Corporate Value Chain Accounting Reporting Standard PDF

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Nigel Topping, Frances Way, Carbon Disclosure Project (CDP) Graham Sinden, The Carbon Trust H. Scott Matthews, Carnegie Mellon University Luc Larmuseau, DNV Climate Change Services David A. Russell, Rob Rouse, The Dow Chemical Company Jiang Kejun, Energy Research Institute, China’s National Development and Reform Commission Andrew Hutson, Environmental Defense Fund Simon Aumônier, Environmental Resources Management Ugo Pretato, Kirana Chomkhamsri, European Commission Joint Research Centre Steven Meyers, General Electric Sergio Galeano, Georgia Pacific, ISO TC207 U.S. Technical Advisory Group Gregory A. Norris, Harvard University, New Earth, University of Arkansas Klaus Radunsky, ISO 14067 Working Group Convener Atsushi Inaba, Kogakuin University Alison Watson, New Zealand Ministry of Agriculture and Forestry Susan Cosper, Nick Shufro, PricewaterhouseCoopers LLP Rasmus Priess, THEMA1 GmbH, Product Carbon Footprint World Forum Wanda Callahan, Shell James A. Fava, UNEP SETAC Life Cycle Initiative, Five Winds International Matthias Finkbeiner, UNEP SETAC Life Cycle Initiative, Technische Universität Berlin Henry King, Unilever Susan Wickwire, John Sottong, United States Environmental Protection Agency Maureen Nowak, United Kingdom Department of Environment, Food, and Rural Affairs James Stanway, Miranda Ballentine, Walmart Stores Inc. Corporate Value Chain (Scope 3) Accounting and Reporting Standard  CHAPTER 02 Defining Business Goals Table of Contents CHAPTERS guidance 1. Introduction 02 guidance 2. Business Goals 10 requirements guidance 3. Summary of Steps and Requirements 18 requirements guidance 4. Accounting and Reporting Principles 22 guidance 5. Identifying Scope 3 Emissions 26 requirements guidance 6. Setting the Scope 3 Boundary 58 guidance 7. Collecting Data 64 guidance 8. Allocating Emissions 86 requirements guidance 9. Setting a GHG Reduction Target and Tracking Emissions Over Time 98 guidance 10. Assurance 112 requirements guidance 11. Reporting 118 APPENDICES A. Accounting for Emissions from Leased Assets 124 B. Uncertainty in Scope 3 Emissions 126 C. Data Management Plan 129 Abbreviations 134 Glossary 135 References 142 Recognitions 143 01 Defining 02 Business Goals Introduction  g u i d a n c e E missions of the anthropogenic greenhouse gases (GHG) that drive climate change and its impacts around the world are growing. According to climate scientists, global carbon dioxide emissions must be cut by as much as 85 percent below 2000 levels by 2050 to limit global mean temperature increase to 2 degrees Celsius above pre-industrial levels.1 Temperature rise above this level will produce increasingly unpredictable and dangerous impacts for people and ecosystems. As a result, the need to accelerate efforts to reduce anthropogenic GHG emissions is increasingly urgent. Existing government policies will not sufficiently solve the problem. Leadership and innovation from business is vital to making progress. Corporate action in this arena also makes good business company efforts on their greatest GHG impacts. Until sense. By addressing GHG emissions, companies can recently, companies have focused their attention on identify opportunities to bolster their bottom line, emissions from their own operations. But increasingly reduce risk, and discover competitive advantages. As companies understand the need to also account for impacts from climate change become more frequent GHG emissions along their value chains and product and prominent, governments are expected to set new portfolios to comprehensively manage GHG-related policies and provide additional market-based incentives risks and opportunities. to drive significant reductions in emissions. These new Through the development of the GHG Protocol Corporate policy and market drivers will direct economic growth Value Chain (Scope 3) Accounting and Reporting Standard, on a low-carbon trajectory. Businesses need to start the GHG Protocol has responded to the demand for planning for this transition now as they make decisions an internationally accepted method to enable GHG that will lock in their investments for years to come. management of companies’ value chains. Following An effective corporate climate change strategy requires the release of this standard, the GHG Protocol and its a detailed understanding of a company’s GHG impact. A partners will proactively work with industry groups and corporate GHG inventory is the tool to provide such an governments to promote its widespread use – along with understanding. It allows companies to take into account the entire suite of GHG Protocol standards and tools – to their emissions-related risks and opportunities and focus enable more effective GHG management worldwide. 