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How to Choose a Framework Among All ESG Standards
In this article, we’ll give a brief overview of ESG standards, why they are important, and how your company can pick the ESG framework most suited towards your individual goals.
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GHG Accounting: What is it And How Does it Work?
As more companies strive to join the movement towards net-zero emissions movement by 2050, it means that businesses and organizations are seeking third party assistance to help them manage their carbon dioxide and greenhouse gas emissions. Most companies, while motivated to aid in the fight against climate change – don’t know where to start when it comes to reducing their own carbon emissions.
💡 In fact, 100 energy companies alone are able to be held accountable for up to 71% of all industrial emissions – making it more important than ever before for companies to take note of their environmental impact.
As a result, they often refer to third-party companies that offer greenhouse gas accounting services – but how do GHG accounting services help companies to reduce their carbon emissions and improve their efforts towards sustainability?
In this article, we'll explain the main goal of GHG accounting, the different methods used, and how to reduce GHG emissions to mitigate global warming.
What is Greenhouse Gas Accounting?
Greenhouse gas accounting is the way companies can measure how many overall emissions and greenhouse gases they are producing and emitting into the atmosphere.
GHG accounting is useful for states, organizations, and various individuals such as potential investors or stakeholders to delineate how many emissions a company is responsible for through the use of carbon credits. GHG accounting allows a company to fairly trade carbon credits throughout the market, and to better understand the greatest source of their own emissions.
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Some of the main greenhouse gases include:
- Carbon dioxide (CO₂)
- Methane (CH₄)
- Nitrous oxide (N₂O)
- Hydrofluorocarbons (HFCs)
- Perfluorocarbons (PFCs)
These greenhouse gases trap heat in the atmosphere and contribute to global warming and overall temperature rise as a result of human activity. According to the sixth assessment report by the IPCC, these drastic temperatures will continue to rise unless ample action is taken to reduce emissions.
In 2022, greenhouse gas emissions in the U.S. reached a massive 6,343 million metric tons of carbon dioxide equivalents. This dramatic in carbon dioxide emissions has occurred since the industrial revolution began as a result of an increase in fossil fuel combustion, efforts to generate electricity and grow the energy sector, land use changes, and overall human activities.
Here's a table depicting the increase in GHG emissions over the last 30 years:
👉 Greenhouse gas accounting is often referred to as carbon accounting.
Ultimately, greenhouse gas accounting serves as the most surefire, globally accredited way to measure a company’s greenhouse gas and carbon dioxide emissions so that their efforts to reduce their own emissions can be accurately depicted to others in the carbon market.
What is the main goal of GHG accounting?
The main goal of carbon accounting is to provide the amount of greenhouse gas or carbon dioxide emissions produced with a set value so that they can be fairly traded in the carbon market.
As global temperatures and levels of greenhouse gas concentrations continue to skyrocket, more companies have become aware of the negative impact of their use of fossil fuels and how a large carbon footprint could be troublesome for their future business endeavors.
In fact, as of 2016, a whopping 92% of Fortune 500 companies (or companies part of the list of the largest 500 companies ranked by revenue in the U.S.) made using the Carbon Disclosure Project (CDP), GHG Protocol, or a third-party program which follows the values depicted in the GHG Protocol to monitor and manage their greenhouse gas emissions.
👉 Greenhouse gas accounting helps to provide numerical data which a company or individual can be held accountable for regarding their emissions. Therefore, greenhouse gas accounting is a great way for companies to develop greater transparency between their investors, employees and customers.
Is there a difference between greenhouse gas accounting and a carbon assessment?
Greenhouse gas accounting is the process of measuring the amount of greenhouse gas emissions a company is producing, whereas carbon assessment is the process of evaluating the data provided by greenhouse gas accounting.
The goal of a carbon assessment is to help a company thoroughly understand their own emissions so that a third party, like Greenly, can help them with which actions to take next to build a more sustainable business and reduce their environmental impact.
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👉 In short, GHG accounting is nothing more than a number. It’s like learning about how to make sense of your credit score: it’s nothing more than a number until you understand if the number is associated with a good or bad credit score.
