Regulations and Compliance in Corporate GHG Accounting

Transparency is the new norm in the corporate sustainability and ESG world, with GHG accounting and reporting at the heart of it. Regulations and compliance in corporate GHG management and reporting are essential in the global effort to mitigate climate change. They are vital in promoting transparency, accountability, and advancing sustainability in the corporate sector. Navigating GHG accounting and reporting can be a daunting task. One must know how to do it per the global GHG reporting frameworks, why it matters, and what regulations need to be followed.

Our thorough guide on this crucial topic does just that. It provides:

• straightforward strategies for measuring and reporting your company’s GHG emissions
• an understanding of GHG accounting and reporting compliance requirements
• learnings about the competitive advantages of meticulous GHG management

Importance of GHG Accounting & Reporting Standards and Frameworks

Today, GHG emissions accounting has become an imperative in strategic planning to manage climate-related risks and seize climate-related opportunities. Investors are pushing for standardized sustainability metrics and annual reporting on environmental impacts by corporations because they understand that a commitment to sustainability can drive shareholder value.

Integrating GHG emissions management into corporate strategy is an intensive but vital process. Shaped by the standards of GHG accounting, notably the GHG Protocol, along with the climate disclosure guidelines of the Task Force on Climate-Related Financial Disclosures (TCFD) and the goal-setting frameworks of the Science Based Targets Initiative (SBTi), this process has become standardized and adaptable to companies of all sizes and industries.

Corporate climate strategies that aim for effective and accountable GHG emissions management should consider all stakeholders and align with ESG criteria and the GHG Protocol. While ESG criteria provides a framework for evaluating investments based on social and environmental impact, the GHG Protocol provides clear guidelines on how companies should account for and report their corporate GHG emissions. Naturally, a company aligning with these strategies increases its attractiveness to socially conscious investors and customers and ensures it is following best practices in the management of its emissions.

Without a strong set of standards to guide the process, a myriad of issues could present themselves, such as a lack of transparency, unreliable data, reduced emission reduction efforts, and increased legal and financial risks. 

Regulatory compliance is all about adhering to various laws, regulations, and specifications governing business processes. In this realm, a lack of uniform standards for GHG accounting and reporting would create a fragmented landscape where companies measure and report their emissions based on disparate criteria, thus complicating efforts to accurately assess and compare the environmental performance of businesses. Standardized reporting ensures comparability and consistency, enabling stakeholders to make meaningful evaluations of companies’ environmental impacts.

Key Frameworks and Milestones of Corporate GHG Reporting 

As the world grapples with the impacts of climate change, global frameworks and agreements play a crucial role in shaping national and international regulations related to GHG emissions. A rigorous system to monitor, review, and verify GHG emission targets was implemented to hold parties accountable to legal obligations and agreed individual targets.

The Kyoto Protocol, for instance, holds industrialized countries and economies accountable for reducing GHG emissions through individual targets and mechanisms like International Emissions Trading, the Clean Development Mechanism, and Joint Implementation. It introduces enforceable limits on emissions for thirty-seven industrialized countries, transitioning economies, and the European Union.

Building on the foundations laid out by the Kyoto Protocol, the Paris Agreement extends obligations to all parties. Nations are required to specify their own ‘nationally determined contributions’ to lower their emissions. This agreement outlines a global framework for reducing the impact of climate change and emphasizes the responsibility of each nation to comply.

Global-View on GHG Reporting Laws: From the EU to China

Mandatory climate-related corporate disclosures are becoming more prevalent worldwide with jurisdictions like the European Union (EU) and China leading the way.

The Corporate Sustainability Reporting Directive (CSRD) is a game-changer, making reporting material Scope 3 emissions mandatory. Under this regulation, member states and organizations must report greenhouse gas emissions across several sectors annually, monitored through the EU’s Climate Monitoring Mechanism.

In the East, China is also making significant strides in GHG reporting. Major emission enterprises in China with annual GHG emissions of 26,000 tons of CO2e or above are subject to these guidelines, ensuring a comprehensive and accurate account of the country’s emissions.

