quality program is an ongoing process and may identify the reversal of
GHG emissions reductions or removals – e.g. the carbon sequestration
associated with a reforestation project is partially reversed due to a forest fire.

Reversals from individual projects have implications for credits that have already
been issued (Step 9 in the process outlined in Question 10.3.25) and may have
already been retired (Steps 12 and 13).

Interpretive response: A common mechanism to help ensure that offset credits

are not claimed in excess of actual emissions reductions is for a program to use
‘buffer reserves’ (also known as a ‘buffer pool’). A buffer reserve might be kept
at the project level or might be maintained across different projects to help
mitigate risk.

Using a buffer reserve, a GHG program does not issue credits (Step 9) for the
entire amount of emissions reductions. Instead, a percentage is kept in reserve

as a kind of insurance against the risk of reversal. Example 10.3.5 illustrates

one way in which a buffer reserve might operate.

Example 10.3.5**
Offset credits buffer reserve
Project is validated at the start of Year 1 and is expected to capture 20,000
tCO2e over a 10-year crediting period – i.e. generating 2,000 offset credits a
year. To counter the risk of captured emissions being released into the
atmosphere, Project maintains a 20% buffer reserve – i.e. 4,000 offset credits
over 10 years.

In each of Years 1 to 3, Project sells 1,600 offset credits (2,000 – 400 buffer
reserve).

At the end of Year 3, verification is carried out, which reveals that the estimates
used in validation were overstated and Project is now expected to capture
19,000 tCO2e over the 10-year crediting period.

To account for the overstatement, Project retires 1,000 credits from the buffer
reserve at the start of Year 4. Project plans to continue selling 1,600 credits a
year, with the planned reserve now at 3,000 credits.

Note: As an alternative, Project may be required to reserve a greater

percentage of credits for the buffer reserve prospectively.

Question 10.3.30
What are the considerations around the credibility of
offset credits?
Interpretive response: The GHG Project Standard provides guidance to
address key project accounting challenges associated with the credibility of
offset credits – e.g. baseline, additionality, secondary effects, double counting.
See section 10.2.

Double counting can occur when a GHG offset is counted toward the target by
both the selling and purchasing entities. This can be avoided by clarifying
ownership of reductions either through registries or contracts.

To assess the credibility of offset credits used to meet a target, useful

information includes the project type, its geographic and organizational origin,
how offsets are quantified and whether they are recognized by external
programs. [GHGP p 82]

Such external programs use standards, methodologies, independent auditing

and registries to assess GHG emissions reductions or removals against a set of
defined criteria (see Question 10.3.35). These programs also track the

retirement of offset credits – e.g. when the offset credit holder claims the
associated GHG reductions toward a GHG reduction goal.

Question 10.3.50 discusses presentation and disclosure considerations for

reporting offset credits.

Example 10.3.10
Double counting offset credits
Project undertakes an internal reduction project. Project sells this project
reduction to Hotel in the form of an offset credit.

Scenario 1: Inappropriate double counting

Without any contract or registry, Project and Hotel both count these reductions
toward their targets. This results in the inappropriate double counting of the
offset credit.

All measures in tCO2e Project Hotel

Scope 1 emissions 60,000 15,000
Internal reductions -15,000 0
Offset credit 0 -15,000
Net scope 1 reported emissions 45,000 0

Scenario 2: Appropriately avoid double counting

With a contract in place clarifying that Hotel takes sole ownership of the offset
credit, only Hotel counts this reduction toward its target. Project does not count
the reduction toward its target. This scenario appropriately avoids double
counting of the offset credit.

All measures in tCO2e Project Hotel

Scope 1 emissions 60,000 15,000
Internal reductions 0 0
Offset credit 0 -15,000
Net scope 1 reported emissions 60,000 0

Neither entity counts the reductions in calculating gross emissions. The

reductions are reported separately from gross emissions. See Question 10.3.50.

Question 10.3.35**
What considerations are relevant in assessing the
quality of offset credits in the voluntary market?
Background: The GHGP Corporate Standard and Project Standard do not
provide a specific set of criteria for assessing the quality of offset credits.
However, the GHGP Mitigation Goal Standard does include guidance that may
assist an entity in evaluating the quality – which can infer the value – of an offset
credit before purchasing it.

Excerpt from GHGP Mitigation Goal Standard

[pp 47-48]

Offset credits applied toward goal achievement shall be:

• Real: Emission reductions or removals represent actual emission

reductions and are not artifacts of inaccurate or incomplete accounting.

• Additional: Emission reductions or removals are beyond what would have

happened in the absence of the incentive provided by the offset credit
program or project.

• Permanent: Emission reductions or removals are irreversible or, if sourced

from projects such to potential reversal (for example, carbon
sequestration), have guarantees to ensure that any losses are
compensated for, which may include replacement mechanisms such as
legal guarantees, insurance, or buffer pools.

• Transparent: Offset credits are publicly and transparently registered with

unique serial numbers to clearly document offset credit generation, transfer,
retirement, cancellation, and ownership. Crediting programs are
transparent regarding rules and procedures for monitoring, reporting, and
verification, quantifying GHG reductions, and enforcement.

• Verified: Offset credits are issued from emission reductions or removals

that result from projects whose performance has been appropriately
validated and verified to a standard that ensures reproducible results by an
independent third party that is subject to a viable and trustworthy
accreditation system.

• Owned unambiguously: Ownership of GHG reductions or removals is

clear by contractual assignment and/or government recognition of
ownership rights. Transfer of ownership of offset credits must be
unambiguous and documented. Once the reductions or removals are sold,
the seller and host government must cede all rights to claim future credits
for the same reduction in order to avoid double counting.

• Addresses leakage: Emission reductions or removals are generated in a

manner that addresses leakage. The market (or other) mechanism that
generates the transferable emissions units is designed and operated in a

way that minimizes the risk of leakage and accounts for any unavoidable
leakage.

Interpretive response: Like compliance GHG trading programs (see Question

10.2.80), GHG programs in the voluntary carbon market may use registries, with
unique serial numbers assigned to credits and specific methodologies and
frameworks to evaluate and implement projects. The methodologies and
frameworks are developed, approved and enforced by the registries.

For entities seeking to purchase offset credits, obtaining sufficient information

about the projects and credits available, and comparing the options, may be a
challenge. Question 10.3.30 describes high-level considerations related to the
credibility of offset credits.

This question describes the risks associated with offset credits – using the
quality criteria in the GHGP Mitigation Goal Standard as an example (see
excerpt) – that are helpful in assessing the quality of credits. In addition, it
provides examples of related disclosures that might be required, using the
California Voluntary Carbon Market Disclosures Act (AB-1305) as an example;
for more information about AB-1305, read our web article, California imposes
ESG reporting related to carbon offsets.

Real

This criterion is looking for emissions reductions or removals that physically

impact the metric tonnes of GHGs in the atmosphere (see Question 10.2.20).
However, there are several types of available credits.

• Ex-post credits relate to past reductions or removals – i.e. the reductions

or removals have already occurred.

• Ex-ante credits are issued in advance of the emissions reductions or

removals being verified.

It may not always be clear whether an offset credit is an ex-post or ex-ante

credit, or whether an ex-ante credit will be exchanged or adjusted once the
reductions or removals have occurred. These differences create risk for an
entity seeking to purchase high-quality offset credits. See Question 10.3.37 for
further discussion.

Relevant to this criterion, the following disclosures are required by California

AB-1305 (for example):

• emissions reduced or carbon removed on an annual basis; and

• the type of project, including whether the offsets from the project are derived
from a carbon removal, an avoided emission, or a combination of both.

Additional

As described in Question 10.2.70, additionality is a fundamental characteristic of

a quality offset credit. The following are example quality considerations that an
entity should be aware of.

• Independent registries establish their own additionality thresholds, which

may also vary by project type even within the same registry.