For some people, a bad credit score will not motivate them to alter their spending habits – but for others, it will be a wake up call for them to make better credit decisions and be more mindful of how they spend their money going forward.
On the other hand, the number delineated one’s credit score may not influence their financial habits at all, and won’t influence their financial decisions in the future.
Greenhouse gas accounting simply provides a party with information. If the individual or company decides to take action after receiving the numerical data regarding the emissions, that’s great – but it isn’t required.
A carbon assessment takes the incentive of greenhouse gas accounting one step further, as it evaluates the data from greenhouse gas accounting to help the individual or company responsible for emissions to create new habits that can reduce emissions.
💡 In addition to greenhouse gas accounting services, Greenly can offer our clients a carbon assessment to help them on their journey to becoming more environmentally friendly.
How does GHG accounting work?
Greenhouse gas accounting uses two methods, both of which can be used at the same time to optimize a company's calculation of their carbon footprint for accuracy.
Here are the different different methods of greenhouse gas accounting broken down:
Spend-Based Method
The first approach to GHG accounting is the spend based method. The spend based method works by multiplying the financial value of something a company purchases by the amount of carbon dioxide or greenhouse gas emissions it emits to produce a numerical piece of data.
The spend based method of GHG accounting is often considered the easier approach, as it requires less time to calculate. However, this method of GHG accounting isn’t the most accurate as prices are subject to change on a constant basis, especially during periods of inflation.
👉 The spend based method of GHG accounting is best for quick calculations, but it isn't the most accurate way to measure a company’s carbon footprint.
Activity-Based Method
The second method to greenhouse gas accounting is the activity based method. The activity based method, which is more specific than the spend-based method, uses data to retrieve how many units of specific materials have been purchased.
The spend based method would only multiply the price of one laptop purchased by the company, whereas the activity based method accounts for all the steps that may have created a carbon footprint: such as sourcing the raw materials, industrial processes, corporate value chain, various production methods, and even marketing tactics.
👉 Both the spend-based method and the activity-based method utilize factors associated with carbon emissions to determine a company’s impact on overall emissions.
However, it is important to note that while the activity based approach to carbon accounting is more reliable than spend-based method, it is still recommended that companies implement a hybrid model when committing to greenhouse gas accounting.In other words, companies should strive to use both the spend-based method and the activity based method simultaneously. Using both approaches to greenhouse gas accounting can help companies determine their carbon footprint with more accuracy.
Why is greenhouse gas accounting important?
Greenhouse gas accounting is important as it can help a company improve in all areas of business, such as by reducing their total emissions or by adhering to GHG accounting standards or other environmental regulations – all of which can make a business more attractive to customers and investors.
For instance, greenhouse gas accounting is a step towards developing corporate sustainability. Potential investors and customers are becoming more interested in investing or purchasing products and services from businesses that implement environmental habits that seek to mitigate climate change, such as by implementing the use of renewable energy or implementing energy efficiency protocols.
💡 The concrete data provided by GHG accounting helps to establish transparency and future allegations against greenwashing. This is because the statistics provided by greenhouse gas accounting serve as tangible, numerical proof that your company is making an effort to reduce their emissions.
New found financial growth can also occur as a result of utilizing greenhouse gas accounting, as investors, employees, and consumers are more likely to invest or purchase a product or service that seeks sustainability.
Here are a few more reasons why GHG accounting is important:
- Can help your company adhere to the Global GHG accounting and reporting standard;
- Reveals where your company can succeed in reducing emissions such as by mitigating the use of air conditioning;
- Ensure that your efforts to reduce greenhouse gas (GHG) will be developed on a physical science basis and in line the values depicted by the GHG Protocol and the Intergovernmental Panel on Climate Change.
👉 All in all, greenhouse gas accounting has a multitude of benefits that will continue to aid each sector of a business success. In other words, as long as the company is aiming to improve sustainability and reduce their emissions through the use of GHG accounting – then more investors, customers, and employees will want to take part in the project. This all creates a domino effect for continued financial and environmental success.
