Chapter 4 — Calculating GHG Emissions and Choosing a Base Year

4.1 Tracking Emissions Over Time

Reporting companies may need to track GHG emissions for regulatory purposes, for use in reporting to relevant stakeholders, or for internal tracking of GHG emission targets. This chapter discusses (1) Scope 1, Scope 2, and Scope 3 considerations related to choosing a base year, (2) recalculation of base-year emissions, and (3) the related reporting requirements.

Corporate Standard, Chapter 5, “Tracking Emissions Over Time,” Page 35

A meaningful and consistent comparison of emissions over time requires that companies set a performance datum with which to compare current emissions. This performance datum is referred to as the base yearFN1 emissions. For consistent tracking of emissions over time, the base year emissions may need to be recalculated as companies undergo significant structural changes such as acquisitions, divestments, and mergers.

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FN1 Terminology on this topic can be confusing. Base year emissions should be differentiated from the term “baseline,” which is mostly used in the context of project-based accounting. The term base year focuses on a comparison of emissions over time, while a baseline is a hypothetical scenario for what GHG emissions would have been in the absence of a GHG reduction project or activity.

4.1.1 Choosing a Base Year

A key step in tracking GHG emissions over time is to choose a base year that aligns with the reporting company’s operational goals and for which accurate and complete information is available. Although a base year is usually a single year, reporting companies may choose a multiyear average of GHG emissions as their starting point if it is more representative of their typical emission profile.

The Corporate Standard recommends that a reporting company choose as its base year the earliest year for which complete and accurate data are available regarding its GHG emissions. As noted in Chapter 5 of the Corporate Standard, when this “inventory base year” is used as a reference point from which to track progress toward the achievement of a GHG emission target, it is called a “target base year.”1 Companies would disclose the reason for the choice of a specific base year when comparing target achievements with base-year emissions. Once a base year is chosen, the base-year emissions are recalculated if they are no longer comparable with emissions over time as a result of structural changes in the business or certain other circumstances (see Section 4.1.3 of this Roadmap for more information).

While the Corporate Standard recommends that a reporting company set its base year at the earliest point for which it has reliable data, it is important to note that the base year must also be relevant. For example, it is possible that a reporting company has reliable data spanning back to 20X0 but established a reduction target based on GHG emissions for 20X5. In such a case, the reporting company may conclude that although verifiable data are available for as far back as 20X0 through 20X4, GHG emissions in those years are not relevant because the reduction target is based on 20X5 GHG emissions.

In a given year, a reporting company may experience events that significantly affect its normal operations (e.g., supply shortages, labor disruptions, pandemics, natural disasters, severe weather events) and therefore result in either no GHG emissions or GHG emissions that are significantly different in quantity from those expected. To the extent that such events cause an unusual GHG emission impact in a year that would otherwise serve as a base year, it would not be appropriate for the reporting company to modify, adjust, or normalize the GHG emissions reported in that year when establishing a base year.

In this scenario, the reporting company may determine that using a range of consecutive years as its base year and reporting the average of annual GHG emissions generated during that period instead of the amount of GHG emissions for each year in the period would provide more relevant information. In calculating the average, the reporting company would not adjust or exclude the abnormal year (e.g., by omitting the year or using a reduced number of years).

Example 4-1

Because of a pandemic in 20X0, a retail entity experienced store closures and therefore had reduced GHG emissions. To establish a representative base year, the entity uses the average emissions from 20X0, 20X1, and 20X2 to ensure that normal operations are reflected without adjusting the actual unusually lower GHG emissions in 20X0.

As discussed in Section 4.3 of this Roadmap, a reporting company would disclose its selected base year. If the base year is a range of years for which an average of annual GHG emissions is reported, the reporting company would consider providing context for the range selected.

As outlined in Chapter 5 of this Roadmap, there are two distinct approaches to calculating Scope 2 emissions: the location-based method and the market-based method. Companies are advised to calculate base-year Scope 2 emissions under both methods if sufficient data are available, as Chapter 9 of the Scope 2 Guidance indicates:

Scope 2 Guidance, Chapter 9, “Setting Reduction Targets and Tracking Emissions Over Time,” Pages 75–76

9.2 Recalculating Base-Year Emissions . . .

Companies should ensure that the base-year inventory includes both a location-based and market-based scope 2 total, if applicable and feasible. This ensures “like with like” comparison over time.

If the scope 2 base year chosen was calculated only according to the location-based method, the reporting entity should also recalculate a market-based total if contractual information or residual mix totals are available for the base year. If not, companies should state that the location-based result has been used as a proxy since a market-based result cannot be calculated.
If the scope 2 base year chosen was calculated only according to the market-based method, companies should ensure that the contractual instruments used in the base year meet the Scope 2 Quality Criteria. If not, this should be disclosed and a location-based total stated in place of the market-based method total. In addition, companies should calculate a location-based method total in the base year using emission factors appropriate for that year.

The use of a single base year for Scope 1, Scope 2, and Scope 3 emissions encourages consistency for comparison purposes. However, it is permissible to use a different base year for each scope. For example, if a reporting company has previously established a Scope 1 and Scope 2 base year for GHG emissions, a more recent base year may be chosen to report Scope 3 emissions. Often, obtaining relevant and accurate data related to Scope 3 emissions may take additional time. As a result, the reporting company may establish a separate base year for Scope 3 emissions when accurate and reliable Scope 3 data are not available for the base year chosen for Scopes 1 and 2. If a reporting company does not have complete and reliable data necessary to disclose a base year, the reporting company may disclose the absence of a Scope 3 base year.

Entities would disclose the reasons why a specific base year is chosen. This explanation would include, if applicable, the reason why different base years have been chosen for different scopes.

When a reporting company chooses to disclose Scope 3 emissions under the Scope 3 Standard, it is required to select a Scope 3 base year and disclose the reasons for making that selection. Chapter 9 of the Scope 3 Standard notes that entities “should establish a single base year for all scope 3 categories,” further stating that “[a] single base year for all scope 3 categories simplifies scope 3 emissions tracking, avoids ‘cherry picking’ of base years (or the perception thereof), and allows clearer communication of GHG emissions to stakeholders.”

