On the Radar
The Greenhouse Gas (GHG) Protocol is a set of standards and related
guidance on accounting for and reporting GHG emissions. Its ongoing development,
which has spanned more than two decades, represents the work of a multistakeholder
partnership (the “GHG Protocol organization”) consisting of businesses,
nongovernmental organizations (NGOs), governments, and other entities convened by
the World Resources Institute (WRI), a U.S.-based environmental NGO, and the World
Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of
nearly 200 international companies. The timeline below illustrates the issuance
dates of key GHG Protocol standards and related guidance.
The GHG Protocol provides a framework for companies and other types
of organizations preparing a GHG emission inventory. Specifically, it addresses the
accounting for and reporting of seven GHGs: carbon dioxide (CO2), methane
(CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs),
perfluorocarbons (PFCs), sulfur hexafluoride (SF6), and nitrogen
trifluoride (NF3).
Current Reporting Landscape
The current GHG emission reporting landscape is evolving. The number of companies
that are reporting on GHG emissions is increasing and will continue to rise as a
result of new climate and sustainability standards and regulations across the
globe.
While the new climate and sustainability standards and
regulations are driving change in the reporting landscape, it is also important
to recognize the potential business value of monitoring a company’s GHG
emissions. Such monitoring may allow companies to identify business and
financial risks that arise from their operations and provide management with
insight into how to effectively manage those risks.
Companies within the scope of the E.U. Corporate Sustainability
Reporting Directive (CSRD) are required to report on GHG emissions in accordance
with the European Sustainability Reporting Standards (ESRS) or equivalent
standards to be determined. The reporting timeline for the CSRD varies depending
on the structure of the company, and a directive that postpones by two years the
application of certain requirements under the CSRD by large entities that have
not yet begun reporting and by listed small and medium-sized entities was
published in the Official Journal of the European Union on April 16,
2025. However, some entities have already begun to report. For more information
about the CSRD, see Deloitte’s January 9, 2023; August 17, 2023 (updated February 23,
2024); and March 7,
2025, Heads Up newsletters.
Various companies will need to comply with the International
Sustainability Standards Board’s (ISSB’s) IFRS S1 and IFRS S2, which require disclosures such as
information about GHG emissions and sustainability- and climate-related
opportunities and risks, subject to jurisdictional adoption. IFRS S2
specifically requires reporting of GHG emissions measured in accordance with the
GHG Protocol. IFRS S1 and IFRS S2 are effective for annual reporting periods
beginning on or after January 1, 2024, subject to individual jurisdictional
mandates. For more information about IFRS S1 and IFRS S2, see Deloitte’s June
30, 2023, Heads
Up. For a list of jurisdictions that are taking steps to
adopt or use IFRS S1 and IFRS S2, see Deloitte’s Adoption of IFRS Sustainability Disclosure Standards by
Jurisdiction (commonly referred to as the “ISSB
Adoption Tracker”).
In the United States, the SEC issued a final rule on
climate-related disclosures on March 6, 2024. Among the final rule’s disclosure
provisions is a requirement for registrants to report GHG emissions in a manner
similar to that prescribed by the GHG Protocol. However, on April 4, 2024, the
SEC voluntarily stayed the effective date of the final rule
pending judicial review by the Eighth Circuit Court of Appeals of petitions
challenging it. On March 27, 2025, the SEC voted to withdraw its legal defense of the final rule. On April 24,
2025, the court issued an order pausing the case and instructed the SEC to
provide a status report within 90 days indicating whether it intends to review
or reconsider the rule. For more information about the final rule, see
Deloitte’s March 15, 2024 (updated April 8, 2024), Heads Up.
Three bills signed into law in California — SB-253, SB-261, and AB-1305 — require both public and private
U.S. companies doing business in California to provide certain climate-related
and GHG emission disclosures. Portions of Sections 38532 and 38533 of the
California Health and Safety Code that were established upon the passage of
SB-253 and SB-261 were amended by SB-219. The California Air Resources Board
must adopt regulations to codify the requirements in SB-253 by July 1, 2025, and
to codify the requirements in SB-261 by January 1, 2026. The effective date of
AB-1305 is January 1, 2024. For more information about SB-253, SB-261, and
AB-1305, see Deloitte’s October 10, 2023 (updated December 19, 2023), Heads Up. For
more information about the amendments in SB-219, see Deloitte’s October 1, 2024,
Heads
Up.
For a comparison of significant sustainability-related reporting
requirements issued by the SEC and the state of California in the United States,
the European Union via the CSRD, and the ISSB within the IFRS Foundation, see
Deloitte’s May 13, 2025, Sustainability Spotlight.
Classifying GHG Emissions
Under the GHG Protocol, GHG
emissions are classified into three scopes as follows:
Figure I of the Scope 3 Technical Guidance, which is reproduced
below, illustrates a reporting company’s value chain and the classification of
GHG emissions into Scope 1, Scope 2, and the 15 categories of Scope 3.
Scope 3 Technical Guidance, “Introduction,” Page 6
Figure I Overview of GHG Protocol Scopes and Emissions
Across the Value Chain
Defining an Organizational Boundary
The organizational boundary provides the basis for identifying
emission sources from assets owned or controlled by the reporting company. For
this reason, it is critically important to correctly identify the organizational
boundary.
