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December 20, 2024Introduction: A New Age for Carbon Accountability
Image Source: Cundall Blog- Why carbon accounting is so important in this day and age
As the climate crisis demands urgent action, businesses are under mounting pressure to measure, manage, and reduce their carbon footprints. But how can they track emissions across complex supply chains and operational borders? Enter the Greenhouse Gas (GHG) Protocol, a powerful tool reshaping how global corporations, governments, and industries approach carbon accounting. Initially developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol has become the gold standard for measuring and reporting greenhouse gas emissions.
This article explores the GHG Protocol as a critical global policy instrument, delving into the framework’s impact on the renewable energy sector, Scope 1, 2, and 3 emissions as policy levers, and renewable energy credits (RECs) as carbon accounting tools. We’ll also examine case studies of multinational companies adapting to this standard and take a closer look at how India’s unique policy landscape influences corporate GHG reporting.
Why the GHG Protocol Matters for Businesses Today
The GHG Protocol provides corporations with a roadmap for climate responsibility, allowing companies to account for and report emissions transparently across every part of their operations. As climate policies tighten and consumer expectations for sustainability grow, the GHG Protocol helps companies meet legal standards while making bold sustainability pledges, like achieving net-zero emissions or reaching climate neutrality.
Since 92% of the world’s largest corporations report their emissions using the GHG Protocol, the standard is more than just a regulatory formality—it’s a way for businesses to enhance credibility, attract eco-conscious consumers, and align with shifting global policies. Let’s dive into the foundational categories of the GHG Protocol: Scope 1, 2, and 3 emissions, each a crucial policy lever for understanding and managing corporate carbon footprints.
Scope 1, 2, and 3 Emissions: Tools for Tackling the Full Carbon Footprint
The GHG Protocol categorizes emissions into three distinct groups—Scope 1, Scope 2, and Scope 3—each capturing a different part of a company’s carbon footprint. These scopes provide a nuanced way to identify where emissions originate, and they serve as key levers for corporations and policymakers to address emissions more strategically.
1. Scope 1 Emissions: These are direct emissions from sources owned or controlled by a company, such as fuel combustion at factories or vehicle emissions in corporate fleets. For companies in heavy industries, Scope 1 emissions are often substantial. Targeting these emissions drives firms to adopt cleaner technologies and streamline operations, ultimately improving both environmental and financial efficiency.
2. Scope 2 Emissions: These indirect emissions come from the consumption of purchased electricity, steam, or cooling. Scope 2 emissions are particularly relevant for energy-intensive industries. By measuring Scope 2 emissions, corporations can take actionable steps—such as transitioning to renewable energy sources—to minimize these emissions. The availability of renewable energy credits/certificates (RECs), which we’ll discuss further , plays a significant role in Scope 2 emission reductions.
3. Scope 3 Emissions: Often the largest and most complex category, Scope 3 emissions include all indirect emissions occurring in a company’s value chain, both upstream (e.g., supplier emissions) and downstream (e.g., product disposal). Tackling Scope 3 requires cooperation with suppliers and customers, creating a ripple effect of sustainability that extends beyond the corporation itself.
Together, these categories form a powerful framework for carbon accountability. They offer businesses the data they need to make meaningful changes and enable regulators to develop policies that target emissions effectively.
Renewable Energy Credits (RECs): A Game-Changer for Scope 2 Emissions
One of the most powerful tools within the GHG Protocol framework is the Renewable Energy Credit (REC). RECs are certificates representing the environmental benefits of renewable energy generation. Companies can purchase RECs to offset their Scope 2 emissions, even if their direct power comes from fossil fuels.
Here’s why RECs are transformative in GHG Protocol accounting:
– Promoting the Renewable Energy Economy: By purchasing RECs, companies support renewable energy projects, even if they cannot use renewable energy directly. This creates financial backing for wind, solar, and other renewable energy sources, fostering green infrastructure.
– Boosting Corporate Credibility and Consumer Trust: For businesses, buying RECs is a visible way to demonstrate climate responsibility. It also offers a competitive edge, as consumers increasingly favor brands committed to sustainable practices.
– Meeting Global Regulatory Requirements: RECs make compliance easier for multinational companies that must meet varying renewable energy requirements across countries. In the U.S., for example, Renewable Portfolio Standards (RPS) require certain energy percentages to come from renewable sources. Through RECs, companies can meet these standards without overhauling their energy systems.