However, Chapter 9 of the Scope 3 Standard also recognizes that some entities may establish different base years for individual Scope 3 categories. For example, this may occur when an entity has data availability or quality issues that prevent the entity from using the same base year for all Scope 3 categories. In such cases, the entity may use a different base year for one or more of the 15 Scope 3 categories.

Further, although reporting companies are not required to set GHG emission targets, it is recommended that they consider doing so. See Section 4.1.4 for more information about the target-setting process.

4.1.2 Rolling Base Year

If a reporting company continues to grow (e.g., as a result of numerous acquisitions), it can be complex to continually recalculate emissions for a fixed base year. In such a case, the reporting company can use a “rolling base year” as a policy election rather than determine a set base year for comparing GHG emissions over time. This rolling base year would be rolled forward at certain regular intervals, as elected. Like the fixed base-year approach, the rolling base-year approach requires that accurate data related to the reporting company’s GHG emissions be available for the years that are being compared. The rolling base-year approach ensures that when multiple structural changes occur at the reporting company, only GHG emissions for the last rolling base year would need to be recalculated, as opposed to GHG emissions for a fixed base year that is potentially much earlier (see Section 4.1.3).

The rolling base-year approach requires the reporting company to calculate emissions for a new base year and shifts the base year forward by a certain number of years at regular intervals. The reporting company would select a policy related to the regular intervals and apply the policy consistently. Most often, reporting companies choose a regular interval of one year so that GHG emissions for the current year are compared with those for the immediately preceding year. The rolling base year reduces the need to (1) gather and include data from noncontrolled sources (i.e., before an acquisition) and (2) remove data related to previously controlled sources (i.e., before a divestiture). This approach helps ensure that a reporting company can compare current-year GHG emissions with prior-year GHG emissions from a similar organizational structure.

As noted above, the rolling base-year approach requires emissions for a new base year to be calculated at regular intervals, as determined by the reporting company. However, even if a reporting company is not required to establish a new rolling base year during a reporting year under its policy election, recalculation of base-year emissions may still be required. The circumstances that would trigger a recalculation of GHG emissions (see Section 4.1.3) are the same for a rolling base year as for a fixed base year.

Example 4-2

Company B, a calendar-year-end company, reports GHG emissions and establishes 20X1 as its base year. During that year, B’s GHG emissions total five tonnes of CO2. Assume that in the absence of any changes in the business, B would have five tonnes of CO2 emissions in 20X2, 20X3, and 20X4.

In March 20X2, B acquires Company C, a calendar-year-end company, whose annual GHG emissions are as follows:

20X1 — One tonne of CO2.
20X2 — Two tonnes of CO2.
20X3 — Three tonnes of CO2.
20X4 — Three tonnes of CO2.

Company B chooses to calculate its base-year emissions by using the rolling base-year approach and elects to roll its base year forward at regular one-year intervals.

When B reports GHG emissions in 20X2, it would include C’s emissions for the 20X1 historical period for comparison and would also include C’s emissions for 20X2. That is, B’s GHG emissions for its 20X1 base year are recalculated to include one tonne of CO2 emissions that C incurred in that year. Therefore, the emissions disclosed would total six tonnes of CO2 for 20X1 and seven tonnes of CO2 for 20X2, as illustrated below.

On an ongoing basis, B would continue to include C’s emissions in the total GHG emissions disclosed, and the subsequent year would become the new base year in the following reports. Said another way, for the 20X3 reporting period, because B elected a policy of rolling its base year forward at one-year intervals, the GHG emissions in 20X2 would become the new base-year emissions, as illustrated below.

4.1.3 Recalculating Base-Year Emissions

Regardless of whether a reporting company has a policy of rolling its base year forward (as discussed in Section 4.1.2), it will need to recalculate its base-year emissions under certain facts and circumstances. Reporting companies are required to elect a base-year emission recalculation policy and apply it consistently. Such a policy would take both quantitative and qualitative factors into account and establish specific criteria (including the reporting company’s determination of a significance threshold, as discussed in Section 4.1.3.1) that will result in recalculation of the base-year emissions.

The following excerpt from Chapter 5 of the Corporate Standard broadly describes the circumstances that would trigger a recalculation of base-year emissions:

Corporate Standard, Chapter 5, “Tracking Emissions Over Time,” Page 35

Recalculating Base Year Emissions . . .

The following cases shall trigger recalculation of base year emissions:

Structural changes in the reporting organization that have a significant impact on the company’s base year emissions. A structural change involves the transfer of ownership or control of emissions generating activities or operations from one company to another. While a single structural change might not have a significant impact on the base year emissions, the cumulative effect of a number of minor structural changes can result in a significant impact. Structural changes include:
- Mergers, acquisitions, and divestments
- Outsourcing and insourcing of emitting activities
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
Discovery of significant errors, or a number of cumulative errors, that are collectively significant.

Base-year emissions must be retroactively recalculated to reflect certain significant changes as determined by the reporting company. Any significance threshold policy determinations associated with the circumstances outlined above are to be applied consistently.

4.1.3.1 Significance Threshold

Base-year emissions require recalculation when certain significant changes occur. A significance threshold can be a qualitative and/or quantitative assessment performed on “any significant change to the data, inventory boundary, methods, or any other relevant factors,” as outlined in Chapter 5 of the Corporate Standard. Although the Corporate Standard does not specify what is considered significant, it notes that certain GHG programs do so. It observes that the California Climate Action Registry, for example, prescribes a change threshold of “10 percent of the base year emissions, determined on a cumulative basis from the time the base year is established.”

As noted above, a reporting company would elect a significance threshold policy. When establishing the policy, the reporting company would take both quantitative and qualitative factors into consideration. The policy elected must be applied consistently and disclosed.

4.1.3.2 Structural Changes

Base-year emissions are required to be recalculated in line with certain structural changes, such as (1) mergers, acquisitions, and divestments and (2) outsourcing and insourcing of emitting activities. These transactions require recalculation of the determined base-year emissions because they transfer GHG emissions from one company to another without actually increasing the GHG emissions released into the atmosphere.