• Changing legal requirements may render a project non-additional (because

the underlying project would have happened anyway; see Question 10.2.70)
or reduce the number of offset credits that may be generated as laws set
higher bars for minimum levels of performance, e.g. energy efficiency,
permitted emissions output, production efficiency, or industry methods.

• Technological advances and increased adoption of those technologies may

make the project the most economical choice or become ‘common practice’
– i.e. the underlying project would have happened anyway.

Relevant to this criterion, the following disclosure is required by California AB-

1305 (for example):

• The pertinent data and calculation methods needed to independently

reproduce and verify the number of emissions reductions or removal credits
issued using the protocol.

Permanent

Permanence can be described in two different ways in the context of a project:

• the actual length of time that the reversal or reduction will be in place; and
• the length of time the GHG program will provide for compensation for
potential reversals.

Addressing permanence within the program can be through buffer reserves (see
Question 10.3.27) or other insurance types. As with other information that may
indicate quality, permanence safeguards may be provided for throughout a
crediting period but may not be transparent to the buyer.

Relevant to this criterion, the following disclosures are required by California

AB-1305 (for example):

• Details regarding accountability measures if a project is not completed or

does not meet the projected emissions reductions or removal benefits,
including, but not limited to, details regarding what actions the entity, either
directly or by contractual obligation, shall take under both of the following
circumstances:
— carbon storage projects are reversed; and
— if future emissions reductions do not materialize.

Transparent

Transparency has two components:

• the first relates to the project documentation, methodologies and processes

followed for managing the offset crediting and quality; and

• the second relates to visibility into ownership transfers over the life of the
credit (see Owned unambiguously).

Project-related transparency involves the documentation, methodologies and

processes used for managing offset crediting and quality, including monitoring
plans to assess performance and provide performance reports, which may be
verified.

Relevant to this criterion, the following disclosures are required by California

AB-1305 (for example):

• the specific protocol used to estimate emissions reductions or removal

benefits; and
• the location of the offset project site, the project timeline and the date when
the project started or will start.

Verified

Each methodology sets the verification frequency and standards to be used.

Registries may allow verifications of credits issued under their GHG programs to
be performed only by verifiers approved by the registry – i.e. a verifier that
understands the registry’s methodology and will maintain its standards.

Verification can be costly and may not be required by the methodology every
year. For example, a GHG program that issues ex-ante credits might not verify
them to generate ex-post credits.

Relevant to this criterion, the following disclosures are required by California

AB-1305 (for example):

• whether there is independent expert or third-party validation or verification of

the project attributes.

Owned unambiguously

As ownership changes hands more times in an unregulated market and the

buyer may be further removed from the seller that generated the credit, there
may be a risk that ownership records are not keeping up with each transaction.

Ownership-related transparency concerns the visibility of ownership transfers

over the life of the credit (from generation to retirement). Unique identifiers, such
as serialization, facilitate tracking and verifying credit ownership throughout a
credit’s lifecycle. A public registry with effective governance and enforcement
mechanisms, along with serialization, supports the overall credibility of the
voluntary carbon market by lending transparency to the process.

The GHGP Mitigation Goal Standard describes a public registration of offset

credits with unique serial numbers to aid in meeting transparency expectations.
[GHGP MGS pp 47-48]

Addresses leakage

Leakage comprises the ‘secondary effects’ described in Question 10.2.30 and a

high-quality project or program will include mitigation actions to reduce the
amount of leakage to the extent possible and account for unavoidable leakage.
[GHGP MGS pp 34]

Question 10.3.37**
How does an ex-ante offset credit differ from an ex-post
offset credit?
Interpretive response: A GHG credit, as defined in Question 10.3.10, refers to
a transferable instrument certified by a GHG program. However, the
methodologies that support the generation of the offset credit may contain
fundamental differences that give rise to differences in the contractual terms of
purchase. [GHGP p 98]

Levels of risk

The Carbon Offset Guide describes three methods of offset credit delivery with
increasing levels of risk.

• Low risk. Ex-post credits are offset credits for removals/reductions that
have already occurred and are promptly delivered to the buyer.

• Medium risk. Forward contracts that involve a binding agreement

specifying a pre-defined price, time or fixed delivery quantity for future
offsets. These contracts protect buyers by requiring sellers to produce offset
credits from another project if fewer than expected are generated.

• High risk. Forward crediting, or ex-ante credits, involve the sale of offset
credits for a future reduction or removal. Contracts may include ex-post
adjustments of purchase prices that correspond to shortfalls in offset
generation to protect buyers.

The forward contract and forward crediting methods may seem similar, but the
risks involved differ significantly. Forward crediting exposes buyers to higher
risks, and despite ex-post adjustments being part of a contract, shortfalls in
generation may not be communicated to the buyer.

Offset credits that have already resulted in emissions reductions or removals

and were verified are less risky relative to the other types.

Retiring offset credits

Ex-post offset credits are retired when a buyer uses them to offset emissions
within a reporting period (Step 12 in Question 10.3.25). Emissions may occur
during the current reporting period, but the retired credit relates to a past
reduction/removal. This type of offset credit could be presented as such in a
GHG inventory that is in accordance with the GHGP (see Question 10.3.50).

Ex-ante offset credits can be exchanged for ex-post credits. Contracts may
also allow for ex-post adjustments to compensate for shortfalls. Two types of ex-
ante offset credits have emerged:

• Type A: Credits exchanged for ex-post credits after verification of the

reduction/removal; and
• Type B: Credits delivered to registries and retired to offset actual emissions
despite not having yet occurred.

Type A credits have the same character upon retirement as an offset credit that
was only ever issued after the emissions reduction or removal occurred.

However, Type B credits are retired before an associated reduction or removal

occurs. This substantially increases the risk that subsequent information,
including verification, demonstrates the project did not generate sufficient
removal or reduction benefits to support the offset credits’ issuance or
retirement.

Reporting landscape#
Offset credibility
As shown in the following table, the disclosures are broadly similar but not the
same.

ISSB Standards ESRSs SEC Climate Rule

An entity discloses the An entity discloses the No required offset

extent, credibility and total amount of carbon credibility disclosures.
integrity of carbon credits credits that are verified However, disclosures are
intended to be used. This against recognized quality required to explain the
includes which third-party standards and canceled in following for each of
scheme(s) will verify or the reporting period. An carbon offsets or RECs if
certify the carbon credits. entity also discloses the they have been used as a
[IFRS S2.36(e)(i)-(ii), total amount of carbon material component of a
36(e)(iv)] credits that are planned to company’s plan to achieve
be canceled in the future climate-related targets or
and whether they are goals: the nature and
based on existing source, a description and
contractual arrangements. location of the underlying
[ESRS E1.59(a)-(b)] projects, any registries or
other authentication and
An entity explains the
the cost. [§229.1504(d)]
credibility and integrity of
carbon credits used if it is
making public claims of
neutrality that involve the
use of carbon credits.
[ESRS E1.61(c)]

An entity also discloses:

• the extent of use and

which quality criteria it
uses; and
[ESRS E1.AR61]

• certain disaggregated
information as
applicable – e.g. the
percentage of carbon
credits for each
recognized quality

ISSB Standards ESRSs SEC Climate Rule

standard.
[ESRS E1.AR62(c)]

Question 10.3.40
Are offset credits different from RECs?

Interpretive response: Yes. Offset credits and RECs are fundamentally

different instruments used for different purposes. They are not interchangeable.

Both offset credits and RECs may be used as tools to reduce reported
emissions. But they do this differently.

• Offset credits convey avoided GHG emissions (tCO2e) compared to a

baseline scenario.

• RECs convey information about direct energy generation emissions

occurring at the point of production – e.g. the scope 2 market-based
emission factor associated with each MWh of energy generation.

The following table summarizes these differences.