– Scalable for Any Size: RECs are accessible for businesses of all sizes. Smaller companies that may lack the resources for large-scale energy overhauls can still contribute to the renewable energy market by purchasing RECs according to their budget and needs.
With RECs, the GHG Protocol offers businesses a scalable path to reducing their carbon impact, encouraging the use of renewable energy as part of a comprehensive emissions management strategy.
Case Studies: How Corporations Are Using the GHG Protocol to Drive Change
Across industries, multinational corporations have adopted the GHG Protocol standards to align with climate policies and meet ambitious environmental goals. Here are a few companies leading by example:
1. Infosys – India’s Carbon-Neutral Tech Leader
As one of India’s largest IT services companies, Infosys is a trailblazer in sustainability and climate responsibility. The company adopted the GHG Protocol in 2011 and has since committed to reducing its carbon footprint across Scope 1, 2, and 3 emissions. Infosys became carbon neutral in 2020, achieving this by using renewable energy, improving energy efficiency across its operations, and offsetting residual emissions through investments in high-quality carbon offsets, including projects benefiting local communities in India. Infosys’s commitment illustrates how Indian corporations are leveraging the GHG Protocol to meet ambitious climate goals, while simultaneously advancing India’s renewable energy goals and environmental standards.
2. Godrej & Boyce Role in India GHG Program
Godrej & Boyce is a founding member of the India GHG Program, a national effort aimed at standardizing greenhouse gas (GHG) measurement and management within the country. The company has integrated sustainable practices into its core business strategy and committed to reducing emissions as part of its corporate responsibility initiatives. As an early adopter of GHG Protocol standards, Godrej & Boyce sets an example in emissions accountability and environmental stewardship.
3. Tata Chemicals Sustainability Initiatives
Tata Chemicals engages in extensive sustainability efforts, including GHG emissions reporting and reduction strategies. The company participates in the India GHG Program and adopts GHG Protocol standards to manage and track its emissions rigorously. These efforts reflect Tata Chemicals’ commitment to operational efficiency, reduced environmental impact, and a proactive approach to sustainability.
4. NTPC Limited Commitment to Emission Reduction
NTPC, one of India’s leading power generation companies, uses the GHG Protocol to monitor, report, and manage its emissions systematically. Focused on a transition toward renewable energy, NTPC is taking strides to lower its carbon footprint and align its operations with sustainable power generation practices. The company’s commitment to emission reduction underscores its role in driving India’s energy sector toward a cleaner future.
5. ITC Limited Sustainable Business Practices
ITC Limited has woven sustainability into its business model, with emissions measurement across operations guided by the GHG Protocol. The company has set ambitious targets to reduce its carbon footprint through diverse initiatives. ITC’s integration of GHG Protocol standards into its sustainability strategy positions it as a leader in responsible business practices.
6. Microsoft’s Carbon Negative Pledge
Microsoft has set one of the boldest corporate climate goals: becoming carbon-negative by 2030. Using the GHG Protocol, the company has mapped emissions across Scopes 1, 2, and 3, committing to reduce its carbon footprint in every area. To tackle Scope 3, Microsoft works closely with suppliers, encouraging them to adopt sustainable practices. Microsoft’s approach, driven by policy and public accountability, showcases how the GHG Protocol can inspire industry-leading companies to act beyond their operations and engage their entire value chain.
7. Google’s Carbon-Free by 2030 Initiative
Google has been carbon neutral since 2007 and uses the GHG Protocol for comprehensive emissions tracking across Scope 1, 2, and 3. The company matches its entire electricity usage with 100% renewable energy, achieving carbon neutrality through RECs, and plans to operate entirely on carbon-free energy across its global operations by 2030. Google’s approach demonstrates how tech companies can use the GHG Protocol to drive meaningful change across both direct and indirect emissions, setting an example for other companies aiming to meet net-zero and carbon-free commitments.
8. Unilever’s Sustainable Living Plan
Unilever has leveraged the GHG Protocol to reduce the environmental impact of its products by half. With Europe’s stringent carbon disclosure policies, Unilever has implemented strategies across Scopes 1, 2, and 3, working with suppliers to minimize emissions in production and distribution. This policy-driven shift in Unilever’s operations not only meets regulatory demands but also strengthens its brand value in an eco-conscious market.