It is important to remember that comparing current GHG emissions with base-year emissions is meant to increase users’ understanding of a reporting company’s GHG emission levels by providing greater clarity regarding them. Therefore, when events (such as acquisitions) result in a lack of comparability between base-year emissions and current GHG emissions, a reporting company is advised to consider the discussions below to determine whether recalculation is necessary.

In some cases, a company may undertake a transaction that represents both an acquisition and a disposal. The example below illustrates the interaction between these two events in the assessment of structural changes that require recalculation of the base-year emissions.

Example 4-3

Company A has a calendar year-end and makes a significant acquisition in 20X4. On the date of the acquisition (and at the end of that year), A expects that it will dispose of a portion of the acquired operations in 20X5.

There is no exception in the Corporate Standard that permits A to exclude from its GHG reporting the portion of the acquired operations it intends to dispose of. Therefore, in A’s GHG report for 20X4, A will need to account for all sources of GHG emissions within its selected inventory boundary, including the GHG emissions from the portion of the acquired operations it expects to dispose of in the following year.

Similarly, under the assumption that A has the information necessary and concludes that the acquisition represents a significant structural change, A will need to include the GHG emissions from all of the acquired operations when recalculating the base-year emissions in 20X4.

If and when the intended disposal occurs, A will need to assess whether the disposal represents a significant structural change and, if so, will need to recalculate the base-year emissions again.

4.1.3.2.1 Timing of Recalculation

When a structural change occurs during the year, the Corporate Standard recommends recalculating the base-year emissions for the entire year to ensure comparability with GHG emissions in future years. Similarly, GHG emissions for subsequent years in which any significant structural change occurred would be calculated as though the change existed as of the beginning of the year. If this is not possible because the reporting company lacks sufficient data, GHG emissions that reflect the structural change can be calculated for a full year in the subsequent year to maintain consistency.

Example 4-4

Company B, a calendar-year-end company, reports GHG emissions for 20X1, 20X2, and 20X3 and chooses 20X1 as its base year under a fixed base-year approach. In each of these three years, B’s GHG emissions total five tonnes of CO2.

In September 20X2, B acquires Company A, a calendar-year-end company. The annual GHG emissions of A are as follows:

20X1 — One tonne of CO2.
20X2 — Two tonnes of CO2.
20X3 — Three tonnes of CO2.

To maintain accuracy and comparability, B recalculates its base-year emissions to include A’s GHG emissions, which increase the base-year emissions by one tonne of CO2. As a result of the acquisition occurring in 20X2, B includes A’s GHG emissions for the full year in the reports published for 20X2 and 20X3, as illustrated below.

Note that if A did not exist in 20X1, recalculation of the base-year emissions would not be required. Further, in accordance with the Corporate Standard, if the acquisition had occurred in 20X3, with 20X1 being the established base year, recalculation of B’s 20X2 GHG emissions to include those of A would be optional.

4.1.3.2.2 Recalculating Base-Year Emissions After an Acquisition When the Acquiree’s Emission Data Are Not Readily Available

If a reporting company completes an acquisition that constitutes a significant structural change, a base-year recalculation is generally required. If the acquiree’s base-year GHG emission data are not readily available, the reporting company’s treatment will depend on whether it has established GHG emission targets (see Section 4.1.4) and whether sufficient reliable information is available.

The example below illustrates a reporting company’s recalculation of base-year emissions as the result of an acquisition when emission data for the acquiree are not readily available.

Example 4-5

Company A has a calendar year-end and establishes 20X1 as its fixed base year for reporting GHG emissions. During 20X3, A acquires Company B, which also has a calendar year-end. The acquisition of B qualifies as a significant structural change that requires A to recalculate its base-year emissions. Although B was operating in 20X1, B did not begin tracking its GHG emissions until 20X2. As a result, A has no readily available GHG emission data related to B’s operations for 20X1 to use for recalculating A’s base-year emissions.

The table below shows the GHG emission data for A and B in 20X1, 20X2, and 20X3, expressed in tonnes of CO2.

	GHG Emissions (in Tonnes of CO2)
	20X1	20X2	20X3
Company A (reporting company)	20	25	30
Company B (acquired company)	Not available	10	15

table to be added

There were no material changes in B’s emission-generating activities or operations from January 20X1 through December 20X2.

Scenario 1 — Company A Has Established GHG Emission Targets

If A has established GHG emission targets (see Section 4.1.4) and does not choose to defer the recalculation of its base-year emissions (see Section 4.1.3.2.3 for a discussion of such a deferral), it would “backcast” B’s emission data for A’s fixed based year of 20X1 — that is, estimate the emissions needed to recalculate A’s base-year emissions because reliable information about the emissions that B generated in A’s base year is not available. This approach is consistent with the guidance in Chapter 11 of the Corporate Standard that states that “[i]f a company with a target acquires a company that did not have reliable GHG data in the target base year[,] back-casting of emissions becomes necessary, reducing the reliability of the base year.”

Since there were no material changes in B’s emission-generating activities or operations from January 20X1 through December 20X2, A estimates, on the basis of the actual GHG emissions generated by B in 20X2, that the amount of emissions generated by B in 20X1 is 10 tonnes of CO2 and reports its own recalculated base-year emissions for 20X1 as 30 tonnes of CO2.

Company A would provide appropriate disclosures about the estimated GHG emission data used to recalculate its base-year GHG emissions and apply its policy on recalculation consistently.

Scenario 2 — Company A Has Not Established GHG Emission Targets

Company A may choose to backcast B’s emission data for A’s base year of 20X1 by using the same method and providing the same disclosures noted in Scenario 1.

However, because A has not established GHG emission targets (see Section 4.1.4), backcasting is not required. Instead, in its reporting of GHG emissions for the year ended December 31, 20X3 (and future years), A may continue to report its base-year emissions as 20 tonnes of CO2 (i.e., reflecting only A’s base-year emissions without estimating B’s base-year emissions for 20X1) if sufficient reliable information about B’s emissions for 20X1 is not available to recalculate A’s base-year emissions without backcasting. In this scenario, A would disclose the facts and circumstances regarding the lack of availability of B’s emission data for A’s base year of 20X1.