Offset credits RECs

Unit 1 tCO2e 1 MWh electricity generation
Renewable electricity
Projects that avoid or reduce
generators – e.g. wind, solar,
Source GHG emissions to the
biogas, hydropower,
atmosphere
geothermal
Scope under Net adjustment to scope 1, 2 Lower scope 2 market-based
the GHGP or 3 emissions
Additionality Required Not required

A REC is associated with 1 MWh of electricity generation. The emission factor

derived from the REC is used to calculate scope 2 market-based emissions.
Because renewable energy has an associated emission factor of zero, the use
of emission factors derived from RECs results in a decrease in scope 2 market-
based emissions.

An offset credit is associated with 1 tCO2e. An entity may elect to purchase a

total amount of offsets equal to the total tCO2e from its entire corporate
inventory – e.g. the sum of all scope 1, 2 and 3 emissions identified within the
inventory boundary. In this case, the entity’s reported emissions are neutralized
by purchasing offsets equal to the sum of the entity’s emissions.

RECs are not offsetting emissions. Rather, the purchase of RECs represents
renewable electricity from a low (or zero) emissions source. This reduces the
reported emissions associated with an entity’s electricity use.

The following diagram illustrates the differences between offset credits and
RECs.

REC Electricity consumption (MWh)

Emission factor
Contractual Grid-
instrument average

Market-based Location-
method based method

Scope 1 Scope 2 Scope 3

Total within inventory boundary

tCO2e

Offset (tCO2e)

Example 10.3.20
Purchasing RECs to reduce scope 2 market-based
emissions
Hotel and its competitor consume the same amount of electricity on the same
grid. Hotel purchases RECs and its competitor does not.

Hotel uses the emission factor of zero conveyed by the REC to calculate scope
2 market-based emissions. Because its competitor has not entered into any
contractual arrangements, it uses the residual mix emission factor to calculate
scope 2 market-based emissions. To calculate scope 2 location-based
emissions, both entities use the grid-average emission factor.

Hotel Competitor
Electricity consumption (MWh) 500 500
RECs purchased (MWh) 500 0

Hotel Competitor
Scope 2 market-based emissions calculation:
Emission factor (tCO2e/MWh)1 0 0.3
Emissions (tCO2 e)2 0 150
Scope 2 location-based emissions calculation:
Emission factor (tCO2e/MWh)1 0.2 0.2
Emissions (tCO2 e)2 100 100
Notes:
1. Hypothetical emission factors are used for simplicity. This example does not
demonstrate the unit conversion calculation (e.g. converting pounds to tonnes;
see Question 5.2.20) or the GWP conversion calculation (e.g. converting CH4 to
CO2e; see Question 2.3.50).
2. Emissions are calculated as Electricity consumption × Emission factor

Example 10.3.30
Purchasing offset credits to meet GHG emission
reduction goals
Hotel has set GHG emissions targets, but its competitor has not.

Hotel’s targets relate to all emissions within its inventory boundary, specifically
scope 1, scope 2 location-based and scope 3. It has undertaken various
initiatives to reduce the emissions within its inventory boundary as much as
possible. For the residual emissions, Hotel has purchased offset credits.

All measures in tCO2e Hotel Competitor

Scope 1 emissions 100 50
Scope 2 location-based emissions 250 250
Scope 3 emissions 800 600
Total emissions calculated within the inventory 1,150 900
boundary
Offset credits purchased -1,150 0
Net emissions 0 900

Question 10.3.50
How are offset credits reported?

Interpretive response: An entity reports physical inventory emissions for its

chosen inventory boundaries separately and independently of any GHG trades
(purchase or sale of allowances, offsets and credits) they undertake. [GHGP p 60]

Internal projects reduce GHGs within an entity’s inventory boundary. These

reductions are not reported separately unless they are sold, traded externally or
otherwise used as an offset credit. [GHGP p 61]

When disclosing targets, entities specify whether offsets are used and, if so,
how much of the target reduction was achieved using offsets. [GHGP p 82]

The example in Appendix B illustrates how offsets might be presented.

Future developments**

In December 2023, IOSCO published a consultation report that proposed 21

‘good practices’ to promote the integrity and orderly functioning of voluntary
carbon markets; this followed an earlier discussion paper. Comments were due
by March 3, 2024. [IOSCO report]

The audience for the IOSCO report is regulators and other authorities and
market participants, and it seeks to offer support for jurisdictions that have
established or may be seeking to establish voluntary carbon markets. Next
steps in the project are expected to be published in IOSCO’s 2024-2025 work
program.

The 21 good practices relate to the following.

• Regulatory frameworks

1) Regulatory approach and scope

2) Regulatory treatment

3) Domestic and international consistency and cooperation

4) Participants’ skill and competence

• Primary market issuance

5) Standardization

6) Transparency

7) Disclosure

8) Soundness and accuracy of registries

9) Due diligence

• Secondary market trading

— Market functioning and transparency

10) Access to voluntary carbon markets

11) Integrity of trading

12) Public reports

13) Pre-and post-trade disclosure

14) Derivatives standards

— Governance and risk management

15) Governance framework

16) Risk management

17) Conflicts of interest rules

— Market abuse

18) Enforcement actions

19) Market surveillance and monitoring of trading

20) Trading venue resources

• Use and disclosure of use of carbon credits

21) Disclosure of carbon credits use.

11. Reporting
Detailed contents
Item significantly updated in this edition #

11.1 How the GHGP works

Reporting landscape: ISSB Standards, ESRSs, SEC Climate Rule
Disclosures #
11.2 Which standards and guidance apply
Questions
11.2.10 How is GHG information presented?
11.2.20 Can an entity report in accordance with the Corporate
Standard without following the Scope 2 Amendment?
11.2.30 If scope 3 categories are included when reporting under the
Corporate Standard, is the measurement and disclosure
guidance of the Scope 3 Standard followed? #
Example
11.2.10 Basis of presentation
11.3 Presentation and disclosure
Questions
11.3.10 What are the required disclosures?
11.3.20 Is comparative information required?
11.3.30 How are the main GHGs presented?
11.3.40 What are biogenic emissions?

11.1 How the GHGP works

The last step in the process is to report the information gathered and tracked.

Step 1 Define the organizational boundary

Gather the
Step 2 Classify sources of emissions
information
Step 3 Calculate emissions

Step 4 Track emissions

Use the
information
Step 5 Report emissions

The presentation and disclosure requirements of the GHGP differ depending on

whether an entity elects to follow just the Corporate Standard (including the
Scope 2 Amendment) or is also following the Scope 3 Standard.

In many cases, entities will follow the standards and guidance of the GHG in
gathering information (Steps 1 to 3) and tracking emissions (Step 4), but will
present emissions in accordance with other standards – e.g. under the future
requirements of ESRS E1, IFRS S2 or the SEC’s climate rule once finalized. In
such cases, the discussion in this chapter does not apply.

Reporting landscape#
Disclosures
Each of the following have their own disclosures and do not rely on disclosures
made in accordance with the GHGP: IFRS S2, ESRS E1 and the SEC’s climate
rule.

11.2 Which standards and guidance apply

Question 11.2.10
How is GHG information presented?

Interpretive response: Similar to financial statements, the basis of presentation

needs to be clearly stated in the GHG emissions statement.

Under the general guidelines, a public GHG report: [GHGP p 62]

• is based on the best data available at the time of publication;

• is transparent about limitations;
• communicates any material discrepancies; and
• presents gross emissions separate from any GHG trades – e.g. offsets.

The GHGP requires reporting a minimum of scopes 1 and 2 emissions. As a

result, for an emissions statement presented in accordance with the GHGP,
there are two commonly used bases of presentation that are acceptable. [GHGP
S3 p 6]

Report in accordance
The emissions statement includes…
with…
• Scope 1 and Scope 2 emissions; and
the Corporate
Approach • Scope 3 emissions to the extent the
Standard and the
A entity chooses – e.g. Category 6
Scope 2 Amendment
(business travel).

• Scope 1 and Scope 2 emissions; and

Approach all components of the • Scope 3 emissions; unlike Approach A,
B GHGP all categories of emissions are
disclosed, with any exclusions justified.
[GHGP S3 p 60]

Approach A is illustrated in Appendix B; Approach B is illustrated in Example

11.2.10.

