TORONTO, September 15, 2022 – According to a report by the Institute for Sustainable Finance (ISF) and the Chartered Professional Accountants of Canada (CPA Canada), clearer guidance is needed for the measurement and disclosure of greenhouse gas (GHG) emissions.
The Greenhouse Gas Protocol (GHG Protocol) was launched in 1998 and provides the most common standards used by companies to measure and report their GHG emissions. While the development of the GHG protocol has been important and worthwhile, the joint report from EWB and CPA Canada concludes that more work needs to be done globally to ensure that the needs and expectations changing stakeholders are taken into account.
The report, titled “A Closer Look at the GHG Protocol: Observations and Implications for Standards Setters and Regulators,” concludes that the GHG Protocol is a good start, but offers much more guidance than defined prescriptive standards, and that there is still a lot of work to do. provide companies with clear guidelines for the collection and reporting of emissions data that will soon be required.
“The reporting of GHG emissions is a complex area that is not well understood,” said Ryan Riordan, research director at ISF. “There are decisions that companies make in applying GHG accounting and reporting standards, which can lead to a lack of comparability of disclosures over time and between companies.
Securities regulators in Canada and around the world are taking steps to make emissions disclosure mandatory for many entities and the recently created International Sustainability Standards Board (ISSB) is proposing that the accounting and reporting standard for companies of the GHG protocol (corporate standard) is applied to measure emissions. It is therefore important to understand how emissions are measured and disclosed.
“As interest in this field continues to grow, education will be key. Users who rely on GHG emissions data would benefit from greater transparency about the choices companies make and the methodologies used,” said Rosemary McGuire, Director, External Reporting and Capital Markets at CPA Canada.
This high-level review of the GHG Protocol has identified specific areas that require particular attention:
Nature of the GHG Protocol: The GHG Protocol consists of standards and guidance documents. The corporate standard is not very prescriptive and requires significant application guidance. This mixed approach could be confusing for preparers and create difficulties for certifiers. How new standards and changes are reflected in the corporate standard is unclear.
Development process: The GHG Protocol’s operations to develop and update the GHG Protocol standards, including due process, independence, funding mechanisms and governance structure, are not fully transparent and should be reviewed to determine whether they are appropriate given the expanded role of the GHG Protocol. .
Litter 3: This area of disclosure is difficult for preparers, and more prescriptive guidance on calculating Scope 3 emissions (emissions not produced directly by a company’s operations, but by suppliers and customers in the supply chain enterprise value) are needed both on calculation issues and on what should be disclosed.
Other GHG emission guidelines and standards: There are a whole range of other elements available for the calculation of GHG emissions, which could confuse preparers and give rise to many interpretations. There should be more clarity on how this material interacts with the core standards of the GHG Protocol.
Significant estimates and judgments: The calculation of GHG emissions is made up of estimates, judgments and information from various sources that are subject to frequent change. In addition, some of the information used – for example, emission factors – may be outdated.
Materiality: The definition and guidance of materiality in the Corporate Standard is not aligned with materiality definitions and guidance referenced in other standards and regulations.
Comparability: Certain areas, such as GHG reporting limits, emission factors, and the extent to which companies can choose which Scope 3 activities to disclose, create latitude, which could reduce comparability.
Insurance: The findings listed above can complicate the provision of GHG emissions assurance.