1.1 The Greenhouse Gas Protocol 1.2 Purpose of this standard The Greenhouse Gas Protocol (GHG Protocol) is a The GHG Protocol Corporate Value Chain (Scope 3) multi-stakeholder partnership of businesses, non- Accounting and Reporting Standard (also referred to governmental organizations (NGOs), governments, as the Scope 3 Standard) provides requirements and and others convened by the World Resources Institute guidance for companies and other organizations to (WRI) and the World Business Council for Sustainable prepare and publicly report a GHG emissions inventory Development (WBCSD). Launched in 1998, the mission of that includes indirect emissions resulting from value the GHG Protocol is to develop internationally accepted chain activities (i.e., scope 3 emissions). The primary goal greenhouse gas (GHG) accounting and reporting of this standard is to provide a standardized step-by-step standards and tools, and to promote their adoption in approach to help companies understand their full value order to achieve a low emissions economy worldwide. chain emissions impact in order to focus company efforts on the greatest GHG reduction opportunities, leading to The GHG Protocol has produced the following separate more sustainable decisions about companies’ activities but complementary standards, protocols, and guidelines: and the products they buy, sell, and produce. GHG Protocol Corporate Accounting and Reporting The standard was developed with the following objectives Standard (2004): A standardized methodology for in mind: companies to quantify and report their corporate GHG emissions. Also referred to as the Corporate Standard. To help companies prepare a true and fair scope 3 GHG GHG Protocol Product Life Cycle Accounting inventory in a cost-effective manner, through the use and Reporting Standard (2011): A standardized of standardized approaches and principles methodology to quantify and report GHG emissions To help companies develop effective strategies for associated with individual products throughout their managing and reducing their scope 3 emissions life cycle. Also referred to as the Product Standard. through an understanding of value chain emissions GHG Protocol for Project Accounting (2005): and associated risks and opportunities A guide for quantifying reductions from GHG-mitigation To support consistent and transparent public reporting projects. Also referred to as the Project Protocol. of corporate value chain emissions according to a GHG Protocol for the U.S. Public Sector (2010): standardized set of reporting requirements A step-by-step approach to measuring and reporting Ultimately, this is more than a technical accounting emissions from public sector organizations, standard. It is intended to be tailored to business realities complementary to the Corporate Standard. and to serve multiple business objectives. Companies may GHG Protocol Guidelines for Quantifying GHG find most value in implementing the standard using a Reductions from Grid-Connected Electricity Projects phased approach, with a focus on improving the quality of (2007): A guide for quantifying reductions in emissions the GHG inventory over time. that either generate or reduce the consumption of electricity transmitted over power grids, to be used in conjunction with the Project Protocol. 1.3 Relationship to the GHG Protocol GHG Protocol Land Use, Land-Use Change, and Corporate Standard Forestry Guidance for GHG Project Accounting The GHG Protocol Scope 3 Standard is a supplement to (2006): A guide to quantify and report reductions from the GHG Protocol Corporate Accounting and Reporting land use, land-use change, and forestry, to be used in Standard, Revised Edition (2004) and should be used conjunction with the Project Protocol. in conjunction with it. The Corporate Standard – first Measuring to Manage: A Guide to Designing GHG launched in 2001 and revised in 2004 – has been widely Accounting and Reporting Programs (2007): A adopted by businesses, NGOs, and governments around guide for program developers on designing and the world as the international standard for developing implementing effective GHG programs based on and reporting a company-wide GHG inventory. accepted standards and methodologies. Corporate Value Chain (Scope 3) Accounting and Reporting Standard  CHAPTER 01 Introduction The Scope 3 Standard complements and builds upon the Since the Corporate Standard was revised in 2004, business Corporate Standard to promote additional completeness capabilities and needs in the field of GHG accounting and and consistency in the way companies account for and reporting have grown significantly. Corporate