Example 11.2.10
Basis of presentation
Hotel has prepared its GHG emissions schedules and related notes in
accordance with the GHGP, following Approach B (see Question 11.2.10). The
following is an example basis of presentation.

Hotel has prepared its GHG emissions schedules and related notes for the year
ended December 31, Year 5, in accordance with the World Resources Institute
and World Business Council for Sustainable Development’s Greenhouse Gas
Protocol standards and guidance (collectively, the GHG Protocol).

• Scope 1 emissions have been prepared in accordance with The

Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard
(revised edition)

• Scope 2 emissions have been prepared in accordance with The

Greenhouse Gas Protocol: GHG Protocol Scope 2 Guidance: An
amendment to the GHG Protocol Corporate Standard

• Scope 3 emissions have been prepared in accordance with The

Greenhouse Gas Protocol: Corporate Value Chain (Scope 3) Accounting
and Reporting Standard.

Question 11.2.20
Can an entity report in accordance with the Corporate
Standard without following the Scope 2 Amendment?
Interpretive response: No. Reporting in accordance with the Corporate
Standard includes reporting in accordance with the Scope 2 Guidance. The
Scope 2 Guidance is an amendment to the Corporate Standard and not a
standalone document.

Excerpt from GHGP Scope 2 Guidance [pp 7, 10]

Purpose of this Guidance

This guidance acts as an amendment to the Corporate Standard, providing

updated requirements and best practices on scope 2 accounting and reporting.

Changes from the Corporate Standard

This guidance introduces accounting and reporting requirements related to

scope 2 that replace and add to those in the Corporate Standard.

Question 11.2.30#
If scope 3 categories are included when reporting under
the Corporate Standard, is the measurement and
disclosure guidance of the Scope 3 Standard followed?
Interpretive response: The Corporate Standard does not require that scope 3
emissions be presented. The reporting of discrete scope 3 categories is at the
discretion of the entity (see chapter 8).

Because the Scope 3 Standard was developed sometime after the Corporate
Standard (see Question 2.3.20), the latter does not contemplate calculation or
disclosure guidance for scope 3 categories.

However, we recommend the following approach, which provides disclosures

related to scope 3 categories at least commensurate with the detail presented
for scopes 1 and 2.

• The scope 3 calculation guidance is followed (see chapter 8).

• The presented scope 3 categories are disaggregated by category, instead

of being presented as a single line of ‘scope 3 emissions’.

• The following additional information is disclosed:

— a list of scope 3 categories and activities included in the inventory; and
— for each scope 3 category, a description of the methodologies,
allocation methods and assumptions used to calculate scope 3
emissions.

In addition, in assessing whether sufficient information is disclosed, an entity

considers the underlying principles of the GHGP – relevance, completeness,
consistency, transparency and accuracy (see Question 2.3.30).

11.3 Presentation and disclosure

Question 11.3.10
What are the required disclosures?

Interpretive response: As a general principle, reported information needs to be

relevant, complete, consistent, transparent and accurate (see Question 2.3.30).

The GHGP distinguishes between the following levels of disclosure.

Shall: These disclosures are required and can be omitted only if

immaterial.

Should: These disclosures are recommended but not required and may be
omitted.

May: These disclosures are optional and may be included at the

discretion of the entity.

There are also conditional disclosures, meaning that they are recommended
only if certain optional disclosures are made, but are not required and may be
omitted.

See Appendix A for the GHGP disclosures.

In addition, the following are typically disclosed even though they are not stated
explicitly in the GHGP:

• the reporting entity;

• the reporting period covered; and
• the basis of presentation (see Question 11.2.10).

Question 11.3.20
Is comparative information required?

Interpretive response: No. The GHGP does not require disclosure of year-
over-year comparative information. [GHGP chp 9]

However, it does require disclosure of, for example, the “year chosen as the
base year, and an emissions profile over time that is consistent with and clarifies
the chosen policy for making base year emissions recalculations.” See section
9.2. [GHGP p 63]

Question 11.3.30
How are the main GHGs presented?

Interpretive response: The Corporate Standard lists information that is

required to be included in reporting (see Appendix A). Such requirements
include: [GHGP chp 9]

• total scopes 1 and 2 emissions independent of any GHG trades such as

sales, purchases, transfers or banking of allowances;
• emissions data separately for each scope; and
• emissions data for all seven GHGs separately in metric tonnes and in
tonnes of CO2e, separately for scope 1 and scope 2.

The following is an example of how disclosure of the main GHGs may appear if
material to the entity and all seven GHGs are relevant.

Scope 1 Scope 2
GHG
Metric Tonnes Tonnes of CO2e Metric Tonnes Tonnes of CO2e
CO2
CH4
N2O
HFCs
PFCs
SF6
NF3

The disclosure of GHG emissions by individual GHGs is also optional in the

Scope 3 Standard. The example in Appendix B illustrates how emissions per
gas might be disclosed.

In our experience, it may not be possible for an entity to obtain the appropriate
level of data to disclose GHG emissions by individual gas (for scope 1, 2 or 3).
For example, in Japan, available emission factors for purchased electricity
reflect CO2 but do not reflect CH4 and N2O.

If individual GHGs are not relevant, in our experience it is common for entities
either to explain that the GHGs were not released from the inventory boundary,
or to show (within a table) zero emissions for any GHGs that are not applicable.
An entity may further explain that zero emissions are either not occurring, not
estimated (e.g. poor data quality, too costly to obtain data) or included in
another category.

GHG emissions not covered by the Kyoto Protocol (e.g. CFCs, NOx) are not
included in the scopes but may be reported separately at the entity’s discretion.

Question 11.3.40
What are biogenic emissions?

Interpretive response: GHG inventories account for emissions from both

biogenic (e.g. wood) and non-biogenic (e.g. fossil fuels such as oil, gas and
coal) sources.

Biogenic emissions are CO2 emissions from the combustion or biodegradation

of biomass. Biomass is any material or fuel produced by biological processes of
living organisms – e.g. plant material, landfill gas. [GHGP S2 p 100]

Although biomass can produce fewer GHG emissions than fossil fuels, it still
produces GHG emissions. Biogenic materials are increasingly used as a
resource for energy generation. For example, a biomass heating system may
use wood chips and pellets to heat a building. [GHGP S2 p 57]

Direct CO2 emissions from the combustion of biomass are reported separately
from the scopes (see Appendix A). [GHGP S2 p 57]

This is because burning biomass emits carbon that is part of the biogenic
carbon cycle (e.g. releases carbon that was absorbed by plants and will be
absorbed by them again) while burning fossil fuels releases carbon that has
been in the ground for millions of years (e.g. releases in a short amount of time
a significant amount of carbon which took millennia to form).

The burning of biomass also produces CH4 and N2O. Only CO2 is reported
separately, whereas CH4 and N2O are included in the emissions inventory in the
usual way. [GHGP S2 p 57]

This is because CO2 is part of the biogenic carbon cycle, while CH4 and N2O are
not.

A. Disclosures
The following excerpts are from the reporting chapters in the GHGP’s standards
and guidance on scopes 1, 2 and 3. Although these disclosures are the more
significant requirements, they are not an exhaustive listing.

Excerpt from GHGP Corporate Standard [pp 63-64]

Required information

A public GHG emissions report that is in accordance with the GHG Protocol
Corporate Standard shall include the following information:

DESCRIPTION OF THE COMPANY AND INVENTORY BOUNDARY

• An outline of the organizational boundaries chosen, including the chosen

consolidation approach.

• An outline of the operational boundaries chosen, and if scope 3 is included,

a list specifying which types of activities are covered.

• The reporting period covered.

INFORMATION ON EMISSIONS

• Total scope 1 and 2 emissions independent of any GHG trades such as

sales, purchases, transfers, or banking of allowances.

• Emissions data separately for each scope.