Note that while a reporting company is not required to backcast GHG emissions for its base year if it lacks reliable information for recalculation and has not established targets, it would be appropriate for the reporting company to recalculate its base-year emissions if it can do so without backcasting (i.e., because reliable information is available).

Further, A would need to consider whether its fixed base year remains relevant or whether a change of the base year (e.g., under a rolling base-year approach) may be necessary.

Note that in both Scenario 1 and Scenario 2 (i.e., regardless of whether GHG emission targets have been established), A may choose to defer the recalculation of its base-year emissions if the information needed for recalculation is not yet available.

4.1.3.2.3 Deferring Recalculation of Base-Year Emissions After Structural Change

If a reporting company completes an acquisition that constitutes a significant structural change requiring a recalculation of the reporting company’s base-year emissions, but the acquiree’s GHG emission data are not readily available, the reporting company may defer the recalculation until the following reporting year, when sufficient information becomes available, regardless of whether the reporting company has established GHG emission targets.

The example below illustrates how GHG emissions would be reported if the reporting company defers the recalculation of base-year emissions after a significant structural change.

Example 4-6

If, because of a lack of data related to the GHG emissions generated by B, A elects to defer the recalculation of its base-year emissions until the year ending December 31, 20X4, both the base-year data and the current-year data reported in A’s emission information for the year ending December 31, 20X3, would omit B’s GHG emissions. However, if A is able to obtain the data and recalculates its base-year emissions for the year ending December 31, 20X3, A’s current-year data would need to reflect B’s GHG emission data for the entire year to ensure consistency with the treatment of A’s base-year emissions.

4.1.3.2.4 Structural Changes That Occur After the Reporting Period

When determining which policy is appropriate, the entity would also consider other regulatory requirements or frameworks with which it is required to comply.

The Corporate Standard does not specify whether recalculation is required also for significant structural changes that occur after the reporting period. In this scenario, an entity may apply either of the following policies if it does so consistently, clearly articulating the basis and context for any recalculations, including how the entity determined any significance threshold (see Section 4.1.3.1):

Approach A — Only recalculate GHG emissions for significant structural changes that occurred on or before the reporting date.

Applying this policy, an entity only considers significant structural changes that occurred on or before the reporting date when assessing whether to calculate GHG emissions retrospectively for the current reporting period. Under this approach, the entity would not adjust the base-year and reporting-period GHG emissions in the current reporting period for structural changes that occur after the reporting date. However, if a significant structural change (e.g., an acquisition) takes place after the reporting period but before issuance of the GHG report, the entity may consider that it will be useful to provide qualitative or quantitative information on the structural change to explain how GHG emissions will be affected in future GHG reports.
Approach B — Recalculate GHG emissions for significant structural changes that occurred after the reporting period but before the GHG report is issued.

Applying this policy, an entity considers the impact of significant structural changes that occurred after the reporting period when assessing whether to calculate GHG emissions retrospectively for the current reporting period.

The example below illustrates the application of Approach A and Approach B.

Example 4-7

Company C has a calendar year-end and has established 20X1 as its base year for the purpose of reporting GHG emissions. Company C’s GHG report for the year ended December 31, 20X3, is expected to be issued on March 31, 20X4.

On February 15, 20X4, C completes the acquisition of Company D, which also has a calendar year-end. Company D has been tracking its GHG emission data since 20X1. Therefore, GHG emission data related to D’s operations are available from 20X1 through 20X3.

The GHG emission data for C and D, expressed in tonnes of CO2 generated in the years ended December 31 of 20X3 and 20X1, respectively, are as follows:

	GHG Emissions (in Tonnes of CO2)
	Year Ended December 31, 20X3 (Reporting Period)	Year Ended December 31, 20X1 (Base Year)
Company C (reporting company)	30	20
Company D (acquired company)	15	5

Approach A — Only Recalculate GHG Emissions for Significant Structural Changes That Occurred on or Before the Reporting Date

Applying this approach, C would not report recalculated emissions in its report for the year ended December 31, 20X3. However, in the following reporting period, the significant structural change to C would be reflected in the base-year emissions for the year ended December 31, 20X1, and any other periods presented to incorporate D’s GHG emissions into C’s GHG report for the year ended December 31, 20X4.

Approach B — Recalculate GHG Emissions for Significant Structural Changes That Occurred After the Reporting Period but Before the GHG Report Is Issued

Under this approach, C would retrospectively recalculate GHG emissions to reflect the acquisition of D if both of the following conditions are met:

On the date of issuance of C’s GHG report, sufficient and reliable data related to the structural change are available to CC.
The acquisition of D qualifies as a “significant” structural change on the basis of the quantitative and/or qualitative criteria in C’s established policy.

If C complies with these requirements, the amounts reported for GHG emissions would include D’s emissions. Accordingly, C would report 45 tonnes of CO2 for the year ended December 31, 20X3 (the reporting period), and 25 tonnes of CO2 for the year ended December 31, 20X1 (the base year).

4.1.3.3 Changes in Calculation Method, or Improvements in the Accuracy of Emission Factors or Activity Data

The Corporate Standard provides for the calculation of GHG emissions by means of a bottom-up approach, under which GHG emissions are calculated at an individual source or facility and subsequently accumulated up to the corporate level (see Section 8.2 of this Roadmap). When new, more reliable data relevant to the base year are available, the reporting company would recalculate the base-year emissions. However, Chapter 5 of the Corporate Standard notes that “changes in emission factor or activity data that reflect real changes in emissions (i.e., changes in fuel type or technology) do not trigger a recalculation” of the base-year emissions.

Sometimes, reporting companies may discover more accurate ways to calculate GHG emissions included in prior years. For example, in a later year, a more accurate GHG emission factor may be provided that applies to prior years and would better represent the GHG emissions associated with a specific purchase (e.g., electricity or heat). If the application of these changes would be significant and the changes are applicable to the base year, reporting companies are required to recalculate the base-year emissions. However, if reporting companies obtain seemingly more accurate data that cannot be reasonably applied to previous years, it would be appropriate for them to consider disclosing any related assumptions, but they would not recalculate the base-year emissions. As reporting companies improve their calculation methods and their processes related to data quality and data collection, they are advised to consider whether recalculation of base-year emissions or disclosure is required to improve the transparency of their reports. Further, if a reporting company changes its calculation method in the current year and the change in method results in current-year GHG emissions that are significantly different from the base-year emissions, the reporting company would recalculate the base-year emissions by using the new method. Other times, more accurate data related to the base year may be available years later. If this is the case and the new data would significantly change the base-year emissions, the reporting company would recalculate the base-year emissions accordingly. Reporting companies are advised to make decisions related to recalculating the base-year emissions with the intent of ensuring that users of their reports can clearly identify true changes in their GHG emissions over time.