leaders are report on indirect emissions from value chain activities. becoming more adept at calculating scope 1 and scope 2 emissions, as required by the Corporate Standard. As GHG The Corporate Standard classifies a company’s direct and accounting expertise has grown, so has the realization indirect GHG emissions into three “scopes,” and requires that significant emissions – and associated risks and that companies account for and report all scope 1 opportunities – result from value chain activities not emissions (i.e., direct emissions from owned or controlled captured by scope 1 and scope 2 inventories. sources) and all scope 2 emissions (i.e., indirect emissions from the generation of purchased energy consumed by Scope 3 emissions can represent the largest source of the reporting company). The Corporate Standard gives emissions for companies and present the most significant companies flexibility in whether and how to account for opportunities to influence GHG reductions and achieve a scope 3 emissions (i.e., all other indirect emissions that variety of GHG-related business objectives (see chapter 2). occur in a company’s value chain). 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employee leased assets investments leased assets franchises commuting employee leased assets investments leased assets franchises commuting impact across the value chain and focus efforts where 1.5 Scope of the standard they can have the greatest impact. This standard is designed to account for the emissions generated from corporate value chain activities during Companies reporting their corporate GHG emissions have the reporting period (usually a period of one year), two reporting options (see table 1.1). and covers the six main greenhouse gases: carbon Under the Corporate Standard, companies are required dioxide (CO2), methane (CH4), nitrous oxide (N2O), to report all scope 1 and scope 2 emissions, while hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), reporting scope 3 emissions is optional. The Scope 3 and sulphur hexafluoride (SF6). This standard does not Standard is designed to create further consistency in address the quantification of avoided emissions or GHG scope 3 inventories through additional requirements and reductions from actions taken to compensate for or guidance for scope 3 accounting and reporting. offset emissions. These types of reductions are addressed by the GHG Protocol for Project Accounting. Companies should make and apply decisions consistently across both standards. For example, the selection of a Use of this standard is intended to enable comparisons of consolidation approach (equity share, operational control a company’s GHG emissions over time. It is not designed or financial control) should be applied consistently across to support comparisons between companies based on scope 1, scope 2, and scope 3. For more information, see their scope 3 emissions. Differences in reported emissions section 5.2. may be a result of differences in inventory methodology or differences in company size or structure. Additional measures are necessary to enable valid comparisons 1.4 Who should use this standard? across companies. Such measures include consistency in This standard is intended for companies of all sizes and in methodology and data used to calculate the inventory, all economic sectors. It can also be applied to other types and reporting of additional information such as intensity of organizations and institutions, both public and private, ratios or performance metrics. Additional consistency can such as government agencies, non-profit organizations, be provided through GHG reporting programs or sector- assurers and verifiers, and universities. Policymakers and specific guidance (see section 1.9). designers of GHG reporting or reduction programs can use relevant parts of this standard to develop accounting and reporting requirements. Throughout this standard, the term “company” is used as shorthand to refer to the entity developing a scope 3 inventory. Table [1.1] Corporate-level GHG Protocol reporting options Reporting Option Scope 1 Scope 2 Scope 3 Report in conformance Required Required Optional: Companies with the GHG Protocol may report any scope Corporate Standard 3 emissions the company chooses Report in conformance Required Required Required: Companies with the GHG Protocol shall report scope 3 Corporate Standard emissions following and the GHG Protocol the requirements of Scope 3 Standard the Scope 3 Standard Corporate Value Chain (Scope 3) Accounting and Reporting Standard  CHAPTER 01 Introduction 1.6 How was this standard developed? 