How does GHG accounting organize the different categories of emissions?
The categories of greenhouse gas accounting are referred to as, “scopes” – these scopes in GHG accounting aim to make calculating carbon emissions easier.
Scope 1 emissions are due to environmental impacts caused by industrialization or vehicles used within a company. Any use of fossil fuels or non-renewable energy would fall under this category of greenhouse gas accounting.
Scope 2 emissions include any energy required to power something within the company, such as rented or leased office spaces, cars, central heating or air conditioning.
Scope 3 emissions are any other miscellaneous activities that don’t qualify for scopes one or two. Carbon emitting activities that could fall under scope three could include the use of raw materials, buying various goods or services, the carbon footprint of employees who commute to work, or even business travel from a flight.
👉 Scope 3 emissions are any carbon footprint inducing activity that occurs outside of the company itself, but the company is still an indirect cause of. For instance, the company cannot control how many emissions a flight produces – but sending an employee on a business trip means the company is still contributing to the carbon footprint inducing activity. Therefore, scope 3 emissions are known to be the most difficult category in greenhouse gas accounting to measure.
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What is the best GHG accounting tool to use?
Some of the best GHG accounting tools, resources, and software to use in 2024 include:
💡 It's important to remember that when choosing a greenhouse gas accounting software, tool, or resources to ensure that the platform of your choice can help your company to achieve its specific climate change goals.
👉 Read more on our favorite carbon accounting software here.
Can greenhouse gas accounting help mitigate greenhouse emissions and global warming?
Greenhouse gas accounting is a great first step towards reducing emissions and aiding in the fight against climate change, but as it was explained earlier – greenhouse gas accounting only serves as a guide to influence an individual or company to implement new, healthier environmental measures.
Greenhouse gas accounting can provide one with the data necessary to evaluate which areas can be improved upon, but it is ultimately up to the individual or company to establish those new carbon emissions reducing measures – and then work hard to sustain them.
How can you reduce greenhouse gas emissions without the help of GHG accounting?
Greenhouse gas accounting isn’t the only way a company can reduce their emissions. While it’s best to hire third-party assistance for optimal results in classifying and reducing a company’s emissions – it doesn’t mean a company can’t do anything about their emissions if they can’t afford to hire someone to do their greenhouse gas accounting for them.
The global temperature rise is making several countries around the world, from the European Union to the U.S. rethink their GHG emissions and the value in going above and beyond reporting requirements to reduce our climate impact.
Here are 3 small steps your company can take to begin reducing their emissions:
Shut Off Electricity When it’s Not Necessary
Whenever no one is in the office, ensure that all heating, air conditioning, lights, and devices are turned off when not in use to prevent using electricity when it’s not necessary.
👉 Your company will also have a lower electricity bill, and in turn – save money that can be used to fight other environmental goals within the company elsewhere.
Provide Employees with Public Transportation
If your company still hasn’t switched to remote status, it would be extremely effective to offer your employees with public metro passes, ride share service discounts, or a subscription to a shared bike or scooter service.
👉 This serves as a great way for companies to reduce their greenhouse gas scope 2 emissions.
Re-evaluate Rented and Leased Spaces or Vehicles
Do you have leased office spaces or vehicles that aren’t being used as much as they were before?
By canceling the lease of unused office spaces or cars, your company won’t only save money – but will be exerting less energy and greenhouse gas emissions by not using electricity to power or maintain these leases, and ultimately reduce the level of greenhouse gas emissions your company is emitting.
What about Greenly?
If reading this article about GHG accounting, how it works, and why its important has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
💡 Figuring out how to manage GHG accounting on your own to help fight against climate change and reduce your emissions can be stressful.
At Greenly we can help you to assess your company’s carbon footprint, and then give you the tools you need to cut down on emissions. We offer a free demo for you to better understand our platform and all that it has to offer – including assistance with boosting supplier engagement, personalized assistance, and new ways to involve your employees.
Click here to learn more about Greenly and how we can help you reduce your carbon footprint.
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