The GHG Protocol and Scope 3: A key challenge for reducing greenhouse gas emissions

📜Where does the GHG Protocol come from?

The GHG Protocol was conceived in the 1990s in response to the growing need for a standardized framework for measuring and managing GHG emissions. At the time, companies and governments were looking for ways to respond effectively to growing concerns about climate change.

The WRI, an American think-tank founded in 1982 and dedicated to environmental issues, and the WBCSD, a coalition of 130 companies created in 1995 and linked by a shared commitment to sustainable development, have collaborated to develop a protocol that would help companies, communities and governments to measure and categorize their emissions. In other words, to produce a GHG inventory, a systematic assessment of an organization's GHG emissions over the course of a year.

The GHG Protocol is also intended to help these organizations report on their emissions. The first version of the GHG Protocol Corporate Accounting and Reporting Standard was published in 2001, and is regularly updated.

Other standards have since been developed, including :

• GHG Protocol for Cities
• The "Product Standard" (for estimating emissions over the life cycle of a product)
• The Corporate Value Chain (Scope 3) Standard (for estimating Scope 3 emissions).

📊The three emissions scopes

The GHG Protocol defines three GHG emission scopes, which provide a structured framework for understanding and categorizing emissions in the balance sheet, and thus identifying levers for action to reduce these emissions.

• Scope 1: Direct emissions
  Direct emissions come from sources owned or controlled by the company, such as emissions from industrial facilities and company vehicles. This includes stationary combustion (e.g. boilers and furnaces) and mobile combustion (e.g. trucks and company cars).
• Scope 2: Indirect energy emissions
  Scope 2 covers indirect emissions associated with the consumption of purchased energy, such as electricity, heat or steam. Although the company does not directly generate these emissions, it is responsible for them because it consumes energy produced by others.
• Scope 3: Other Indirect Emissions
  This scope includes all other indirect emissions that occur in the company's value chain. This includes emissions linked to the purchase of goods and services, the travel of employees, goods and visitors, the use of products sold, waste treatment, etc.

🌟Adoption and global influence

Since its creation, the GHG Protocol has become a major standard for GHG emissions accounting. In 2016, over 90% of Fortune 500 companies used the GHG Protocol to measure and manage their GHG emissions, underlining its central role in corporate environmental management. Today, 9 out of 10 Fortune 500 companies use the GHG Protocol.

Many other carbon accounting standards and frameworks, such as ISO 14064-1 and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), are based on the methodology and principles of the GHG Protocol.

🚨Controversial flexibility

Although widely adopted by companies and organizations worldwide, the GHG Protocol is still the subject of controversy: while Scope 3 accounting is strongly encouraged, it is not mandatory.

This flexibility could be seen as an incentive rather than a strict constraint, enabling companies to gradually commit to accounting for their indirect emissions.

However, this flexibility is also open to criticism. Many stakeholders feel that, without the obligation to account for Scope 3 emissions, companies may be neglecting a significant part of their balance sheet. Indeed, Scope 3 often represents between 70% and 80% of a company's balance sheet.

❗The crucial importance of Scope 3

Ignoring Scope 3 can therefore prove problematic, since it represents a major part of the balance sheet. Consequently, even if a company is ambitious in reducing its Scope 1 and 2 emissions, this is not enough to significantly reduce its overall carbon footprint. The Carbon Disclosure Project (CDP) estimates that Scope 3 emissions are 5.5 times greater than Scope 1 and 2 emissions. To achieve ambitious climate targets, it is essential to take into account and reduce Scope 3 emissions.

Companies that neglect Scope 3 risk underestimating their true environmental impact and failing to meet the growing expectations of investors, consumers and regulators. In a context where transparency and environmental responsibility are becoming key performance criteria, it is crucial to consider all emissions generated along the value chain.

✊The challenges of Scope 3 decarbonization

Decarbonizing Scope 3 involves a number of challenges. Among them, the lack of direct control over the activities of their suppliers, and the quality of the data and emission factors used are two of the most important.

Companies have to work with a multitude of partners throughout the supply chain. This poses a number of challenges:

• Supplier maturity on the subject. Not all suppliers are equally mature, and won't be able to answer the questions posed.
• Data confidentiality. Some suppliers may not wish to pass on certain data needed to calculate their emissions to their customers.
• Time and resources needed to collect data.
• Identification of the most emissive suppliers, on hundreds or even thousands of references.

These factors complicate the collection of accurate and reliable data, and many companies have to rely on estimates and assumptions to assess their Scope 3 emissions, which can introduce uncertainties and sometimes significant variations in the results.