4.1.3.4 Discovery of Errors That Are Individually Significant or Cumulative Errors That Are Collectively Significant

If a reporting company discovers errors in its calculation of base-year emissions that are individually significant, or cumulative errors in its calculation of base-year emissions that are collectively significant, it is required to recalculate the base-year emissions. The Corporate Standard does not define what constitutes a significant error. A significant error may be considered to be the same as a material discrepancy, which is defined in the glossary of the Corporate Standard as “[a]n error (for example from an oversight, omission, or miscalculation) that results in the reported quantity being significantly different to the true value to an extent that will influence performance or decisions. Also known as material misstatement.” When evaluating whether an error is material, an entity would also consider the sustainability standards, if applicable, under which the GHG emissions are being reported (e.g., IFRS Sustainability Disclosure Standards or ESRS).

Example 4-8

Company C, a calendar-year-end company, reports GHG emissions for 20X1, 20X2, and 20X3 and chooses 20X1 as its base year. In each of these three years, C’s GHG emissions total 5 tonnes of CO2.

During its 20X3 reporting, C determines that there was a significant error in 20X1 whose correction would require C’s Scope 1 emissions to be increased by two tonnes of CO2. Company C determines that this change would be quantitatively and qualitatively significant under its policy. As a result, in 20X3, C updates the base-year emissions to total seven tonnes of CO2 and discloses its change to the base-year emissions. The updated base-year emissions are illustrated below. No changes as a result of the error are needed to accurately reflect C’s GHG emissions for 20X2.

In C’s 20X3 reporting, C would disclose appropriate context related to the recalculation of its 20X1 Scope 1 emissions and the events that led to such recalculation. Because C presents three years of GHG emissions in this 20X3 report, C would also disclose GHG emission data for all years from the base year through the current reporting year.

4.1.3.5 Instances in Which Recalculation Would Not Occur

Recalculation of base-year emissions would not be necessary in the following circumstances:

Facilities did not exist in the base year.
Outsourcing or insourcing, if reported under Scope 2 and/or Scope 3.
Organic growth or decline.

These circumstances are further discussed below.

4.1.3.5.1 Facilities Did Not Exist in the Base Year

Base-year emissions would not be recalculated for changes in facilities (acquisitions or divestitures) if the facilities did not exist during the base year. This is because the objective of recalculating base-year emissions is to ensure that they are comparable with current-year GHG emissions. For example, if a reporting company acquires a facility that existed in the base year, the acquiree’s GHG emissions would be reallocated to the reporting company’s base-year emissions to meet that objective. On the other hand, if an acquired facility did not exist in the base year, there were no GHG emissions released into the atmosphere from that entity during the base year. Accordingly, there would be no GHG emissions to reallocate to the reporting company’s base-year emissions. However, the reporting company’s GHG emissions would include those from the acquiree for each reported year in which the acquiree was in existence (including the year in which the acquiree came into existence, even if the acquiree did not exist at the beginning of that year).

4.1.3.5.2 Outsourcing or Insourcing, if Reported Under Scope 2 and/or Scope 3

As noted in Chapter 3, emissions from the operation of owned or controlled facilities would be included in Scope 1 reporting. For example, GHG emissions from a reporting company’s manufacturing facility that result from company-owned vehicles, chemical processing, or the generation of steam in the facility’s production process would be included in the reporting company’s Scope 1 emissions. However, if the steam is purchased and consumed as part of the production process, the GHG emissions associated with the steam would be included in Scope 2 reporting. Any other indirect GHG emission not classified as Scope 2 is a Scope 3 emission. Scope 3 emissions include emissions from activities that are not owned or controlled by the reporting company but are a direct result of the reporting company’s activities related to its value chain.

When reporting companies choose to report Scope 3 emissions in addition to the Scope 1 and Scope 2 emissions that they are required to report, a change in ownership or control can result in the shifting of GHG emissions between scopes. If, for example, a reporting company outsources an internal activity to a third party, that activity would shift from Scope 1 or Scope 2 to Scope 3. If a reporting company brings an activity in-house, that activity may shift from Scope 3 to Scope 1 or Scope 2.

Considerations for determining whether outsourcing or insourcing would require recalculation of base-year emissions are outlined in Chapter 9 of the Scope 3 Standard as follows:

Scope 3 Standard, Chapter 9, “Setting a GHG Reduction Target and Tracking Emissions Over Time,” Page 104 (Page 105 in E-Reader Version)

9.3 Recalculating Base Year Emissions . . .

Recalculations for Outsourcing or Insourcing . . .

Whether the outsourcing or insourcing of an activity triggers a base year emissions recalculation depends on whether:

the company previously reported emissions from the activity;
the company has a single base year or GHG target for all scopes or separate base years and GHG targets for each scope; and
the outsourced or insourced activity contributes significantly to the company’s emissions.

For example, if a reporting company discloses Scope 1, Scope 2, and Scope 3 emissions and has chosen the same base year for all three scopes, any changes in the scope classification of GHG emissions due to outsourcing or insourcing would not trigger a recalculation of the base-year emissions if the GHG emissions were previously reported. However, if the GHG emissions were not previously reported, recalculation would be required in the event of a change in outsourcing or insourcing if the result was significant.

Any outsourcing of GHG emissions previously included in the company’s reporting would not require recalculation of base-year emissions. However, as outlined in Chapter 6 of this Roadmap, Scope 3 reporting is optional. Therefore, any outsourcing that shifts significant GHG emissions to Scope 3 could trigger recalculation of base-year emissions if Scope 3 emissions are reported. If Scope 3 emissions are not reported, any significant changes to the Scope 3 emissions would not require recalculation of the reporting company’s base-year emissions because there would be no base-year emissions to recalculate in this instance.

