How to measure GHG emissions - GHG accounting for SMEs

A greenhouse gas (GHG) inventory is a comprehensive accounting of all greenhouse gas emissions associated with a specific entity—such as a small or medium-sized enterprise—over a defined period, usually one year. In other words, it’s how you measure your company’s carbon footprint and understand the climate impact of your business activities.

Greenhouse gases are naturally present in the atmosphere and essential for maintaining a livable climate. But due to excessive use of fossil fuels and industrial activities—such as calcination in clinker production for cement manufacturing—GHG levels now exceed safe planetary boundaries, driving climate change.

For SMEs, developing a GHG inventory is no longer optional. Customers, investors, and regulators increasingly expect reliable GHG data, and many supply chains now require carbon footprint reporting for contract eligibility. By building your GHG inventory, you can not only stay compliant with ESG and sustainability reporting requirements but also identify cost-saving opportunities, enhance brand reputation, and position your business as a trusted, forward-thinking partner in a low-carbon economy.

Which GHG accounting standard do you need to follow? 

To develop a GHG inventory SMEs are advised to follow GHG Protocol’s Corporate Standard and Value Chain accounting and reporting standard coupled with respective guidance. These documents outline all the rules that SMEs need to follow to develop a GHG inventory that is accurate, complete and relevant. 

GHG Protocol’s standards are developed by the science community facilitated by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Because of that, the Corporate Accounting and Reporting Standard provides the accounting platform for virtually every corporate GHG reporting program in the world, eg. EU ETS. 

The standard and guidance were designed with the following objectives in mind:

• To help companies prepare a GHG inventory that represents a true and fair account of their emissions, through the use of standardized approaches and principles

• To simplify and reduce the costs of compiling a GHG inventory

• To provide business with information that can be used to build an effective strategy to manage and reduce GHG emissions

GHG Protocol establishes comprehensive global standardized frameworks to measure and manage greenhouse gas (GHG) emissions from private and public sector operations, value chains and mitigation actions. In 2023, 97% of disclosing S&P 500 companies reported to CDP using GHG Protocol.

GHG Accounting principles

Why develop a GHG inventory? 

A high-quality GHG inventory helps an SME: 

Understand risks and opportunities related to climate change 

Companies with high emission profile are increasingly exposed to new regulations driven by climate change related risks. Companies are facing the emergence of environmental regulations/policies designed to reduce GHG emissions and ignoring these can catch them off guard. For example, the EU Emissions trading system - a scheme developed to reduce GHG emissions in Europe, is progressively lowering the amount of allowed GHG emissions. This means that companies that do not reduce their emissions will face higher costs. This cost will be transferred to their products, hence impacting SMEs in the value chain. This is why focusing only on direct emissions can blindside SMEs. 

On the other hand, GHG accounting can bring opportunities to SMEs in terms of efficiency and cost reductions. For example, switching from fossil fuels to electricity from own renewable sources can in the long run lower operating costs related to energy. 

Track and reduce GHG emissions 

Once you have a full overview of GHG emission sources you are able to identify reduction opportunities and set targets. What is not measured cannot be managed. Additionally, having a complete GHG inventory helps you track emissions over time and see how your business is developing in terms of environmental impacts. You are also able to compare with your peers, having in mind that GHG intensity frequently becomes a procurement criteria. Being conscious of a product's GHG footprint and offering a low carbon or carbon neutral product can attract new customers. Especially once that are actively searching for ways to reduce their carbon footprint. 

Actively reducing GHG intensity of products helps differentiate the company in an increasingly environmentally conscious marketplace.

Successfully report to stakeholders

All reporting standards require SMEs to report on their carbon footprint. For example, VSME standard, european standard for voluntary reporting of SMEs requires information on scope 1 and scope 2 emissions, and strongly recommends reporting on scope 3 emissions. Other reporting standards also include GHG emissions in their requirements as it is one of the most significant indicators to understand a company's impact on the environment. Furthermore, having  a credible decarbonization plan based on the GHG accounting helps in building a reputation with stakeholders as a responsible company.  Furthermore, ESG data, including GHG emissions increasingly becomes a requirement for applying to public procurement tenders, accessing finance and supplying to large corporate clients. Being proactive and developing a GHG inventory in advance can help protect your image.

Why SMEs should develop GHG inventory.

How to develop a GHG inventory? 

1. Set organizational boundaries 

Business operations vary in their legal and organizational structures - they include wholly owned operations, subsidiaries, investments, joint ventures and others. Depending on the business goals, for the purpose of GHG accounting, a company selects an approach for consolidating GHG emissions and then consistently applies the selected approach to define those businesses and operations that constitute the company for the purpose of accounting and reporting GHG emissions. 