• Emissions data for all six GHGs separately (CO2, CH4, N2O, HFCs, PFCs,
SF26) in metric tonnes and in tonnes of CO2 equivalent.

• Year chosen as base year, and an emissions profile over time that is
consistent with and clarifies the chosen policy for making base year
emissions recalculations.

• Appropriate context for any significant emissions changes that trigger base
year emissions recalculation (acquisitions/divestitures,
outsourcing/insourcing, changes in reporting boundaries or calculation
methodologies, etc.).

• Emissions data for direct CO2 emissions from biologically sequestered

carbon (e.g., CO22 from burning biomass/biofuels), reported separately
from the scopes.

• Methodologies used to calculate or measure emissions, providing a

reference or link to any calculation tools used.

• Any specific exclusions of sources, facilities, and / or operations.

Optional information

A public GHG emissions report should include, when applicable, the following
additional information:

INFORMATION ON EMISSIONS AND PERFORMANCE

• Emissions data from relevant scope 3 emissions activities for which reliable
data can be obtained.

• Emissions data further subdivided, where this aids transparency, by

business units/facilities, country, source types (stationary combustion,
process, fugitive, etc.), and activity types (production of electricity,
transportation, generation of purchased electricity that is sold to end users,
etc.).

• Emissions attributable to own generation of electricity, heat, or steam that

is sold or transferred to another organization.

• Emissions attributable to the generation of electricity, heat or steam that is

purchased for re-sale to non-end users.

• A description of performance measured against internal and external

benchmarks.

• Emissions from GHGs not covered by the Kyoto Protocol (e.g., CFCs,
NOx,), reported separately from scopes.

• Relevant ratio performance indicators (e.g. emissions per kilowatt-hour

generated, tonne of material production, or sales).

• An outline of any GHG management/reduction programs or strategies.

• Information on any contractual provisions addressing GHG-related risks

and obligations.

• An outline of any external assurance provided and a copy of any

verification statement, if applicable, of the reported emissions data.

• Information on the causes of emissions changes that did not trigger a base
year emissions recalculation (e.g., process changes, efficiency
improvements, plant closures).

• GHG emissions data for all years between the base year and the reporting
year (including details of and reasons for recalculations, if appropriate)

• Information on the quality of the inventory (e.g., information on the causes

and magnitude of uncertainties in emission estimates) and an outline of
policies in place to improve inventory quality.

• Information on any GHG sequestration.

• A list of facilities included in the inventory.

• A contact person.

INFORMATION ON OFFSETS

• Information on offsets that have been purchased or developed outside the

inventory boundary, subdivided by GHG storage/removals and emissions
reduction projects. Specify if the offsets are verified/certified and/or
approved by an external GHG program (e.g., the Clean Development
Mechanism, Joint Implementation).

• Information on reductions at sources inside the inventory boundary that

have been sold/transferred as offsets to a third party. Specify if the
reduction has been verified/certified and/or approved by an external GHG
program.

Excerpt from GHGP Scope 2 Guidance [pp 59-62]

7.1 Accounting and Reporting Requirements

This Guidance provides a new set of requirements applied to the Corporate

Standard in calculating and reporting scope 2 emissions. Therefore,
conformance with this Guidance is required in order to prepare an inventory in
conformance with the Corporate Standard. In addition to all existing Corporate
Standard accounting and reporting requirements (see Chapter 9 of the
Corporate Standard), companies shall calculate and report scope 2 in the
following ways:

Required information for scope 2

For companies with operations only in markets that do not provide product or
supplier-specific data or other contractual instruments…:

• Only one scope 2 result shall be reported, based on the location-based

method.

For companies with any operations in markets providing product or supplier

specific data in the form of contractual instruments:

• Companies shall account and report scope 2 emissions in two ways and
label each result according to the method: one based on the location-based
method, and one based on the market-based method.

• Many companies’ GHG inventories will include a mix of operations globally,

some where the market-based method applies and some where it does not.
Companies shall account for and report all operations’ scope 2 emissions
according to both methods.

• To do so, emissions from any operations in locations that do not support a

market-based method approach shall be calculated using the location
based method (making such operations’ results identical for location-based
and market-based methods). Companies should note what percentage of

their overall electricity consumption reported in the market-based method

reflects actual markets with contractual information.

Scope 2 Quality Criteria. Companies shall ensure that any contractual

instruments used in the market-based method total meet the Scope 2 Quality
Criteria specified in Table 7.1. If instruments do not meet the Criteria, then
other data (listed in Table 6.3) shall be used as an alternative in the market-
based method total. In this way, all companies required to report according to
the market-based method will have some type of data option.

• Companies may provide a reference to an internal or external third-party

assurance process, or assurance of conformance provided by a certification
program, supplier label, green power program, etc. An attestation form may
be used to describe the chain of custody of purchased certificates or other
contractual instruments.

• If a residual mix is not currently available, reporters shall note that an

adjusted emissions factor is not available or has not been estimated to
account for voluntary purchases and this may result in double counting
between electricity consumers.

Inventory totals. For companies adding together scope 1 and scope 2 for a
final inventory total, companies may either report two corporate inventory totals
(one reflecting each scope 2 method), or may report a single corporate
inventory total reflecting one of the scope 2 methods.

• If reporting a single corporate inventory total, the scope 2 method used

should be the same as the one used for goal setting. Companies shall
disclose which method was chosen for this purpose.

Methodology disclosure. Companies shall disclose methods used for scope

2 accounting. For the market-based method, companies shall disclose the
category or categories of instruments from which the emission factors were
derived, where possible specifying the energy generation technologies.

Base-year information. Companies shall disclose the year chosen as the

base year; the method used to calculate the base year’s scope 2 emissions;
whether historic location based data is used as a proxy for a market-based
method; and the context for any significant emission changes that trigger base-
year emissions recalculation (acquisitions/ divestitures, outsourcing/insourcing,
changes in reporting boundaries or calculation methodologies, etc.)

Disclose basis for goal setting. If a company sets a corporate inventory

reduction goal and/or a scope 2-specific reduction goal, the company shall
clarify whether the goal is based on the location-based method total or market
based method total.

7.2 Recommended disclosure

Annual electricity consumption. Companies should report total electricity,

steam, heat, and cooling per reporting period separately from the scopes totals
(in kWh, MWh, BTU, etc.), which should include all scope 2 activity data as well
as the quantity of energy consumed from owned/ operated installations (which
may be only reported in scope 1 and not in scope 2.)

Biogenic emissions. Companies should separately report the biogenic CO2

emissions from electricity use (e.g. from biomass combustion in the electricity
value chain) separately from the scopes, while any CH4 and N2O emissions
should be reported in scope 2.

• Companies should document if any GHG emissions other than CO2

(particularly CH4 and N2O) are not available for, or excluded from, location-
based grid average emissions factors or with the market-based method
information.

Other instrument retirement. Companies should disclose additional

certificate or other instrument retirement performed in conjunction with their
voluntary claim, such as with certificate multipliers or any pairing required by
regulatory policy.

Basis for upstream scope 3. The reporting entity should identify which
methodology has been used to calculate and report scope 3, category 3—
upstream energy emissions not recorded in scope 1 and 2, scope 3.

Instrument features. Where relevant, companies should disclose key features

associated with their contractual instruments claimed, including any instrument
certification labels that entail their own set of eligibility criteria, as well as
characteristics of the energy generation facility itself and the policy context of
the instrument.

Role of corporate procurement in driving new projects. Where relevant,

companies should elaborate in narrative disclosure how any of the contractual
instruments claimed in the market-based method reflect a substantive
contribution by the company in helping implement new low carbon projects.

7.3 Optional information

Scope 2 totals disaggregated by country. This can improve transparency on

where market-based method totals differ from location-based.

Avoided emissions estimation. Companies may separately report an

estimation of GHG emissions avoided from a project or action. This
quantification should be based on project-level accounting, with methodologies
and assumptions documented (including to what the reduction is being
compared).

