The Greenhouse Gas (GHG) Protocol sits behind almost every serious climate number a company publishes. It is the reference point for how emissions are defined, how boundaries are drawn, which gases are in scope, and how different sources are categorized into Scope 1, Scope 2 and Scope 3. If you prepare ESRS, IFRS Sustainability Disclosures, California climate reports, or any voluntary inventory, you are effectively working inside the GHG Protocol, even if you rarely name it.
Understanding the logic of the GHG Protocol is no longer a technical detail reserved for sustainability teams. It is now central to how boards interpret risk, how CFOs think about capital allocation and how investors judge climate credibility. The more the Protocol tightens definitions and methods, the more it will shape what “good” looks like in emissions reporting and decarbonization strategy.
Well, in the article below, our experts have given a structured explanation of how it works and where it is evolving, with a particular focus on Scope 2 and the difference between attributional and consequential accounting.
The GHG Protocol is a set of standards and guidance, not a single document. At corporate level, it provides:
The core model is attributional inventory accounting. This means the Protocol assigns emissions to an entity based on the activities it controls and the energy it consumes, within a defined boundary. It is about building a consistent “inventory” of emissions that belongs to the company for a given year.
In that structure:
Scope 2 is where the interaction between physics, contracts and markets becomes complex. Electricity comes from a grid that mixes many generators. The electrons you use cannot be physically labelled. Yet companies want to claim that their electricity is “renewable” when they buy certain products such as renewable energy certificates or enter power purchase agreements.
The current Scope 2 standard solves this tension by requiring two complementary views:
Both must be disclosed. The idea is to preserve a grounded, physical reference while allowing companies to demonstrate the effect of their market choices.
This dual model is powerful but has also created weaknesses. Annual certificates can be bought from anywhere in a grid region or even beyond it. This can allow companies to claim “100 percent renewable” on paper while using electricity at hours and locations where the grid is still heavily fossil based. The next wave of GHG Protocol work on Scope 2 is focused on tightening this gap.
The GHG Protocol’s update process includes proposed revisions to the Scope 2 standard that aim to make market-based claims more accurate and more reflective of the underlying energy system.
A core feature of the proposals is stricter criteria for using RECs and similar market instruments. Specifically, the proposed approach would require:
This reflects a major shift from annual, certificate-based matching — which allows companies to purchase renewable energy credits unrelated to when or where they consumed electricity — toward a system that more closely mirrors grid conditions.
To support this shift, the update process explores several detailed aspects:
The direction of travel is clear. Market based Scope 2 claims will increasingly need to be anchored in time and place, not only in the existence of a certificate. For companies, this pushes emissions accounting and energy strategy closer together. Decisions about power purchase agreements, on site renewables, storage and demand management will determine whether reported Scope 2 reductions are accepted under tighter GHG Protocol criteria.
The GHG Protocol is also working on methods for consequential accounting, particularly for the electricity sector. This is separate from the corporate Scope 2 inventory, but it is important to understand because it responds to a different question.
Consequential methods are used to estimate avoided emissions or broader system impacts. For example:
This type of analysis goes beyond the entity boundary. It looks at marginal effects in the system and is appropriate for project appraisal, policy evaluation and impact assessments.
For corporate reporters, the key insight is that a project can:
The GHG Protocol’s work on consequential methods does not replace Scope 2 inventory rules. It gives organisations a more sophisticated tool to test whether their actions truly contribute to system decarbonization, instead of only improving reported numbers. Used together, attributional and consequential lenses allow more informed choices about where to invest, which projects to prioritise and how to communicate impact.
As the GHG Protocol refines its corporate standards, Scope 2 guidance, Scope 3 guidance and its treatment of actions and market instruments, companies will face a more demanding environment for emissions reporting. Several practical implications follow.
First, data architecture will need to become more granular. Hourly and locational matching cannot be delivered with high level utility bills and static grid factors. Organisations will need access to time resolved consumption data, better integration with energy suppliers, and systems that can store and process more complex datasets.
Second, energy procurement strategy will need to move beyond certificate accumulation. The focus will shift toward contracts that align with the new criteria, such as long-term power purchase agreements with clear temporal and locational attributes, behind the meter solutions, storage, flexible load, and participation in grid programmes that actually change real time generation mixes.
Third, governance will need to reflect the intersection between sustainability, finance, risk and energy management. Scope 2 is not only a disclosure issue. It affects cost, exposure to price volatility, transition risk and the credibility of external commitments. That means CFOs, sustainability leads, risk officers and operations need a shared view of how GHG Protocol developments affect planning and reporting.
Fourth, companies will need to distinguish more clearly between inventory reporting and claims about impact. Stakeholders will increasingly expect separation between:
This clarity will reduce the risk of over-claiming and will strengthen trust with investors, regulators and civil society.
Finally, keeping track of the GHG Protocol’s workplan is itself becoming a governance task. Corporate standards, Scope 2 and Scope 3 are on defined revision trajectories, with draft texts and exposure drafts scheduled over the coming years. Organisations that anticipate these changes and redesign their systems and contracts in advance will not only reduce compliance risk. They will also be better positioned to demonstrate leadership once the new standards become reference points for regulation and assurance.
IFRSLAB works with finance, sustainability and risk teams to interpret the GHG Protocol correctly, design robust Scope 1, 2 and 3 inventories, prepare for tighter Scope 2 rules, evaluate renewable procurement strategies, and integrate attributional and consequential lenses into decision-making. Our role is to help organisations move from basic compliance to technically sound, future ready climate reporting that stands up to scrutiny and supports real decarbonization outcomes.
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