Example 4-9

Company A, which has a calendar year-end, establishes 20X0 as its initial base year for reporting GHG emissions. Company A has adopted the fixed base-year approach to report its base-year GHG emissions.

Before January 1, 20X3, A outsources the transportation of its products to a third-party logistics provider. The related GHG emissions are classified as Scope 3 emissions (if A reports Scope 3 emissions).

On January 1, 20X3, A starts insourcing the transportation of its products by using its own vehicles, and the related GHG emissions are now classified as Scope 1 emissions. Company A considers the GHG emissions from the transportation of products to be significant under its established significance threshold policy.

For simplicity, Scope 2 emissions and all other sources of Scope 3 emissions are ignored in this example.

The table below shows A’s GHG emissions by scope for each relevant year (before any recalculation resulting from A’s insourcing of the transportation of its products).

As discussed below, the extent, if any, to which the recalculation of base-year and other comparative emissions is required will vary depending on whether A includes Scope 3 emissions in its reporting.

Scenario 1 — Company A Does Not Report Scope 3 Emissions

Assume that A does not report its Scope 3 emissions. In 20X2, it discloses Scope 1 GHG emissions as follows (before any recalculation resulting from its insourcing of the transportation of its products):

	GHG Emissions (in Tonnes of CO2)
	20X2	20X1	20X0 (Base Year)
Scope 1	9	8	5

In 20X3, A determines that the reclassification from Scope 3 to Scope 1 of GHG emissions related to the transportation of its products has a significant impact that triggers the need to recalculate its base-year and other comparative emissions. Accordingly, in 20X3, A discloses Scope 1 emissions as follows:

	GHG Emissions (in Tonnes of CO2)
	20X3	20X2	20X1 (Base Year)
Scope 1	10	11*	6*
* Restated to include GHG emissions related to the transportation of products that were previously classified as Scope 3 emissions for the relevant period.

Company A discloses the reason for the recalculation of its base-year and other comparative emissions as well as the effect of the change in classification to ensure that users of the report can clearly identify the changes in A’s GHG emissions over time.

Scenario 2 — Company A Reports Scope 3 Emissions

Assume that A reports its Scope 3 emissions. In 20X2, it discloses GHG emissions as follows:

Beginning with GHG emissions generated in 20X3, A will report GHG emissions related to the transportation of products as Scope 1 emissions. However, because such emissions were previously included in A’s reporting as Scope 3 emissions, A does not need to recalculate its base-year and other comparative emissions. Accordingly, in 20X3, A discloses GHG emissions as follows:

4.1.3.5.3 Organic Growth or Decline

The purpose of comparing a base year with the current year is to show organic growth and decline of operations as related to GHG emissions. Any operational changes of the reporting company that result in changes to GHG emissions released into the atmosphere must be reflected transparently as the reason for either an increase or a decrease in the reporting company’s GHG emissions over time. Examples of organic growth or decline include (1) increases or decreases in production output and (2) openings or closures of operating units controlled by the reporting company.

Base-year emissions would not be recalculated as a result of organic growth or decline. Conversely, a reporting company’s purchase of a facility from a third party to support growth, if significant, would require recalculation of base-year emissions (see Section 4.1.3.2). This is because such a purchase represents the transfer of GHG emissions from one entity to another and would therefore hinder comparability between the reporting company’s base-year emissions and its current GHG emissions.

4.1.4 Setting GHG Emission Targets and Energy Reduction Targets

4.1.4.1 Overview

It is important for a reporting company to set GHG emission targets and energy reduction targets when tracking performance toward operational goals. The target-setting process is ongoing and requires the involvement of senior management and relevant stakeholders.

GHG emission targets are aimed at reducing a reporting company’s GHG emissions. They are applicable to Scope 1, Scope 2, and Scope 3 emissions.

Energy reduction targets are goals that a reporting company sets to more efficiently use, or reduce its need for, energy purchased or acquired for its own consumption. They are specific to Scope 2.

GHG emission targets are further discussed in Section 4.1.4.2. Energy reduction targets are further discussed in Section 4.1.4.3.

4.1.4.2 GHG Emission Targets

Although reporting companies are not required to set GHG emission targets when reporting Scope 1, Scope 2, or Scope 3 emissions, the Corporate Standard indicates that it is advisable for them to consider doing so to:

Minimize and manage GHG risks.
Achieve cost savings and stimulate innovation.
Prepare for future regulations.
Demonstrate leadership and corporate responsibility.
Participate in voluntary programs.
Respond to stakeholder requests or demands.

A key step in establishing a GHG emission target is to determine the relevant target boundary. This determination includes an assessment of which geographic areas, sources, and activities to include. For example, a reporting company is advised to consider:

Which of the seven major GHGs to include.
Whether to include both direct and indirect emissions.
Whether it makes sense to define certain GHG targets per core stream of revenue of the reporting company.

Reporting companies that choose to set Scope 3 emission targets may determine boundaries for those targets as follows:

Scope 3 Standard, Chapter 9, “Setting a GHG Reduction Target and Tracking Emissions Over Time,” Page 100

9.2 Setting Scope 3 Reduction Targets . . .

Target Boundary

Companies may set a variety of scope 3 reduction goals, including:

A single target for total scope 1 + scope 2 + scope 3 emissions
A single target for total scope 3 emissions
Separate targets for individual scope 3 categories
A combination of targets, for example a target for total scope 1 + 2 + 3 emissions as well as targets for individual scope 3 categories.

Setting a GHG emission target involves considerations in addition to those related to determining the target boundary. These additional considerations are summarized in the table below, which is adapted from Table 9.1 in Chapter 9 of the Scope 3 Standard but is also applicable to Scope 1 and Scope 2 emissions.

