What are the CSRD and GHG Protocol?
The CSRD (Corporate Sustainability Reporting Directive) and the GHG Protocol (Greenhouse Gas Protocol) are both frameworks aiming to enhance sustainability reporting and provide standardized approaches to environmental and sustainability disclosures.
However, they both serve different purposes and operate at different levels. The CSRD is a regulatory framework specifically designed for companies operating within the EU. In contrast, the GHG Protocol is a globally recognized standard that focuses exclusively on greenhouse gas emissions.
They interface under the CSRD within the ESRS E1 for climate change, where companies are required to report their GHG emissions using data points aligned with the GHG Protocol. This means that to comply with the CSRD, companies must measure and disclose their specific GHG emissions according to the methodologies outlined in the GHG Protocol.
What is the CSRD?
The CSRD is an EU regulation that mandates large companies and certain listed SMEs to disclose detailed information on their environmental, social, and governance (ESG) performance. It aims to enhance corporate transparency and accountability by requiring standardized sustainability reporting.
The CSRD applies to companies with over 250 employees, €50 million in turnover, or €25 million in assets. The first wave, consisting of listed companies previously subject to the NFRD, will begin collecting data in 2024. The second wave will follow, collecting data in 2025 for reporting in 2026.
What is the GHG Protocol?
The GHG Protocol is the most widely used international accounting framework for measuring, managing, and reporting greenhouse gas emissions. It provides comprehensive standards, guidance, tools, and training for businesses to understand, quantify, and manage their GHG emissions.
It classifies emissions into three scopes: Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (other indirect emissions from the value chain). By following the protocol, organizations can accurately assess their carbon footprint, identify reduction opportunities, and report their emissions to stakeholders.
How does the GHG Protocol work?
The GHG Protocol is like a set of rules or a guidebook that helps companies and organizations measure and manage the greenhouse gases they produce. It’s widely used around the world and is considered the standard way of keeping track of emissions.
Understanding emissions categories (scopes)
The GHG Protocol splits emissions into three main “scopes” to help companies figure out where their greenhouse gases are coming from. These scopes help organizations understand the full extent of their emissions by separating them into different categories based on how directly they are connected to the company’s activities.
- Scope 1: Direct emissions – These are emissions that come directly from sources that the company owns or controls, like factory smokestacks or company vehicles.
- Scope 2: Indirect emissions from energy – This includes emissions from the electricity, heat, or steam that the company buys.
- Scope 3: Other indirect emissions – These are emissions that happen because of the company’s activities but aren’t directly under its control.
Measuring greenhouse gases
Measuring greenhouse gas emissions under the GHG Protocol involves tracking six main gases: carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF₆).
Each of these gases has a different impact on the atmosphere, often measured by their “Global Warming Potential” (GWP). This indicates how much heat one ton of a gas traps in the atmosphere compared to one ton of CO₂ over a specific period, usually 100 years.
Measurement is done via Scope 1, 2, and 3, which cover all aspects of a company’s greenhouse gas emissions. You start with Scope 1 measurement, which involves tracking all direct emissions from your company’s activities. Then you move to Scope 2, where you measure indirect emissions from purchased energy. Finally, you measure Scope 3 emissions involving data collection from your entire value chain.
Reporting on greenhouse gases
To standardize calculations, the GHG Protocol offers tools and resources, such as emission factor databases. This ensure that companies consistently convert their activities into GHG emissions. After gathering data, companies convert each gas into CO₂ equivalents (CO₂e) using their respective GWPs. This conversion allows all greenhouse gases to be expressed in a common unit.
A credible GHG emissions report is founded on the principles of relevance, accuracy, completeness, consistency, and transparency. To adhere to these principles, companies should use the best data available and be transparent about any limitations and uncertainties in their reporting.
Additionally, for each category, companies need to describe the methodologies, data sources, assumptions, and data quality used in their calculations. These detailed disclosures ensure that reports are thorough and allow stakeholders to understand the context and rationale behind the reported emissions data.
How to report on the GHG Protocol for CSRD?
Understanding the GHG Protocol for CSRD is crucial for reporting under the ESRS E1. Companies are expected to align their GHG emissions reporting with the principles, requirements, and standards outlined by the GHG Protocol.
