Greenhouse Gas Accounting

Important Terms

A forest, ocean, or other natural environment viewed in terms

Carbon Sink
of its ability to absorb carbon dioxide from the atmosphere.

CH4 Methane

CO2 Carbon Dioxide

CO2 equivalent is the universal unit of measurement to indicate the

CO2e global warming potential of greenhouse gases, expressed in terms
of the global warming potential of one unit of carbon dioxide.

Corporate Finance Institute®

Important Terms

Activities that are wholly owned and partially owned according

Equity Share
to an organization’s equity share in each.

Activities where the organization has the ability to direct the

Financial
financial policies of the activity with interest in gaining economic
Control
benefits from the activity.

Greenhouse World's most widely used greenhouse gas accounting standards

Protocol for companies.

Greenhouse Relates to gases that trap heat in the earth’s atmosphere leading to
Gas (GHG) a warming effect.

Corporate Finance Institute®

Important Terms

HFCs Hydrofluorocarbons, a type of GHG

Intergovernmental Panel on Climate Change is a body of the

IPCC United Nations mandated to provide objective scientific
information relevant to climate change.

Operational Helps determine the direct and indirect emissions associated

Boundary with operations owned or controlled by the reporting company.

Determines which emissions are accounted for and reported by

Organizational
the company, depending on the consolidation approach taken
Boundary
(equity share approach or a control approach).

Corporate Finance Institute®

Important Terms
Scope defines the operational boundaries in relation to indirect and direct GHG emissions. There are 3 levels:

Scope 1 Scope 2 Scope 3

Reporting organization’s Reporting organization’s Reporting organization’s

direct GHG emissions.
emissions associated with
generating electricity,
heating/cooling, or steam
purchased for own
consumption.
indirect emissions other
than those covered in
Scope 2.

United Nations Framework Convention on Climate Change (UNFCCC) is an established international

environmental treaty under United Nations.
Corporate Finance Institute®
Learning Objectives

Define the concept of greenhouse gas Compare the different scopes and Explain how companies measure/
(GHG) and carbon accounting. activities associated with GHG report GHG emissions, and how the
emissions. data can be used to inform climate-
related risks at a company level.

Determine different ways GHG data Identify emerging regulatory trends in Prepare and calculate a GHG
can provide insight on an organization’s GHG disclosures. inventory at the corporate level.
climate change response by comparing
GHG emissions data of three companies
in an industry.

Corporate Finance Institute®

Fundamentals of Corporate Greenhouse Gas Emissions
Greenhouse Gasses (GHGs)

Disrupted Changing regulatory

supply chains landscape

This course provides an overview of how greenhouse gases specifically contribute to climate change, and what
that means for companies and investors, before discussing the business risks.

Corporate Finance Institute®

Greenhouse Gasses (GHGs)
Greenhouse Gases (GHGs) are gases that trap heat in the earth’s atmosphere leading to a warming effect. Some
examples are:

Carbon Dioxide Methane Nitrous Oxide Hydrofluorocarbons

Each of these gases differ in their ability to trap heat in the atmosphere. This is called Global Warming
Potential (GWP), which captured in Carbon Dioxide Equivalents (CO2e).

Corporate Finance Institute®

Greenhouse Gasses (GHGs)
Greenhouse Gases (GHGs) are gases that trap heat in the earth’s atmosphere leading to a warming effect. Some
examples are:

Methane is 25 times more potent than carbon dioxide at trapping heat in the atmosphere.

Nitrous Oxide has the potential of trapping heat 265–298 times that of carbon dioxide.

Because of these differences, companies disclose emissions in CO2e, (CO2 equivalent): The universal
unit of measure used to indicate the global warming potential (GWP) of greenhouse gases,
expressed in terms of the GWP of one unit of carbon dioxide. CO2e standardizes the warming
potential of each greenhouse gas onto the same scale.

Corporate Finance Institute®

Greenhouse Gasses (GHGs)
The greenhouse effect is a natural process that warms the Earth's surface.

In a natural system, GHGs have little effect on the earth’s

climate system over a short period of time, since they can be
removed from the atmosphere by natural processes overtime.

Greenhouse Gasses

Carbon Sink System

With the change in human consumption patterns and

technological advancement, evidence strongly suggests
GHGs are impacting the Earth’s natural climate cycles.

Corporate Finance Institute®

Why Do We Track GHG Emissions

A considerable proportion of excess GHG emissions

are a result of human activities such as:

Burning fossil fuels (i.e. gasoline/diesel)

Electricity consumption (to power

manufacturing facilities)

CO
x2 CH
x4 Heat generation for homes & offices

Corporate Finance Institute®

Why Do We Track GHG Emissions
The more GHGs there are in the atmosphere, the more heat is trapped on the planet. This increase in temperature
causes:

Shifts in weather Disruptions of Environmental Exacerbation of social issues

patterns natural cycles degradation (i.e. wealth inequality)

Corporate Finance Institute®

Why Do We Track GHG Emissions
Scientists estimate that carbon dioxide levels in the earth’s atmosphere are the highest they’ve been in over 650,000
years.

+2oC

+1.5oC
2016 Paris Agreement

A binding treaty under the

+1oC UNFCCC, the agreement was
signed by 196 countries who
agreed to work collaboratively
to achieve these temperature
targets.

Corporate Finance Institute®

Why Do We Track GHG Emissions
Scientists estimate that carbon dioxide levels in the earth’s atmosphere are the highest they’ve been in over 650,000
years.

2016 Paris Agreement

A binding treaty under the

UNFCCC, the agreement was
signed by 196 countries who
631 Investors Global Governments
agreed to work collaboratively
Representing +$37 trillion USD
to achieve these temperature
in assets under management
targets.

Corporate Finance Institute®

Why Do We Track GHG Emissions
The purpose of accounting for greenhouse gas emissions is :

Understand Quantify &

actual emission document
sources them

Without quantification & documentation of emissions, it is impossible to benchmark one entity against
another, and to objectively assess if a company’s emission reduction strategies are working.

Corporate Finance Institute®

Why Do We Track GHG Emissions

Code Red for Humanity

Source: IPCC, Summary for Policymakers 2021 Source: The Global Risks Report 2021 - World Economic Forum

“Reductions in human-driven GHG emissions Given the amount of risk associated with climate change,
are necessary to limit the warming effect.” corporate GHG disclosure has become a material topic.
Corporate Finance Institute®
Why Do We Track GHG Emissions
Companies face two main types of different risks related to climate change:

Physical Risks Transition Risks

These entail physical risks of climate change on Risks experienced when adjusting toward a
operations. Examples include: low-carbon economy. Main categories are:

Supply chain resiliency Policy & Legal

Potential issues with physical

Market
infrastructure

Technology

Reputational Risks

Corporate Finance Institute®

Why Do We Track GHG Emissions
The first step for any company to understand its climate impact is to analyze its GHG emissions. This process is
known as greenhouse gas accounting.

By disclosing GHG data,

companies can:

Develop future business strategies Achieve recognition for

early voluntary action
Set concrete mitigation &
management targets Establish credibility with
Understand GHG
stakeholders
Emissions Analyze climate-related risk
exposure for the business Prepare for the growing
regulatory demand for
climate reporting

Corporate Finance Institute®

Why Do We Track GHG Emissions

Human Activities GHG Emissions

Economic Activities

Corporate Finance Institute®