Legislative frameworks and regulatory measures in the United States oblige organizations to disclose and oversee their GHG emissions. Some notable ones are listed below:

1. United States – SEC Rule: The Securities and Exchange Commission (SEC) put forth a proposal on March 21, 2022, advocating for compulsory GHG emissions disclosure for nearly all publicly traded companies, regardless of whether these emissions are deemed materially significant to investors. This proposal was officially adopted on March 6th, 2024, marking a significant step towards enhancing and standardizing climate-related disclosures.
2. United States – EPA’s GHGRP: The U.S. Environmental Protection Agency (EPA) launched the Greenhouse Gas Reporting Program (GHGRP) in 2009, which requires extensive GHG emissions reporting from significant emission sources and suppliers within the U.S., representing around 85% of the national carbon emission footprint.
3. California – SB 253: The “Climate Corporate Data Accountability Act,” or Senate Bill 253, mandates the California Air Resources Board to establish regulations by January 1, 2025. Entities operating in California, whether public or private, and with annual revenues over $1 billion, must disclose their emission figures according to these regulations.

Internationally, the regulatory landscape varies, but the underlying objective remains consistent – to hold corporations to account for their environmental impact:

1. United Kingdom – Mandatory Carbon Reporting: The UK Companies Act 2006 Regulations 2013 made it obligatory for companies in the UK to report on their greenhouse gas (GHG) emissions as part of their annual reports. The regulations also require companies to include a report on their GHG emissions in their Directors’ Report. This includes reporting on all seven gases covered by the Kyoto Protocol, not just carbon dioxide. Companies must report on their emissions in the UK and globally, providing a comprehensive overview of their carbon footprint.
2. Australia – National Greenhouse and Energy Reporting Act 2007: This legislation provides a unified national system for the reporting and disseminating corporate information regarding GHG emissions, energy production, and consumption.
3. Canada – Federal Greenhouse Gas Emissions Reporting Program: This Canadian initiative requires facilities emitting ten kilotonnes or more of carbon dioxide equivalent annually to report these figures.
4. European Union – EU Emissions Trading System (EU ETS): The EU ETS stands as a central element of the EU’s strategy to tackle climate change, offering a market-based approach to controlling industrial GHG emissions effectively.
5. Japan – Act on Promotion of Global Warming Countermeasures: This Japanese law obligates businesses to report their GHG emissions to the national authorities.

You can learn all about these laws and regulations in the informative article by Harvard –Corporate Greenhouse Gas Disclosures.

Who Must Report? Identifying Companies at the Crosshairs of GHG Legislation

Identifying which companies are required to report their emissions is a complex task. Various factors, including emission levels and industry-specific regulations inform this decision. Companies should always consult with a sustainability consultant or the regulatory body to understand the specific regulations applicable to them.

In the U.S. a total of 41 categories of reporters fall under the GHGRP based on various industrial operations and emission levels. These include significant emission sources, fuel and industrial gas suppliers, and CO2 injection sites as well as a focus on Scope 1 emissions at the facility level by direct emitters and Scope 3 emissions under Category 11 at the corporate level by upstream suppliers. The GHGRP’s data collection represents approximately 85-90 percent of U.S. GHG emissions, although it does not account for all emissions attributable to a specific parent company.

Inside California’s Climate Disclosure Leadership

Recently signed and passed on Oct 7, 2023, California’s climate disclosure legislation exceeded the proposed SEC rules. Marked by the enactment of S.B. 253 and S.B. 261 in 2023, it has set a high standard for comprehensive climate-related disclosures, going beyond proposed SEC rules. The new climate law requires companies to reveal their greenhouse gas emissions from their entire value chain. This disclosure should adhere to established standards for emission calculations.

The non-compliance penalties for S.B. 253 can be as high as $500,000 annually. For S.B. 261, the maximum penalty is $50,000 per year. The California Air Resources Board sets these fines. The implications of California’s climate disclosure laws resonate outside the state’s borders, prompting companies across the U.S. to enhance their management and reporting of climate-related risks and emissions.