1.7 Relationship to the GHG Protocol The GHG Protocol follows a broad and inclusive multi- Product Standard stakeholder process to develop greenhouse gas The GHG Protocol Scope 3 Standard and GHG Protocol accounting and reporting standards with participation Product Standard both take a value chain or life cycle from businesses, government agencies, NGOs, and approach to GHG accounting and were developed academic institutions from around the world. simultaneously. The Scope 3 Standard accounts for value chain emissions at the corporate level, while the Product In 2008, WRI and WBCSD launched a three-year process to Standard accounts for life cycle emissions at the individual develop the GHG Protocol Scope 3 Standard. A 25-member product level. Together with the Corporate Standard, the Steering Committee of experts provided strategic three standards provide a comprehensive approach to direction throughout the process. The first draft of the value chain GHG measurement and management. Scope 3 Standard was developed in 2009 by Technical Working Groups consisting of 96 members (representing The reporting company’s business goals should drive the diverse industries, government agencies, academic use of a particular GHG Protocol accounting standard. institutions, and non-profit organizations worldwide). The Scope 3 Standard enables a company to identify the In 2010, 34 companies from a variety of industry sectors greatest GHG reduction opportunities across the entire road-tested the first draft and provided feedback on its corporate value chain, while the Product Standard enables practicality and usability, which informed a second draft. a company to target individual products with the greatest Members of a Stakeholder Advisory Group (consisting of potential for reductions. The Scope 3 Standard helps a more than 1,600 participants) provided feedback on each company identify GHG reduction opportunities, track draft of the standard. performance, and engage suppliers at a corporate level, while the Product Standard helps a company meet the The sum of the life cycle emissions of each of a company’s same objectives at a product level. products, combined with additional scope 3 categories (e.g., employee commuting, business travel, and Common data is used to develop scope 3 inventories investments), should approximate the company’s total and product inventories, including data collected from corporate GHG emissions (i.e., scope 1 + scope 2 + scope suppliers and other companies in the value chain. Since 3). In practice, companies are not expected or required there can be overlap in data collection, companies may to calculate life cycle inventories for individual products find added business value and efficiencies in developing when calculating scope 3 emissions. scope 3 and product inventories in parallel. Figure 1.2 illustrates the relationship between the While each standard can be implemented independently, Corporate Standard, Product Standard, and Scope 3 both standards are mutually supportive. Integrated use Standard. In this simplified example, a company might include: manufactures one product (Product A). The example Applying the Scope 3 Standard, using the results to shows how scopes of emissions at the corporate level identify products with the most significant emissions, correspond to life cycle stages2 at the product level. then using the Product Standard to identify mitigation opportunities in the selected products’ life cycles Using product-level GHG data based on the Product 1.8 GHG calculation tools and guidance Standard as a source of data to calculate scope 3 To help companies implement the Scope 3 Standard, the emissions associated with selected product types GHG Protocol website provides a variety of useful GHG Applying either the Scope 3 Standard or the Product calculation tools and guidance, including: Standard and using the results to inform GHG- Guidance for Calculating Scope 3 Emissions, a companion reduction strategies that reduce both product and document to the Scope 3 Standard that provides corporate level (scope 3) emissions Figure [1.2] R  elationship between a scope 3 GHG inventory and a product GHG inventory (for a company manufacturing Product A) upstream scope 1 and 2 downstream scope 3 emissions emissions scope 3 emissions material acquisition distribution product A & pre-processing production & storage use end-of-life scope 1 and 2 emissions required by the Corporate Standard scope 3 emissions required by the Scope 3 Standard product life cycle emissions required by the Product Standard Corporate Value Chain (Scope 3) Accounting and Reporting Standard  CHAPTER 01 Introduction detailed guidance for calculating scope 3 emissions, the standard for a specific sector, guidance and tools including calculation methods, data sources, and for calculating emissions from