Table 4-1 Considerations Related to Setting a GHG Emission Target

Issue	Description
Target type	Whether to set an absolute or intensity target
Target completion date	The duration of the target period (e.g., short term or long term)
Target level	The numerical value of the GHG emission target
Use of offsets or credits	Whether to use offsets or credits to meet GHG emission targets

4.1.4.2.1 Target Types

A reporting company can set absolute targets, intensity targets, or both. An absolute target is a goal to reduce GHG emissions by a specified amount independent of a business metric (i.e., the target is a specified number of tonnes of emitted GHG, or a specified percentage reduction in GHG emissions from a previous year). An intensity target expresses the quantity of CO2 emissions, or the percentage reduction in those emissions, in relation to a business metric (e.g., a 25 percent reduction in GHG emissions per unit of revenue, per number of employees, or per pound of cement produced). A combination of absolute and intensity targets may be used at different levels of the reporting company.

The advantages and disadvantages of absolute targets and intensity targets are outlined in the table below, which is adapted from Table 9.3 in Chapter 9 of the Scope 3 Standard and Box 4 in Chapter 11 of the Corporate Standard. The table below is applicable to Scope 1, Scope 2, and Scope 3 emissions.

Table 4-2 Comparison of Absolute and Intensity Targets

Target Type	Examples	Advantages	Disadvantages
Absolute target	Reduce total Scope 3 emissions by 10 percent from 20X3 levels by 20X8 Reduce Scope 3 emissions from the use of sold products by 20 percent from 20X3 levels by 20X8	Designed to achieve a reduction in a specified quantity of GHG emissions Environmentally robust and more credible to stakeholders since it entails a commitment to reduce total GHG emissions by a specified amount	Does not allow comparisons of GHG intensity/efficiency Reported reductions can result from declines in production/output rather than improvements in performance
Intensity target	Reduce Scope 3 emissions per unit of revenue by 25 percent from 20X3 levels by 20X8 Improve the energy efficiency of sold products by 30 percent from 20X3 levels by 20X8	Reflects GHG performance improvements independent of business growth or decline May increase the comparability of GHG emissions among companies	Less environmentally robust and less credible to stakeholders because absolute emissions may rise even if intensity decreases (e.g., because output increases more than GHG intensity decreases) If a monetary metric is used, such as dollar of revenue or sales, recalculation may be necessary for changes in product prices and inflation

Reporting companies are advised to consider which targets are most valuable to the users of their reporting and best represent the outputs of their operations.

4.1.4.2.2 Target Completion Dates and Target Levels

Target completion dates can be either short term or long term. Reporting companies are advised to carefully consider the duration of each target period they choose to ensure that it aligns with their business goals. Shorter-term targets may be used to track progress more frequently, while longer-term targets may be used to reflect goals toward which a reporting company is continually working.

The target level refers to the numerical value or incentive of the target. Reporting companies are encouraged to continually work toward such a goal.

4.1.4.2.3 Use of Offsets or Credits

Reporting companies may use offsets and credits to counter their GHG emissions and thereby meet specific emission targets (see Chapter 8 for more information). However, reporting companies are advised to disclose any use of offsets and credits, including the targets to which they were applied. In addition, reporting companies are encouraged to avoid double counting of offsets if possible.

The GHG Protocol does not provide guidance on the acquisition and retirement of offsets after the reporting period. The Corporate Standard:

Requires an entity to report gross GHG emissions for its chosen inventory boundary separately from any GHG trades such as sales, purchases, transfers, or banking of allowances (see Section 4.3.1).
Permits, but does not require, reporting on carbon offsets acquired through GHG trades (see Section 4.3.2).

Therefore, an entity is allowed to disclose information on carbon offsets that are purchased and retired after the end of reporting period but before the date on which the GHG report issued if doing so reflects the entity’s internal policies and relevant information is disclosed. This conclusion is supported by Chapter 4 of the GHG Protocol organization’s Mitigation Goal Standard, which notes that the suggested approach for entities is to “use [GHG credits] with vintages that fall within a short period prior to the target year(s) during the goal period.” This guidance recognizes that in some scenarios, the vintage of a GHG credit may not be exactly the same as the period in which the credit is used as an offset.

While the guidance in the GHG Protocol does not preclude entities from reporting on credits purchased and retired after the end of the reporting period but before the date on which the GHG report is issued, an entity would need to consider other regulatory requirements that may preclude it from including such transactions as part of its GHG emission disclosures or limit the circumstances in which this is permitted.

In certain instances, it may be appropriate for an entity to disclose its business model of purchasing carbon offsets after the end of a reporting period but using them as offsets for that reporting period (e.g., when the entity’s business model is to purchase a material amount of carbon offsets after period-end and there is a risk that the entity may not be able to do so in one or more future periods because there is a shortage of such credits or the cost of purchasing them is prohibitive).

The example below illustrates this concept.

Example 4-10

Company A expects that on March 31, 20X4, it will issue a report disclosing GHG emissions for the year ended December 31, 20X3, in accordance with the requirements of the Corporate Standard. During 20X3, A expected that its net GHG emissions from Product X would be nil. However, when finalizing the assessment of Product X’s emissions, A determined that in 20X3:

Product X produced 100 tonnes of CO2.
Company A acquired and retired carbon offsets for only 90 tonnes of CO2.

On January 28, 20X4, A completes a GHG trade in which it acquires 10 tonnes of carbon offsets. Simultaneously, A retires these offsets against its GHG emissions. The carbon offsets purchased by A represent discrete GHG reductions generated during the year ended December 31, 20X3 (i.e., the carbon offsets have a 20X3 “vintage”).

In the jurisdiction in which A operates, there is no requirement that an entity must own carbon offsets before the end of a reporting period to apply them against GHG emissions produced in that period.

Accordingly, A may include the offsets purchased and retired on January 28, 20X4, as part of the disclosure it provides on GHG emissions for the year ended December 31, 20X3, provided that all of the following conditions are met:

Company A has established an internal policy of disclosing allowances, offsets, and credits purchased or sold after the end of the reporting period but before the date of issuance of the GHG report.
Company A consistently applies its established policy to similar transactions as part of its GHG emission disclosures.
Company A has assessed the credibility of the carbon offsets used and provides details on their origin and nature.

In addition, A would consider the information detailed in Sections 4.3.1 and 4.3.2 in determining the relevant information to be disclosed in its GHG emission report.