Anticipating the SEC’s Climate Disclosure Mandate

The proposed rules for climate disclosure by the SEC are designed to enhance uniformity in reporting climate-related information, specifically:

• Ensuring that companies provide reports on GHG emissions, which promotes better comparison and openness
• Requiring reliable auditing of reported Scope 1, 2, and 3 GHG emissions
• Mandating comprehensive disclosures concerning climatic risks, impacts, targets, and strategic plans for transition consistent with recommendations from TCFD.

Your GHG Compliance Roadmap: A Step-by-Step Checklist

Although GHG compliance may initially seem daunting, a comprehensive roadmap makes the process manageable. The journey begins with developing a GHG Inventory Management Plan (IMP), which includes the organization’s details, boundary conditions, documented methodologies, data management procedures, base year adjustments, management roles, and auditing and verification processes.

This is followed by data collection and GHG emissions quantification using standardized calculation methodologies and emission factors. For more details about this process, read our Conducting Your First GHG Emissions Inventory blog.

Strategic Insights for Achieving and Maintaining Compliance

To effectively achieve and maintain compliance with GHG regulations, businesses can adopt the following strategies:

• Consulting Financial Industry Guidelines: Learn about the financial sector’s foundational guidance on GHG accounting principles. This helps in understanding the baseline requirements for GHG emissions reporting.
• Developing a GHG Inventory Process: Establish a robust process for creating a greenhouse gas inventory. This ensures that all emissions are accurately tracked and reported.
• Anticipating Regulatory Changes: Ensure ongoing compliance by monitoring potential regulatory changes.
• Formalizing Data Collection: Implement a structured plan for data collection with a GHG Inventory Management Plan
• Proactive GHG Reporting: Companies can minimize non-compliance risk by actively reporting GHG emissions.
• Aligning with Recognized Standards: Ensure GHG inventories adhere to established standards, such as The Greenhouse Gas Protocol. Compliance with these standards ensures adherence to global best practices and enhances the credibility of reported data.
• Utilize Carbon Accounting and Management Software: Streamline the process of data collection, GHG calculations, auditing and reporting with advanced carbon management software. 

Streamlining Compliance: Tools and Practices for Efficiency

Businesses can streamline compliance processes using intelligent tools.

Carbon accounting software is integral for companies to ensure regulatory compliance and measure and manage emissions. These tools can assist your strategy by ensuring proactive compliance with regulations such as the EU CSRD, the California Climate Bills, the upcoming SEC requirements and TCFD disclosures while aiding strategic decision-making and highlighting improvement areas for decarbonization strategies. These software solutions can also prioritize data security and offer regulatory compliance management, addressing potential business concerns.

Moreover, implementing systems such as North Star Carbon Management’s platform can enhance GHG accounting for disclosures and risk management, keeping companies in line with proposed SEC rules and aiding in climate-friendly business practices.

Government resources like the EPA’s GHG Emission Factors Hub and the Inventory Management Plan Checklist can assist businesses in estimating annual emissions and evaluating their inventorying strategies, promoting efficient compliance.

Seizing Opportunity: Turning GHG Challenges into Business Wins

Companies that practice robust GHG accounting and emission reduction strategies

• Mitigate risk of future climate regulations
• Appeal to eco-conscious consumers, increasing their market share
• Promote the creation of innovative low-carbon products and services
• Enable businesses to adapt quickly to future regulatory and market trends
• Align their growth strategies with environmental benchmarks such as the 1.5°C warming limit

By embracing GHG accounting and reporting more accurately and strategically, companies can position themselves for long-term growth, tapping into new markets, including those that favor low-carbon products and services, thus becoming leaders in the transition towards a sustainable economy.

Conclusion

At North Star Carbon Management, we understand the importance of accurately tracking and reporting greenhouse gas (GHG) emissions. As longtime sustainability consultants and carbon management experts, we know how important data can be. It can get complicated for corporations to comply and keep up with environmental regulations. Therefore, we have developed a system that effectively adapts to the changing standards for corporate GHG accounting. Learn more here about how our software can help your company stay on top of your GHG accounting and management. Effective corporate GHG accounting is all about compliance, a cornerstone of sustainable business practice.