Advanced grid study estimations. Where advanced studies (or real-time

information) are available, companies may report scope 2 estimations
separately as a comparison to location-based grid average estimations, and
companies can document where this data specifically informed efficiency
decision making or time-of-day operations. Because these studies or analyses
may be more difficult to use widely across facilities or to standardize/aggregate
consistently without double counting, companies should ensure that any data
used for this purpose has addressed data sourcing and boundaries consistent
with the location-based method.

Scope 2 results calculated by other methods. If companies are subject to

mandatory corporate reporting requirements for facilities in a particular

region/nation that specify methodologies other than the two required for dual
reporting, these companies may report these results separately from the
scopes.

Disclose purchases that did not meet Scope 2 Quality Criteria. If a

reporting entity’s energy purchases did not meet all Scope 2 Quality Criteria,
the entity may note this separately. This note should detail which Criteria have
been met, with details of why the remaining Criteria have not. This will provide
external stakeholders with the information they require, and allow the reporting
entity to disclose the efforts made to adhere to the guidance. (Location-based
method data will be used as proxy emission factors in the market-based
method total.)

Excerpt from GHGP Corporate Value Chain

Accounting and Reporting Standard [pp 119-120]
11.1 Required information

Companies shall publicly report the following information.

• A scope 1 and scope 2 emissions report in conformance with the GHG

Protocol Corporate Standard

• Total scope 3 emissions reported separately by scope 3 category

• For each scope 3 category, total emissions of GHGs (CO2, CH4, N2O,
HFCs, PFCs, and SF6) reported in metric tons of CO2 equivalent, excluding
biogenic CO2 emissions and independent of any GHG trades, such as
purchases, sales, or transfers of offsets or allowances

• A list of scope 3 categories and activities included in the inventory

• A list of scope 3 categories or activities excluded from the inventory with

justification of their exclusion

• Once a base year has been established: the year chosen as the scope 3
base year; the rationale for choosing the base year; the base year
emissions recalculation policy; scope 3 emissions by category in the base
year, consistent with the base year emissions recalculation policy; and
appropriate context for any significant emissions changes that triggered
base year emissions recalculations

• For each scope 3 category, any biogenic CO2 emissions reported

separately

• For each scope 3 category, a description of the types and sources of data,
including activity data, emission factors and GWP values, used to calculate
emissions, and a description of the data quality of reported emissions data

• For each scope 3 category, a description of the methodologies, allocation

methods, and assumptions used to calculate scope 3 emissions

• For each scope 3 category, the percentage of emissions calculated using

data obtained from suppliers or other value chain partners

11.2 Optional information

A public GHG emissions report should include, when applicable, the following
additional information.

• Emissions data further subdivided where this adds relevance and

transparency (e.g., by business unit, facility, country, source type, activity
type, etc.)

• Emissions data further disaggregated within scope 3 categories where this

adds relevance and transparency (e.g., reporting by different types of
purchased materials within category 1, or different types of sold products
within category 11)

• Emissions from scope 3 activities not included in the list of scope 3

categories (e.g., transportation of attendees to conferences/events),
reported separately (e.g., in an “other” scope 3 category)

• Emissions of GHGs reported in metric tons of each individual gas

• Emissions of any GHGs other than CO2, CH4, N2O, HFCs, PFCs, and SF6
whose 100-year GWP values have been identified by the IPCC to the
extent they are emitted in the company’s value chain (e.g., CFCs, HCFCs,
NF3, NOX, etc.) and a list of any additional GHGs included in the inventory

• Historic scope 3 emissions that have previously occurred, reported

separately from future scope 3 emissions expected to occur as a result of
the reporting company’s activities in the reporting year (e.g., from Waste
generated in operations, Use of sold products, End-of-life treatment of sold
products)

• Qualitative information about emission sources not quantified

• Information on any GHG sequestration or removals, reported separately

from scope 1, scope 2 and scope 3 emissions

• Information on project-based GHG reductions calculated using the project

method (e.g., using the GHG Protocol for Project Accounting), reported
separately from scope 1, scope 2, and scope 3 emissions

• Information on avoided emissions (e.g., from the use of sold products),

reported separately from scope 1, scope 2, and scope 3 emissions

• Quantitative assessments of data quality

• Information on inventory uncertainty (e.g., information on the causes and

magnitude of uncertainties in emission estimates) and an outline of policies
in place to improve inventory quality

• The type of assurance performed (first or third party), the relevant

competencies of the assurance provider(s), and the opinion issued by the
assurance provider

• Relevant performance indicators and intensity ratios

• Information on the company’s GHG management and reduction activities,

including scope 3 reduction targets, supplier engagement strategies,
product GHG reduction initiatives, etc.

• Information on supplier/partner engagement and performance

• Information on product performance

• A description of performance measured against internal and external

benchmarks

• Information on purchases of GHG reduction instruments, such as

emissions allowances and offsets, from outside the inventory boundary

• Information on reductions at sources inside the inventory boundary that

have been sold/transferred as offsets to a third party

• Information on any contractual provisions addressing GHG-related risks or

obligations

• Information on the causes of emissions changes that did not trigger a

scope 3 base year emissions recalculation

• GHG emissions data for all years between the scope 3 base year and the
reporting year (including details of and reasons for recalculations, if
appropriate)

• Additional explanations to provide context to the data

B. Example GHG emissions statement

Item significantly updated in this edition #

The following example demonstrates one way that a hypothetical company,

ABC Company, could present a GHG emissions statement in accordance with
the required disclosures of the GHGP Corporate Standard, which includes the
Scope 2 Guidance. See section 11.2.

This example has been prepared for illustrative purposes only and does not
illustrate all required disclosures, and does not include disclosures in the
Corporate Standard that are optional or recommended. See section 11.3.

ABC COMPANY, INC. AND SUBSIDIARIES

Greenhouse Gas (GHG) emissions statement

Year ended December 31, 20X21
In tonnes of carbon dioxide equivalent (CO2e)

Scope 1 emissions XX
Scope 2 emissions:
Market-based method XX
Location-based method XX
Total scope 1 and scope 2 emissions (market-based method) XX
Offset of removal-based carbon credits2 (XX)

Select scope 3 emissions:

Category 1, purchased goods and services XX
Category 6, business travel XX
Category 7, employee commuting XX
Total reported scope 3 emissions XX

The accompanying notes on pages X to Y form an integral part of

this GHG emissions statement.

1. Reporting entity

ABC Company, Inc. and subsidiaries (the Company) is a technology business

headquartered in Atlanta, GA with operations throughout the US that develops,
manufactures and sells computer software and consumer electronics, and
provides related services. Consumer electronics include personal computers,
tablets and gaming consoles.

2. Basis of presentation #

The Company has prepared its GHG emissions statement for the year ended
December 31, 20X2 in accordance with the World Resources Institute and
World Business Council for Sustainable Development’s Greenhouse Gas
Protocol standards and guidance (collectively, the GHG Protocol):

• Scope 1 and certain categories of scope 3 emissions have been prepared in

accordance with the GHG Protocol Corporate Accounting and Reporting
Standard (revised edition)3
• Scope 2 emissions have been prepared in accordance with the GHG
Protocol Scope 2 Guidance: An amendment to the GHG Protocol Corporate
Standard.

3. Organizational boundary

The Company presents its emissions under the operational control approach,
accounting for emissions from operations over which it, or one of its
subsidiaries, has the full authority to introduce and implement its operating
policies.

On November 30, 20X2, the Company acquired Sierra Corp. The Company has
excluded Sierra Corp from its emissions calculations because the necessary
data is not yet available. The Company plans to include Sierra Corp in next
year’s GHG emissions statement and will recalculate the base year (see
Note 7).

4. Use of estimates and estimation uncertainties

The Company bases its estimates and methodologies on historical experience,

available information and various other assumptions that it believes to be
reasonable. Emissions data presented are subject to measurement
uncertainties resulting from limitations inherent in the nature and the methods
used for determining such data. The selection of different but acceptable
measurement techniques can result in materially different measurements. The
precision of different measurement techniques may also vary.