4.1.4.2.4 Accounting for Reductions Over Time

There are two approaches to accounting for GHG reductions: the inventory method and the project method. The inventory method involves comparing a reporting company’s current GHG emissions with its base-year emissions over time, with a focus on company or organizational level GHG emissions. The project method is comprehensively addressed in the Project Protocol (see Section 4.1.4.2.4.1 and Chapter 8 for more information). The project method involves quantifying GHG emission reductions achieved by specific “projects” and then using those reductions as offsets against GHG emissions elsewhere. Overall, the Project Protocol establishes guidance on both calculating and reporting GHG reductions as a result of specific GHG projects. The two accounting approaches overlap in that an offset that results from quantification of GHG reductions under project accounting may be an input into a GHG emission inventory report prepared under corporate accounting if the reporting company elects to use offsets. However, under corporate accounting, these offsets are not used in the calculation of the reporting company’s GHG emission reductions; rather, they are disclosed separately.

Companies reporting under the Corporate Standard and the Scope 3 Standard use the inventory method to account for changes in GHG emissions over time. For Scope 1 emission reporting, the project method may be used to quantify GHG emission reductions that will be used as offsets.

Companies reporting under the Scope 3 Standard can also choose to use the project method, but only in addition to reporting Scope 3 emissions under the inventory method. Reporting companies that disclose GHG emission targets may choose to measure reductions by using either the inventory method or the project method. Any project-based reductions would be reported separately from the companies’ Scope 1, Scope 2, and Scope 3 emission reductions calculated under the inventory method.

Whereas Scope 1 emissions are direct emissions (i.e., emissions from sources that the reporting company owns or controls), Scope 2 and Scope 3 emissions are indirect emissions (i.e., emissions that are a result of the reporting company’s operations but occur elsewhere). Therefore, Scope 2 and Scope 3 emission reductions are more difficult to calculate accurately than reductions in Scope 1 emissions. Indirect emissions often incorporate many different factors, and reductions in these emissions are not always a direct result of the reporting company. This may create complexity in correlating Scope 2 or Scope 3 emission reductions with projects or initiatives executed by the reporting company. However, as long as the accounting for Scope 2 and Scope 3 emissions represents a total change in those emissions over time, such complexity would not preclude reporting companies from disclosing reductions in those emissions.

4.1.4.2.4.1 Project Method

Under the project method, which is outlined in Chapter 8, companies reporting under the Project Protocol account for GHG emission reductions by using a hypothetical baseline scenario to estimate baseline GHG emissions that most likely would have occurred in the absence of a specific project. Said another way, baseline emissions are the amount of GHG emissions calculated from this alternative, hypothetical scenario before the start of a project. The project method may be used in addition to the inventory method to report Scope 3 emissions since the project method would provide additional details related to specific activities undertaken by the reporting company.

4.1.4.2.5 Accounting for Avoided Emissions

Scope 3 Standard, Chapter 9, “Setting a GHG Reduction Target and Tracking Emissions Over Time,” Page 107 (Page 108 in E-Reader Version)

9.5 Accounting for Avoided Emissions . . .

In some cases, GHG reduction opportunities lie beyond a company’s scope 1, scope 2, and scope 3 inventories. For example, some companies may track not only the emissions that arise from the use of their products (category 11), but also the avoided emissions in society that result from the use of their products and solutions compared to alternative products and solutions. Avoided emissions may also arise when accounting for emissions from recycling (category 5 or 13), or from activities in other scope 3 categories.

Accounting for avoided emissions that occur outside of a company’s scope 1, scope 2, and scope 3 inventories requires a project accounting methodology.

Some reporting companies may redesign products to efficiently reduce their Scope 3 emissions. The reductions in these GHG emissions as a result of the reporting company’s strategies and updated processes (i.e., avoided GHG emissions) will be reflected in the GHG emission calculations over time as compared with the base-year emissions. These avoided GHG emissions may be significant compared with GHG emission reductions resulting from competitors’ projects and activities.

Any avoided emissions not already included in the Scope 3 calculation can be separately reported under the Project Protocol and calculated under the project accounting method. See Chapter 6 for more information about Scope 3 emissions. See Chapter 8 for more information about GHG emission reductions and further discussion of the Project Protocol.

4.1.4.3 Energy Reduction Targets

Scope 2 Standard, Chapter 9, “Setting Reduction Targets and Tracking Emissions Over Time,” Page 76

9.4 Energy Targets

Some companies have energy use, procurement, or production targets in addition to GHG reduction targets. Energy targets can be useful in maintaining a focus on efficiency and isolating the role of consumption as compared with the changes in emissions resulting from supply changes.

Energy reduction targets comprise (1) energy intensity goals and (2) renewable energy procurement goals. Energy intensity goals are aimed at reducing the amount of energy consumed by the reporting company per square foot of a building used in operations or per a specific operational output.

Renewable energy procurement goals are aimed at increasing the reporting company’s reliance on renewable energy to a set percentage of its energy consumption needs (e.g., 100 percent reliance on renewable energy) by a certain date. When reporting a renewable energy procurement goal, a company is required to disclose whether the goal reflects a location-based or market-based assessment.

4.1.4.4 Supplier Engagement Targets

Supplier engagement targets are designed to encourage a reporting company’s suppliers to adopt science-based emission reduction targets. They are achieved upon meeting specified criteria. For example, a supplier engagement target could be for a reporting company to commit that 75 percent of its direct suppliers by spend (which includes purchased goods, services, and capital goods) will have science-based targets by 20X7.

Regardless of whether a reporting company has reported supplier engagement targets, its sustainability strategy may include adopting measures (sometimes referred to as “interventions”) to help entities in its upstream and downstream value chain reduce their emissions. Interventions may be projects, programs, or business decisions that drive sustainability and reduce GHG emissions in key areas of an entity’s value chain. Examples of interventions include new technology, new practices, or changes in supply (e.g., to a different product input or sourcing location) to reduce or remove GHG emissions.

Footnotes

As used throughout this chapter, the term “base year” may refer to either an inventory base year or a target base year. This treatment is consistent with the guidance in Chapter 11 of the Corporate Standard, which notes that “[a]lthough it is possible to use different years for the inventory base year and the target base year, to streamline the inventory and target reporting process, it usually makes sense to use the same year for both.”