GHG Inventory 101: What is it, where did it come from and why is it more important than ever

"Until recently, companies have focused their attention on emissions from their own operations. But increasingly, more companies understand the need to also account for GHG emissions along their value chains and product portfolios to comprehensively manage GHG-related risks and opportunities. " WRI, WBCSD. Corporate Value Chain (Scope 3) Accounting and Reporting Standard. 2011

The Greenhouse Gas Protocol (GHG Protocol) created in 1998 is a partnership of businesses, governments, non-governmental organizations (NGOs), and others gathered by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Its mission was and still is to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards and tools to be adopted worldwide, to reduce emissions in the economy.

The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (a.k.a. the Scope 3 Standard) provides the requirements and guidance for companies and other organizations to report a GHG emissions inventory that includes indirect emissions resulting from value chain activities. The primary goal of this inventory is to provide a standardized step-by-step approach to help companies understand their full chain emissions impact in order to focus company efforts on the greatest GHG reduction opportunities.

According to the GHG Protocol website, the standard was developed with the following objectives in mind:

  • To help companies prepare a true and fair scope 3 GHG inventory in a cost-effective manner, through the use of standardized approaches and principles

  • To help companies develop effective strategies for managing and reducing their emissions through an understanding of value chain emissions and associated risks and opportunities

  • To support consistent and transparent public reporting of corporate value chain emissions according to a standardized set of reporting requirements.

GHG emissions are divided into three groups, depending on where these emissions are originated within the value chain that exists to create a product or service. This means that scopes are applied to the upstream (raw material and suppliers), direct (factories and company-related processes), and downstream (distribution and delivery) activities of the production and supply chains.

Scope 1 are those originated from sources and operations directly owned or controlled by the company, while Scope 2 and 3 are those that originated from the downstream and upstream activities (which are activities not controlled or owned by the company)

Scope 1 emissions are those that come from:

  • Generating electricity, heat, or steam: Combustion of fuels in stationary sources (boilers, furnaces, turbines, etc.)

  • Physical or chemical processing: Manufacturing and/or processing of chemicals and materials (cement, aluminum, waste processing, factory fumes, waste processing, etc.)

  • Transporting materials, products, waste, and employees. Combustion of fuels in company-owned/controlled transportation (trucks, trains, ships, airplanes, buses, and cars exclusively owned by the company)

  • Fugitive emissions. Both intentional or unintentional releases (like emissions during the use of refrigeration and air conditioning equipment or equipment leaks from joints, seals, or packaging)

Scope 2 accounts for GHG emissions from the energy (electricity, steam, heating, or cooling) used by the company for the manufacturing process. For this energy to be accounted for in scope 2 it must be purchased from a utility provider (or generated by the own company) and transported to and used within the organizational boundary of the company. Scope 2 emissions physically occur at the manufacturing facilities. As well, emissions from the generation of purchased electricity that is consumed during transmission and distribution are reported in scope 2 by the company that owns or controls the manufacturing process. Indirect emissions from activities upstream of a company’s electricity provider (exploration, drilling, flaring, transportation, etc.) are reported under scope 3.

Scope 3 emissions are a consequence of the activities of the company and are also part of the supply chain, but occur from sources not owned or controlled by the company. These are:

Extraction and production of purchased materials and fuels

Transport-related activities

  • Transportation of purchased materials or goods

  • Transportation of purchased fuels

  • Employee business travel

  • Employees commuting to and from work

  • Transportation of sold products

  • Transportation of waste

Electricity-related activities not included in scope 2

  • Extraction, production, and transportation of fuels consumed in the generation of electricity (either purchased or own generated by the reporting company)

  • Purchase of electricity that is sold to an end-user (reported by utility company)

  • Generation of electricity that is consumed in a T system (reported by end-user)

Leased assets, franchises, and outsourced activities such as:

  • Investments (equity investments, debt investments, project finance, managed investments, and client services)

  • Capital Goods used in the production process (machinery, materials, components, parts, etc.) and non-production related products (office furniture, supplies, etc.),

  • Businesses operating under a license to sell or distribute the reporting company’s goods or services.

Use of sold products and Services: the emissions resulting from product usage once it reaches the consumer.

Waste disposal

  • Disposal of waste generated in operations

  • Disposal of waste generated in the production of purchased materials and fuels

  • Disposal of sold products at the end of their life

An effective corporate climate change strategy requires a detailed understanding of a company’s GHG impact, and GHG inventories are a tool to provide that. It allows companies to truly measure the emissions being released to the atmosphere by their own processes that are required to provide a finished product or service, making them not only aware and accountable, but also helping them address them. It also helps companies to assess and identify the risks, opportunities, and efforts to fight Climate Change.


Mariangela Lopez