Applicable climate and sustainability standards and regulations
may prescribe organizational boundaries that differ from those delineated in the
GHG Protocol. Therefore, if a company is reporting on emissions in accordance
with a specific standard or regulation, it would need to carefully consider the
organizational boundary requirements of that standard or regulation.
If a company is reporting on emissions in accordance with the GHG Protocol rather
than a specific standard or regulation, it may choose one of three approaches to
identify its organizational boundary. However, once the company selects an
approach, it must apply that approach consistently across the organization. The
three approaches are outlined below.
|
Equity Share Approach
|
Financial Control Approach
|
Operational Control Approach
|
|---|---|---|
|
Account for emissions on the basis of the company’s
percentage ownership or economic interest in its
subsidiaries, investments, and assets.
|
Account for emissions on the basis of the company’s
ability to direct the financial and operational policies
in its subsidiaries, investments, and assets.
|
Account for emissions on the basis of the company’s
ability to introduce and implement operational policies
in its subsidiaries, investments, and assets.
|
A company may need to use judgment to identify subsidiaries,
investments, and assets within its organizational boundary. Once a company
identifies its organizational boundary, it will be required to identify the
activities and sources of emissions, including how emissions are categorized
(i.e., Scope 1, Scope 2, or Scope 3) — also known as an operational
boundary.
Judgment in Measuring and Reporting Emissions
The GHG Protocol standards and related guidance provide latitude
in application and related judgments, which has led to diversity in practice in
how companies report GHG emissions. The WRI and WBCSD are currently evaluating
this diversity through their transformation process, which is discussed
below.
Companies are encouraged to consult with their advisers on the application of
the GHG Protocol to ensure that their accounting and reporting treatment is
appropriate.
The GHG Protocol was initially developed over two decades ago to achieve multiple
objectives, one of which, as stated in the Corporate Standard, is “[t]o provide
business with information that can be used to build an effective strategy to
manage and reduce GHG emissions.” Since that time, the regulatory landscape has
evolved to reflect the capital markets’ heightened demand for disclosures about
companies’ GHG emissions, resulting in an increased focus on transparency,
consistency, and standardization. Such evolution has shifted how the GHG
Protocol is being applied by companies to suit their purposes.
As business models evolve and transform, some companies may find that the current
guidance in the GHG Protocol on accounting for emissions does not clearly
address their circumstances. For example, since the GHG Protocol was developed
before the introduction of circular business models (i.e., reduce and reuse),
companies operating under such models must use greater judgment to apply the
guidance. In such instances, companies are encouraged to provide clear and
robust disclosures to ensure that users of their GHG emission reports can
understand the judgments, inputs, and assumptions on which their GHG emission
calculations are based.
Setting GHG Emission Targets
As companies evolve, investors shift their focus, and the economy transforms,
companies are starting to set GHG emission targets. These targets are widely
focused on reducing Scope 1 and Scope 2 emissions. Companies often cite their
ability to more easily control Scope 1 and Scope 2 emissions as the primary
reason for focusing GHG emission targets solely on Scopes 1 and 2. Management
uses these GHG emission targets in transforming their businesses but are also
increasingly linking them to compensation and bonuses. Lenders are also using
GHG emission targets in debt covenant agreements and financing arrangements.
Companies may use renewable energy credits to offset their Scope
2 emissions. Given the prevalence of renewable energy credits in the
marketplace, companies may have the opportunity to completely offset their
reported Scope 2 emissions and meet GHG emission targets even though they may
still generate a significant amount of Scope 2 emissions.
The heightened focus in the
marketplace on GHG emissions and the increasing linkage of GHG emission targets
to compensation and bonuses make it important for companies to measure their GHG
emissions accurately. Management and the board of directors may want to consider
focusing on the GHG emission targets set by the company and the targets’
potential impact on the company’s financial or operational metrics or other
risks within the company. Specifically, they may want to ask themselves the
questions below.
How the GHG Protocol Is Transforming
The WRI and WBCSD have undertaken a process to gather feedback
from stakeholders to refine, amend, and provide enhancements to the GHG Protocol
standards and related guidance. Feedback was gathered in the first quarter of
2023, and revisions to the standards and guidance are expected to be proposed
and finalized in phases from 2025 through 2028.
The WRI and WBCSD have released a webinar recording discussing their findings on Scopes 1 and
3, as well as a summary of findings on Scope 2. Key themes and points
raised by stakeholders are summarized in the figure below.
On the basis of the feedback provided to the WRI and WBCSD, a
significant number of revisions to the GHG Protocol are expected. The update
process is being overseen by the GHG Protocol organization’s newly established
Steering Committee (SC) and Independent Standards Board (ISB). Five technical
working groups (TWGs) have been established to develop the proposed updates,
which will be subject to approval by the ISB. Companies are encouraged to
carefully monitor the activities of the GHG Protocol organization to stay
informed of any developments related to implementation guidance and
revisions.
This Roadmap discusses how companies
account for and report GHG emissions under the GHG
Protocol.