Organizational boundaries define which parts of your organization will be included in the GHG inventory. It is important to note that depending on the consolidation approach an organization chooses total GHG emissions can vary significantly. Choosing the right approach depends on several factors: access to data and administrative costs, need for information and performance tracking, business goals, risk management policy etc.

Three operational boundaries setting approaches are: 

Equity share	Under the equity share approach, a company accounts for GHG emissions from operations according to its share of equity in the operation. The equity share reflects economic interest, which is the extent of rights a company has to the risks and rewards flowing from an operation.
Financial control	Under the financial control approach, a company accounts for 100 percent of the GHG emissions over which it has financial control. It does not account for GHG emissions from operations in which it owns an interest but does not have financial control.
Operational control	Under the operational control approach, a company accounts for 100 percent of the GHG emissions over which it has operational control. It does not account for GHG emissions from operations in which it owns an interest but does not have operational control.

The selection of a consolidation approach affects which activities in the company’s value chain are categorized as direct emissions (i.e., scope 1 emissions) and indirect emissions (i.e., scope 2 and scope 3 emissions).

For example, using operational control approach, emissions from leased assets (eg. offices, cars…) fall under scope 1 category, while using equity share approach they fall under scope 3. This is very important in case company only reports scope 1 and 2, or it sets emission reduction targets. 

2. Set operational boundaries 

Operational boundaries define which emission sources to include and how to categorize them. When setting operational boundaries a company needs to identify emissions associated with operations, classify emissions as direct or indirect and categorize the “scope” of emissions. 

Direct vs. indirect emissions 

	Scope category	Explanation	Example
Direct emissions	Scope 1	Emissions from sources owned or controlled by the company	Emissions from fuel consumption in company vehicle fleet
Indirect emissions	Scope 2	Consequence of the activities of the reporting company but occur at sources owned or controlled by another company	Consumption of electricity in company owned eclectic vehicles
Scope 3	Procurement of vehicles

Sources of emissions include: 

• Vehicle fleet

• Buildings

• Manufacturing processes 

• Procurement of goods and services 

• Waste management 

• Transportation and storage 

• Employee commuting and business travel 

• ETC. 

Once you identified all the sources and categorized them into scopes, you can start developing a GHG inventory. The best tool to use is MS Excel as there will be a lot of data to manage. Sustainability Office developed own GHG accounting tool for SMEs that is based on experience with frequent challenges faced by SMEs when collecting activity data and calculating emissions.

3. Calculate emissions 

Calculating emissions is the most time-intensive step. There are different methods for measuring emissions and they are applied in different cases. For example, direct measurement with a continuous emissions monitoring system is the most accurate method but also requires significant investments into technology and it is mostly used for stationary sources. Stoichiometric calculations measure which elements enter and leave the system. Emissions estimations is the indirect method which is most widely used in practice. It is based on the following formula: 

activity data x emission factor = emissions in tCO2e 

In order to calculate emissions using this formula you need to collect activity data - for example: electricity consumed in kWh, diesel consumed in liters, procurement of paper in tonnes, distance travelled in km etc. and find applicable emission factors. While emission factors for scope 1 and scope 2 emissions are relatively easy to access, finding scope 3 factors can be a real nightmare. It requires a lot of effort, time and resources. The most complete databases of emission factors are often expensive and free sources are not as reliable, and collecting specific emission factors from suppliers is still in the development stage. 

4. Consolidate and report emissions 

When you calculate emission on the activity level you need to consolidate it on the reporting entity level. Using organizational and operational boundaries, GHG inventory is finalized with emissions being sorted in adequate categories. 

The final step is to report emissions in the user-friendly way so that stakeholders can benefit from this data. Usually emissions are reported within sustainability report, but can also be reported in the standalone report on organizational carbon footprint. 

Report should include 

• Organizational information and reporting period covered

• Organizational and operational boundaries 

• Information on methodology applied for calculations 

• Consolidated emissions in scope 1, scope 2 and (optionally) scope 3 

• Information on context explaining emission hot spots, trends over time etc. 

Conclusion on GHG accounting for SMEs

Developing a full GHG inventory takes up to six months and requires a lot of communication, effort and time. However, it is a crucial step for developing GHG reduction targets and a credible decarbonization plan. As highlighted in the beginning, GHG inventory is becoming an important parameter for decision-making in companies adapting to arising risks and opportunities brought by climate change. GHG accounting is (unfortunately) not hot, but is definitely trending. 

If you need help in developing your GHG inventory give us a call. We can schedule a free introductory meeting to better understand how we can support you. 

The Sustainability Office works as your long term outsourced sustainability officer that will take time to understand your context and adapt to your specific needs. We not only offer outsourced carbon accounting support, but also a full sustainability transformation. Long-term partnership will reduce your costs and help you stay competitive in the fast-paced environment.