These companies demonstrate that policy-driven adoption of the GHG Protocol fosters transparency and accountability while creating a competitive advantage. By adhering to GHG Protocol standards, they position themselves as sustainability leaders in increasingly climate-conscious markets.
India’s Policy Landscape and Its Influence on Corporate GHG Reporting
As one of the fastest-growing economies, India’s climate policies and corporate emissions reporting requirements are evolving rapidly. The Indian government’s emphasis on renewable energy, emissions disclosure, and responsible business practices has made the GHG Protocol increasingly relevant for Indian companies.
Key Policy Influences in India
1. National Action Plan on Climate Change (NAPCC): Launched in 2008, India’s NAPCC promotes renewable energy through missions like the National Solar Mission and Enhanced Energy Efficiency Mission. These policies drive corporations to adopt the GHG Protocol as a standard for emissions disclosure and accountability.
2. Renewable Purchase Obligations (RPOs): RPOs require certain entities to source a specified percentage of their energy from renewable sources, either directly or through Renewable Energy Credits (RECs). This policy primarily applies to obligated entities, such as power generation and distribution companies, as well as large consumers purchasing electricity through Open Access. By encouraging renewable energy use, RPOs play a key role in promoting sustainability in sectors with high energy demands, ultimately helping to reduce Scope 2 emissions for companies covered by these obligations.
3. Business Responsibility and Sustainability Report (BRSR): SEBI’s BRSR mandates emissions, energy usage, and sustainability disclosures for the top 1,000 publicly listed companies in India. Initially introduced as voluntary in FY 2021-22, BRSR became mandatory for these companies in FY 2022-23. The BRSR framework aligns with the GHG Protocol, fostering structured greenhouse gas accounting practices among Indian corporations.
Future Inclusion and BRSR Core Expansion1: SEBI’s phased rollout for the BRSR Core aims to gradually increase its applicability over the next few years:
FY 2023-24: Top 150 companies will be required to report under BRSR Core.
FY 2024-25: Coverage will expand to include the top 250 companies.
FY 2025-26: The scope will further widen to the top 500 companies.
FY 2026-27: All 1,000 listed companies will be required to file BRSR Core reports.
This phased approach allows companies time to prepare for full compliance, promoting a progressive shift towards comprehensive environmental and social responsibility reporting across the Indian corporate sector.
4. Corporate Social Responsibility (CSR) Mandates: The Corporate Social Responsibility (CSR) mandate in India, established under Section 135 of the Companies Act, 2013, requires certain companies to allocate at least 2% of their average net profits over the previous three years toward social and environmental initiatives. This mandate applies to companies that meet specified thresholds in net worth, turnover, or profit, thereby ensuring that organizations with substantial resources contribute to societal welfare. CSR activities span a broad range of focus areas, including poverty eradication, education, gender equality, environmental sustainability, and community development. To maintain transparency, companies must report their CSR activities annually, detailing fund utilization and the impact of their initiatives within their annual reports alongside the Business Responsibility Report (BRR). By mandating contributions to environmental projects, the CSR framework indirectly promotes GHG emissions reporting, encouraging companies to adopt more sustainable practices as part of their corporate responsibility.
The Future of Carbon Accountability: The GHG Protocol’s Growing Impact
As climate policies grow more stringent and sustainability becomes a market expectation, the GHG Protocol will likely become an even more influential tool for businesses worldwide. Here’s a look at what’s next:
1. Increasing Focus on Scope 3 Emissions: With pressure to tackle emissions along the entire supply chain, Scope 3 emissions are becoming a central focus for multinational corporations. The GHG Protocol’s Scope 3 framework empowers companies to drive sustainability throughout their value chains.
2.The Renewable Energy Credit (REC) Market in India2: The REC market in India has evolved to support increasing global demand for renewable energy and emissions reduction. It allows companies to purchase credits to comply with Renewable Purchase Obligations (RPOs) and achieve sustainability goals.
Indian REC Market:
Companies can purchase RECs domestically to meet RPO requirements, reducing Scope 2 emissions per local regulations. However, the Indian REC market has faced challenges like regulatory uncertainty and a significant demand-supply gap. Many states set RPO targets lower than federal goals, causing compliance issues; in FY 2021, about 80% of states had RPO targets nearly 30% below the federal target of 19%.