5. Operational boundaries

Emissions are calculated and presented independent of any GHG trades such
as sales, purchases, transfers or banking of allowances.4, 5

a. Scope 1 emissions

Scope 1 emissions are direct emissions from the combustion of fuel from
sources inside the organizational boundary and include the following.

Source Boundary description

Stationary combustion Manufacturing equipment, boilers, furnaces, generators.
Mobile combustion Company-leased vehicles, company-owned vehicles.
Fugitive emissions Leaks from air conditioning, refrigeration, manufacturing
equipment.

b. Scope 2 emissions

Scope 2 emissions are indirect emissions from the generation of acquired and
consumed electricity, steam, heat or chilled water occurring at sources outside
of the organizational boundary as a consequence of activities from sources
inside the organizational boundary, and include the following.

Source Boundary description

Purchased electricity
Data centers, owned office spaces, leased office
Steam and heat spaces, inventory storage facilities, manufacturing
facilities, retail storefronts.
Cooling

c. Scope 3 emissions #

Scope 3 emissions are indirect emissions from the generation of fuel from
sources outside the organizational boundary as a consequence of activities of
the Company.

The Company has elected to include three categories of scope 3 emissions in

its GHG emissions statement. These emissions have been calculated (but are
not presented) in accordance with the GHG Protocol Corporate Value Chain
(Scope 3) Accounting and Reporting Standard and following the GHG Protocol
Technical Guidance for Calculating Scope 3 Emissions.

Source Boundary description

Category 1, purchased The production, transportation and distribution of
goods and services products purchased or acquired, including hard drives,
semiconductors, batteries, keyboards, third-party
software.
Category 6, business Air, rail, bus, automobile (including employee-owned
travel and rental cars) and hotel stays when employees* travel
for business.
Category 7, employee Air, rail, bus, automobile (including employee-owned
commuting and rental cars) when employees* commute between
home and worksites.
* Employees include employees of operations owned, operated or leased by the
Company. The Company does not include consultants, contractors or other individuals
who travel or commute on behalf of the Company.

6. Emissions per gas6

Emissions data for all seven GHGs in metric tonnes and in tonnes of CO2
equivalent include only scope 1 and 2 emissions. All amounts are for the year
ended December 31, 20X2.

in absolute mt gas
Hydro- Sulfur
Carbon Nitrous Nitrogen fluoro Perfluoro Hexa
dioxide Methane Oxide trifluoride carbons carbons fluoride
(CO2) (CH4) (N2O) (NF3) (HFCs) (PFCs) (SF6)

Scope 1 XX XX XX XX XX XX XX

Scope 2 XX XX XX XX XX XX XX

- Location-
XX XX XX XX XX XX XX
based

- Market-
XX XX XX XX XX XX XX
based

in tCO2e
CO2 CH4 N2O NF3 HFCs PFCs SF6

Scope 1 XX XX XX XX XX XX XX

Scope 2 XX XX XX XX XX XX XX

- Location-
XX XX XX XX XX XX XX
based

- Market-
XX XX XX XX XX XX XX
based

7. Base year

The Company’s base year for scope 1 and scope 2 (market-based method)
emissions is 20Y9. No base year has been set for scope 3 emissions.

The base year is recalculated if there are changes in any of the following that
are significant either individually or in aggregate:

• Structural changes in the organizational boundary, including acquisitions

and divestments.
• Changes in calculation methodology or improvements in the accuracy of
emission factors or activity data that result in a significant impact on the
base year emissions data.

In 20X2, the Company recalculated its scope 1 and scope 2 base year
emissions to reflect the following:

• Acquisition of Target Corp on May 5, 20X1, which is also reflected in the

Company’s current year emissions.
• Divestment of three business units during 20X2, which are also not reflected
in the Company’s current year emissions.

The following graph shows total scope 1 and scope 2 (market-based method)
emissions in the base year and their development over time to the end of the
current year.7 The pre-adjustment amounts for the years 20Y9 to 20X1 were
previously reported in the Company’s 20X1 GHG emissions statement. The
adjusted amounts in 20Y9 to 20X1 are after accounting for the above
transactions that triggered a recalculation of past emissions.

XX
20Y9 20X0 20X1 20X2

Scope 1 pre-adjustment Scope 1 adjusted

Scope 2 pre-adjustment Scope 2 adjusted
Total pre-adjustment Total adjusted

8. Measurement methodologies

a. Scope 1 emissions

Source Method Emission factors Inputs

Stationary Emission factors [Year] • Fuel receipts
combustion applied to primary Environmental
• Purchase
data or average Protection Agency
records
data where primary (EPA) Emission
data is unavailable Factors for GHG • Metering
Inventories • Fuel expenditure
data and
average prices
Mobile combustion Emission factors [Year] EPA • Fuel receipts
applied to primary Emission Factors
• Distance
data or distance for GHG
travelled
based where Inventories
primary data is • Mode of
unavailable transport and
vehicle type
• Weight of
shipment
Fugitive emissions Spend-based [Year] Department • Equipment
for Environment, inventory count
Food and Rural
Affairs (DEFRA)

b. Scope 2 emissions

Source Method Emission factors Inputs

Purchased Location-based • EPA Emissions Utility bill/ metered
electricity & Generation consumption
Resource
Integrated

Source Method Emission factors Inputs

• Database [Year]
(eGRID)
• [Year]
International
Energy Agency
(IEA)
Purchased Market-based • eGRID • Utility
electricity bill/metered
• [Year] IEA
consumption
• Residual Mixes
• Energy attribute
certificates
• Virtual power
purchase
agreements
Steam and heat Market-based [Year] EPA • Utility bill/
Emission Factors metered
for GHG consumption
Inventories
Cooling Location-based [Year] IEA • Utility bill/
metered
consumption

Methodology descriptions

Emissions are calculated by multiplying the amount of company-purchased

electricity, steam, heat and cooling consumed (in units of CO2) by the
appropriate emission factors.

Location-based method estimates are based on grid-average emission factors

for defined geographic locations.

Market-based method estimates are based on emission factors derived from

contractual instruments, which meet the ‘Scope 2 Quality Criteria’. These may
include supplier-specific emission factors or factors denoted through renewable
energy certificates (RECs). When these factors are not available, emissions are
estimated using residual mix factors.

c. Scope 3 emissions

Source Method Emission factors Inputs

Category 1, Spend-based EPA Supply Chain Economic value of
purchased goods EEIO purchased goods
and services and services from
purchasing records
Category 6, business travel

• Air travel Distance-based [Year] DEFRA • Distance

travelled
• Flight type (long
haul, short haul)

Source Method Emission factors Inputs

• Hotel stay Average-data [Year] BEIS Length of stay

• Rental car, Distance-based [Year] EPA • Distance

personal Emission Factors travelled
mileage for GHG
• Vehicle type
Inventories
(passenger car)
Category 7, Average-data [Year] EPA • Total
employee Emission Factors employees,
commuting for GHG adjusted for
Inventories those not
commuting
• Mode of
transport (rail,
car, foot, bus)
• One-way
commuting
distance
• Working days,
adjusted for
hybrid working
model

Methodology descriptions

The spend-based method estimates emissions by collecting data on the

economic value of assets and multiplying by relevant secondary (e.g. industry
average) emission factors (e.g. average emissions per monetary value of
goods).

The distance-based method estimates emissions using mass, distance and

mode of transport, and applying the appropriate mass-distance emission factor
for the vehicle used.

The average-data method estimates emissions using secondary emission

factors for emissions per unit of consumption (e.g. kg CO2e/kWh).

The Company used the following calculation tools in measuring its scope 3
emissions:8

• Purchased goods and services: DEF tool

• Employee commuting: XYZ tool.

d. Global Warming Potentials

The global warming potentials for all GHGs were sourced from the
Intergovernmental Panel on Climate Change Fifth Assessment Report.

