For companies who want to remain competitive it becomes increasingly important if not inevitable to report on GHG emission avoidance concerning all kinds of business operations.
Investors, new political regulations, and other external stakeholders are demanding companies to disclose relevant information on their efforts to contribute towards climate change mitigation.
This development is reflected in several globally established sustainability reporting standards that are intended to facilitate and provide guidance for the business community’s transition to net-zero targets as set forth in the recently globally ratified Paris Agreement. SBTi and TCFD are examples of standards for reporting greenhouse gas emissions and climate-related risks and opportunities.
The Greenhouse Gas Protocol, with its global implementation for corporate GHG accounting, has become a guideline for many of these standards and initiatives. The accounting standards of the GHG Protocol cover Scope 1, 2 and 3 emissions and thus achieve a comprehensive set of rules for the measurement of different emission sources.
More stringent disclosure rules require adaptations of the GHG protocol
The United States Securities and Exchange Commission (SEC) is proposing more stringent disclosure rules regarding climate-related risks to ensure that investors and the general public receive appropriate information which is material to their decision-making. Specifically, they will be required to report on climate scenarios that are considered material and likely because they directly impact key business operations and pose major financial risks. A draft similar to the SEC’s is also expected from European Financial Reporting Advisory Group (EFRAG), which has already announced a proposal submission for December 2022 to work out more precise details.
In this context, the SEC relies on the standards of the GHG Protocol, which has established itself over the past 20 years as a globally recognized framework for greenhouse gas accounting. Primarily, their motivation for this approach is to ease the burden on companies that already comply with the GHG Protocol standards and to avoid a significant additional burden.
However, the SEC justifies its intention to tighten the regulations by saying that the existing information disclosure requirements are insufficient. It sees this as a threat to the protection of investors and their investments. Investment decisions still require enormous due diligence on the part of investors with regard to climate-related risks. Often, they first have to request additional climate-related information from companies or do not have sufficient access to it. This is due to the fact that many companies still have the right to omit certain information from their financial statements. This includes, for example, greenhouse gas accounting methodologies, sources of data collection, assumptions made, and other important parameters for assessing their climate-related risks. The omission of such information can have serious consequences for investors and the public if companies’ transition risk cannot be adequately assessed.
This is to be changed with a new set of rules in which a company is to inform its investors of its own accord about the determinants of relevant risks and likely climate scenarios. Meanwhile the general public could also benefit from such reporting and take appropriate action where it is most needed.
The GHG Protocol is aware of the concerns about these reporting gaps and sees these measures as a step towards more transparency. At the same time, they are aware of the challenges that the stricter measures pose for companies.
This puts the GHG Protocol, as a globally established standard for calculating and reporting on GHG emissions, to a new task to align their guidelines with the upcoming, more strict requirements. The goal is to broaden the scope of the guidance to reflect further requirements proposed by the SEC and soon by EFRAG, and to help companies calculate their GHG balance in a more transparent, comparable and consistent manner, building on their experience and the data they have already collected. This is to ensure that companies already complying with the GHG Protocol can expect continued assistance in meeting emerging and increasingly stringent disclosure requirements. During the adaptation process, as is customary with such changes, the GHG Protocol is reaching out to various stakeholders for consultations to find out where and to what extent support is needed.
To reduce the additional burden on companies, the GHG Protocol is working hard to harmonize its standard with rules required by the SEC and expected soon from EFRAG. In general, their interest is to promote collective harmonization of various climate risk reporting standards and initiatives.
DFGE is here to help
Our experts at DFGE have several years of experience with various methodologies for calculating greenhouse gas emissions that comply with the Greenhouse Gas Protocol. We provide services to assess the carbon footprint of companies and support our clients in achieving science-based climate protection goals. For more information on what the GHG protocol entails, please feel free to look at our previous blog posts on our DFGE Website (GHG Protocol). If you have specific questions and are looking for support in figuring out how you can contribute to achieve a net-zero future, please contact us at or by calling +49 8192 99733-20.