International RECs (IRECs):
IRECs enable companies with global operations to support renewable projects outside India, offsetting emissions internationally. IRECs are typically less expensive than local RECs; in 2022, IREC prices in India ranged between $0.7/MWh and $1.7/MWh, while local RECs averaged around $13/MWh.
This dual REC structure provides flexibility for companies operating domestically and internationally, enabling them to tailor sustainability strategies to both markets effectively.
3. Rise of Sector-Specific Standards: As different industries face unique challenges in emissions management, sector-specific standards may emerge within the GHG Protocol. For example, sectors like aviation, shipping, and technology may see tailored guidelines to address their particular environmental impacts.
4. Policy Harmonization Across Borders: As countries work to align climate policies, the GHG Protocol can act as a unifying standard, making it easier for multinational companies to meet emissions requirements across multiple jurisdictions.
A Powerful Pathway to a Sustainable Future
The GHG Protocol has reshaped corporate carbon accounting, providing a clear framework for tracking emissions across all scopes. By driving transparency, accountability, and actionable strategies, the GHG Protocol enables corporations to meet global sustainability goals while also reaping the benefits of enhanced brand reputation and operational efficiency.
For countries like India, which are navigating the balance between rapid economic growth and environmental stewardship, the GHG Protocol offers a practical way to foster corporate accountability and renewable energy adoption. And for global leaders like Microsoft, Walmart, and Unilever, the GHG Protocol has provided a foundation for climate leadership that goes beyond compliance to set new standards for corporate responsibility.
In the face of a changing climate, the GHG Protocol is more than just a carbon accounting tool; it’s a powerful pathway to a sustainable future. As companies continue to adopt and innovate within its framework, the Protocol stands to drive meaningful change and a resilient global economy for decades to come.
References
- Greenhouse Gas Protocol. (2023). GHG Protocol Standards and Guidance. Retrieved from https://ghgprotocol.org/
- World Resources Institute & World Business Council for Sustainable Development. (2015). The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard (Revised Edition). Retrieved from https://ghgprotocol.org/corporate-standard
- Infosys. (2020). Sustainability Report 2020: Our Journey to Carbon Neutrality. Infosys. Retrieved from https://www.infosys.com/global-resource/sustainability
- Microsoft. (2020). Microsoft Carbon Removal: Beyond Net Zero Strategy. Microsoft Official Environmental Initiatives. Retrieved from https://www.microsoft.com/environment
- Unilever. (2023). Sustainable Living Plan Progress Report. Unilever Global. Retrieved from https://www.unilever.com/sustainability/climate/our-climate-transition-action-plan/
- Google. (2021). Environmental Report: Toward a Carbon-Free Future. Google Sustainability. Retrieved from https://sustainability.google/reports/
- Ministry of Environment, Forest and Climate Change (MoEFCC), Government of India. (2008). National Action Plan on Climate Change (NAPCC). Retrieved from https://moef.gov.in/
- Securities and Exchange Board of India (SEBI). (2021). Business Responsibility and Sustainability Reporting (BRSR). SEBI Guidelines for Corporate Sustainability. Retrieved from https://www.sebi.gov.in/
- Renewable Energy Certificate (REC) Mechanism in India. (2022). Overview of the REC Market in India and its Role in Renewable Energy Promotion. Central Electricity Regulatory Commission (CERC). Retrieved from https://www.cercind.gov.in/
- International Energy Agency (IEA). (2021). Corporate Net-Zero Pledges: The Role of Scope 3 Emissions. IEA Reports on Global Corporate Sustainability Practices. Retrieved from https://www.iea.org/
- NTPC (2023). Annual Report 2023-24. NTPC. Retrieved from https://ntpc.co.in/sites/default/files/compliances-reports/Annual%20Report%202023-24.pdf
- Tata Chemicals (2020). Integrated Report 2020-21. Tata Chemicals. Retrieved from https://sustainability.tatachemicals.com/assets/e-book/integrated-report-2020-21/index.html
- Godrej Industries. Retrieved from https://www.godrejindustries.com/public/uploads/reports/2023-24/Business_Responsibility_and_Sustainability_Report.pdf
- ITC Limited (2024). ITC Sustainability Integrated Report 2024. ITC Limited. Retrieved from https://www.itcportal.com/sustainability/sustainability-integrated-report-2024/ITC-Sustainability-Integrated-Report-2024.pdf
- India GHG Program (India GHG Program Promoting profitable, sustainable and competitive business). Retrieved from https://indiaghgp.org/