Transparency and accountability are the key objectives for climate change reporting requirements. This article serves as a continuation to CPABC’s article, Climate change reporting for CPAs to provide CPAs with a general understanding of carbon accounting (metrics), net-zero commitments (targets) and developing market structures.
1. Greenhouse gas emissions
One of the key metrics of evaluating an organization’s impact and transition risk is greenhouse gas (GHG) emissions. There are seven known compounds that are considered GHGs. All seven types of emissions can be aggregated to represent a carbon dioxide equivalent (annotated as CO2e).
The most common methods used for calculating GHG emissions come from the Greenhouse Gas Protocol. This standard was established in the early 2000s – however, it was not originally designed for regulated accounting disclosures and is therefore currently undergoing review to ensure applicability and accuracy.
The GHG Protocol enables an organization to establish boundaries, a base year and KPI reporting for three major scopes of emissions:
- Scope 1 emissions are those that are emitted directly through operations. Examples include:
- natural gas office heating
- propane or diesel for industrial/motorized processes
- company vehicle and transportation fleet(s)
- Scope 2 emissions are indirect emissions, provided by a third-party electricity provider or utility.
- Scope 3 emissions are indirect emissions that arise throughout the organization’s value chain. These emissions are subdivided into 15 categories throughout the value chain, including operations. It is up to the organization to determine the applicability, (relevance, materiality) and develop the necessary controls and assurance processes.
2. Net zero commitments
As described above, many countries and organizations are setting net zero targets. These entities are committed to ensuring global GHG emissions from human activity are in balance with emissions reductions. In other words, CO2e emissions are still generated, but an equal amount of CO2e is removed from the atmosphere as is released into it, resulting in zero increase in net emissions.
Science Based Targets is a well-known initiative that provides a pathway for organizations to reduce GHG emissions. Targets are considered ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement – limiting global warming to 1.5°C to 2°C above pre-industrial levels.
While sustainability efforts are increasing around the world, some sectors are harder to decarbonize than others. Abating emissions requires new climate-tech solutions, such as carbon-capture utilization and storage (CCUS) technologies that prevent GHG emissions from heavy industry reaching the atmosphere. Other methods of achieving net-zero includes the development and participation in carbon markets.
3. Global regulated carbon markets
Article 6 of the Paris Agreement sets the rules for global trade in GHG emissions reductions. In November 2024, the UN Climate Change Conference (COP29) struck a deal under Article 6.4, to establish an integrated and global carbon mechanism overseen by a UN body for the trading of emissions mitigation units created globally by various projects. Article 6.4 specifically allows a company in one country to reduce emissions domestically and have those reductions credited so that it can sell them to a different company in another country. This is seen by many carbon market participants as a landmark move to increase demand for carbon credits and ensure carbon markets operate with integrity on the path to net zero.
For more details on voluntary carbon markets, see CPA Canada’s Understanding voluntary carbon markets report series.