CSRD and GHG Protocol scoping methodology
The CSRD uses Scope 1, 2, and 3 methodology to provide a structured and comprehensive approach for reporting GHG emissions. For Scope 1 emissions, the CSRD requires companies to calculate or measure emissions from sources they directly own or control. Using activity data from stationary combustion, mobile combustion, process emissions, and fugitive emissions.
For Scope 2 emissions, companies must apply both the location-based and market-based methods from the GHG Protocol Scope 2 Guidance. This ensures that they report on electricity, steam, heat, and cooling consumed.
When it comes to Scope 3 emissions, the CSRD mandates companies to follow the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. This requires the identification and disclosure of significant emissions across 15 categories in the value chain, such as purchased goods, transportation, and use of sold products.
CSRD uses GHG Protocol calculation methodologies
The CSRD requires companies to adopt calculation methodologies and emission factors that align with the GHG Protocol to ensure accurate and transparent reporting of GHG emissions. This means that when calculating emissions across Scopes 1, 2, and 3, companies must use the GHG Protocol’s guidance to select appropriate methodologies, emission factors, and data sources.
For example, companies are expected to disclose the specific methodologies, assumptions, and emission factors used to measure their GHG emissions. This includes detailing why certain emission factors were chosen and how non-CO2 gases were included.
CSRD and GHG Protocol scenario analysis
The CSRD integrates climate-related scenario analysis by requiring companies to align with methodologies outlined by the GHG protocol. It uses similar analysis to evaluate potential climate risks and opportunities over the short, medium, and long term.
Companies must disclose how they have used scenario analysis to inform the identification and assessment of physical and transition risks. This includes the specific scenarios applied, their sources, alignment with state-of-the-art science, and key drivers considered, such as policy assumptions, macroeconomic trends and energy consumption.
How to start with the GHG Protocol for CSRD?
Reporting on the GHG Protocol for CSRD is seen as a challenging part of the overall CSRD reporting process due to the complexity of tracking and calculating emissions across different scopes. Following these tips can help you navigate the requirements efficiently, ensuring accurate and comprehensive reporting that aligns with CSRD expectations.
Start with your own activities (scope 1)
Start with scoping your own activities (Scope 1), which involves identifying and calculating all direct emissions from sources that are owned or controlled by your organization. For example, this includes emissions from fuel combustion in company-owned vehicles, gas boilers used for heating your facilities, or any industrial processes taking place on your premises.
Starting with Scope 1 is often easier because the data is usually more accessible and straightforward to track, as it directly relates to assets you have full control over. By beginning here, you establish a clear and accurate baseline of your organization’s direct emissions. This lays a strong foundation for tackling the more complex Scope 2 and Scope 3 emissions later in the process.
It’s important to note that companies or groups with an average of no more than 750 employees are allowed to omit the data points under E1-6 related to Scope 3 emissions and total GHG emissions for the first year. Given the relaxed requirements for the first year, this is the perfect opportunity to start with Scope 1. This allows companies to build a solid foundation in GHG reporting before expanding to Scope 2 and 3 emissions in later years.
Use the right tooling for the CSRD GHG Protocol
Using the right tooling is essential for accurate and efficient GHG reporting. The GHG Protocol offers a variety of tools. These tools are designed to guide companies through the process of calculating Scope 1, 2, and 3 emissions, making the complex task of GHG accounting more manageable.
In addition to the GHG Protocol tools, you can also leverage other CSRD tooling designed to align with the reporting requirements of the Corporate Sustainability Reporting Directive. These tools can help integrate your GHG data into the broader sustainability reporting framework, ensuring compliance with CSRD standards and streamlining the overall reporting process.
Hire external expertise if needed
Hiring external expertise can be a valuable step in the reporting process. Experts can provide in-depth training for your internal team or guide your company through the complexities of defining and calculating Scope 1, 2, and 3 emissions. This support ensures accurate data collection, compliance with GHG Protocol standards, and a smoother integration into the overall CSRD reporting framework.
By leveraging the experience and insights of professionals, your team gains confidence and clarity in the reporting process. This not only ensures accuracy but also empowers your organization to build a strong foundation for future sustainability initiatives.