Notes to example:

1. In this example, the company has elected to present only the current year
plus certain base year information (see Note 7). For further discussion about
comparative information, see Question 11.3.20.
2. Emissions are presented on a gross basis and offset credits (by whatever
name they are called) are not netted against emissions. Therefore, although
presentation styles may vary, (1) gross emissions are required to be
presented, and (2) any totals or subtotals do not misrepresent the net
amount as being gross emissions. See section 10.3.

3. Question 11.2.30 discusses the presentation of select scope 3 categories.

4. See Note 2.

5. This example excludes emissions from biomass. If relevant, direct CO2

emissions from the combustion of biomass are reported separately from the
scopes. See Question 11.3.40.

6. If an individual gas is not relevant, it is common for that fact to be explained

or to show zero emissions in a table such as this. See Question 11.3.30.

7. The GHGP requires disclosure of an emissions profile over time (that is

consistent with and clarifies the chosen policy for making base year
emissions recalculations). This graph provides a trend line, but an entity
could instead provide alternative quantitative or qualitative disclosure that
describes the effect on the base year.

8. The GHGP requires an entity to disclose a reference or link to any

calculation tools used.

Index of changes
This index lists the significant changes made in this edition to assist you in
locating recently updated content. Guidance that has been significantly updated
or revised is identified with #. New guidance added in this edition is identified
throughout the Handbook with **.

2. Foundational concepts
Reporting landscape
Main GHGs #
Unit of measure #
GHGP requirements and relief #
Future developments #

3. Organizational boundary
Reporting landscape
Organizational boundary #

4. Operational boundary
Reporting landscape
Scope 3 categories #

5. Emissions calculations
Question
5.2.70 Are the latest available emission factors required for calculating
GHG emissions? **
Example
5.2.20 Updating emission factors **
Reporting landscape
GWP values #

6. Scope 1 emissions
Reporting landscape
Scope 1 emissions #

7. Scope 2 emissions
Reporting landscape
Scope 2 emissions #
Scope 2 methods #

8. Scope 3 emissions
Reporting landscape
Scope 3 emissions #
Scope 3 emissions data #
Financed (investment) emissions #

9. Tracking emissions and setting targets

Question
9.2.40 What is a significance threshold? #
Reporting landscape
GHG intensity metrics #
GHG emissions targets #

10. Offset credits

Questions
10.2.10 How are GHG offsets referred to in practice? #
10.3.25 What is the process by which offset credits are derived from a GHG
project? **
10.3.27 What if GHG emissions reductions are reversed after offset credits
are issued? **
10.3.35 What considerations are relevant in assessing the quality of offset
credits in the voluntary market? **
10.3.37 How does an ex-ante offset credit differ from an ex-post offset
credit? **
Example
10.3.5 Offset credits buffer reserve **
Reporting landscape
GHG offsets #
Emissions Trading Schemes #
Offset credibility #
Future developments **

11. Reporting
Question
11.2.30 If scope 3 categories are included when reporting under the
Corporate Standard, is the measurement and disclosure guidance
of the Scope 3 Standard followed? #
Reporting landscape
Disclosures #

B. Example GHG emissions statement

Basis of presentation #
Operational boundary: scope 3 emissions #

KPMG resources
Use our resources to learn more about ESG, what it means for you and how we
can help.

KPMG ESG helps your company create a KPMG ESG Assurance provides insights
more sustainable future while driving that help your business in this new era of
measurable growth. We know the power sustainability reporting. See how a
of ESG to transform your business. Learn comprehensive ESG reporting strategy
more about how our ESG solutions will can go beyond compliance to enhance
help you harness it. trust, mitigate risk and create value.

KPMG Financial Reporting View KPMG Climate Change Resource

delivers guidance, publications and Center is our international resource
insights for financial reporting center on the financial reporting impacts
professionals. Visit our ESG resource of climate change. Learn more about
page to stay informed about climate and climate risk in financial statements
sustainability developments and news prepared under IFRS Accounting
that affect the finance function. Standards.

Sign up for ESG alerts at

visit.kpmg.us/KPMG-ESG

Following developments
Follow our news on climate and sustainability disclosure requirements.

US developments
Our ESG resources page on KPMG Financial Reporting View brings you news
and analysis about climate reporting requirements from the SEC and the State
of California plus other developments relevant to US companies – with articles,
analysis, webcasts and podcasts.

Key resources include the following:

• Top 10 Q&As, Understanding the SEC’s climate rule

• Hot Topic, California introduces climate disclosures and assurance
• Web article, California imposes ESG reporting related to carbon offsets.

EU developments
ESRSs cover environmental, social and governance topics. The ESRSs are
based on the concept of double materiality (multi-stakeholder approach) and
expand a company’s reporting boundary to its entire value chain.

Read our Top 10 Q&As on the ESRSs here, and read about the applicability of
the EU’s Corporate Sustainability Reporting Directive outside of the EU here.

Further, watch out for additional EU sustainability-related legislation that affects

US companies. Read about the EU’s forthcoming Corporate Sustainability Due
Diligence Directive here.

ISSB developments
Our ISSB | Sustainability Reporting Resource Center provides practical
guidance to help you get ready for the new IFRS Sustainability Disclosure
Standards, capturing the latest thinking together with our insights.

We provide high-level overviews and a detailed guide for an understanding of

the standards – together with articles and videos on the latest discussions of the
ISSB.

ISSB vs EU vs SEC
See our Top 10 Q&As on how the disclosure requirements compare here.

To keep up to date, you can subscribe to FRV Weekly here.

Acknowledgments
This handbook has been produced by the Department of Professional Practice
of KPMG LLP in the United States in collaboration with other member firms of
the KPMG network.

We would like to acknowledge the efforts of the main contributors to this edition
of the handbook:

Christina Abbott US

Marissa Gerdes US

Julie Santoro US

We would also like to acknowledge the significant contributions of the following:

Breanne Anderson US

Qudaija Bhayat KPMG International Standards Group1

Gordon Crerar Canada

Kieran Fearon US

Trevor Gibbons KPMG International Standards Group1

Maura Hodge US

Kevin Katindig US

Clement Le Gouvello France

Mathilde Manueco France

Darren McGann US

Kazuhiko Saito Japan

Konstantin Säuberlich Germany

Serene Seah-Tan Hong Kong

Aphiwe Twaku KPMG EMA DPP Ltd

Lastly, we would like to thank the following who generously contributed their
time: Kimber Bascom, Brooke Harris, Joan Rood, Victoria Savchenko,
Tomokazu Sekiguchi.

Note 1: Part of KPMG IFRS Limited.

Learn about us: kpmg.com

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual
or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the future. No one should act upon such information
without appropriate professional advice after a thorough examination of the particular situation.

This publication contains excerpts from the standards and guidance of the Greenhouse Gas Protocol. That material was developed by
the World Resources Institute and the World Business Council for Sustainable Development.

This publication contains copyright © material of the IFRS® Foundation. All rights reserved. Reproduced by KPMG LLP with the
permission of the IFRS Foundation. Reproduction and use rights are strictly limited. For more information about the IFRS Foundation
and rights to use its material please visit www.ifrs.org.

Disclaimer: To the extent permitted by applicable law, the IASB, the ISSB and the IFRS Foundation expressly disclaims all liability
howsoever arising from this publication or any translation thereof whether in contract, tort or otherwise (including, but not limited to,
liability for any negligent act or omission) to any person in respect of any claims or losses of any nature including direct, indirect,
incidental or consequential loss, punitive damages, penalties or costs.

Information contained in this publication does not constitute advice and should not be substituted for the services of an appropriately
qualified professional.

‘ISSBTM’ is a Trade Mark and ‘IFRS®’, ‘IASB®’, ‘IFRIC®’, ‘IFRS for SMEs®’, ‘IAS®’ and ‘SIC®’ are registered Trade Marks of the IFRS
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