Laws and regulations that require companies, both private and public, to disclose their greenhouse gas (GHG) emissions continue to expand in the European Union and in the United States.  Under the EU Corporate Sustainability Reporting Directive (CSRD), beginning in 2025, EU-based public companies and large EU-based private companies will be required to report all material Scope 1, 2, and 3 GHG emissions as set forth in the European Sustainability Reporting Standards.  In the United States, California recently passed landmark climate-related disclosure legislation that will require U.S. companies that do business in California and have greater than $1 billion in annual revenues to file annual reports publicly disclosing their Scope 1 and 2 GHG emissions beginning in 2026 and Scope 3 GHG emissions in 2027.  This legislation is expected to be joined by the U.S. Securities and Exchange Commission’s (SEC) proposed climate-related disclosure rule.  Initially proposed in March 2022, if finalized, the SEC rule would require public companies to disclose their Scope 1 and Scope 2 emissions and material Scope 3 emissions.  And later this year, world policymakers, activists, and business leaders will convene at COP28 to discuss global progress towards achieving the net-zero GHG emissions targets set by the Paris Agreement.

The Greenhouse Gas Protocol (GHG Protocol) sits at the center of all these efforts.  Established by the World Resources Institute and the World Business Counsel for Sustainable Development in 2001, the GHG Protocol establishes comprehensive standards for private and public entities to calculate and report their GHG emissions and track progress towards their emissions targets.

Understanding the GHG Protocol is critical for companies to meet their compliance obligations under the ever-growing ecosystem of climate-related disclosure laws.  This post provides a primer on the GHG Protocol and preparations companies should make as they apply the GHG Protocol to their operations.

       I.         Calculating GHG Emissions

The process of calculating GHG emissions varies based on the type of entity and its GHG emissions goals.  For that reason, the GHG Protocol is composed of seven different standards:

The Corporate Standard is the most relevant and widely used standard for companies aiming to calculate their GHG emissions to meet voluntary and mandatory emissions-disclosure requirements.  The Corporate Standard breaks this process into two key steps: (1) setting organizational boundaries and (2) setting operational boundaries.

Setting organizational boundaries.  One of the first questions a company must answer when calculating their GHG emissions is whether to calculate GHG emissions only for wholly owned operations or to also calculate emissions from joint ventures, subsidiaries, affiliated companies, franchises, or other entities.  Companies must also determine how much of the emissions from such operations they should calculate as part of their overall emissions footprint.  The Corporate Standard describes this question as “setting organizational boundaries.”  The Corporate Standard offers two approaches for consolidating GHG emissions data: the equity-share approach and the control approach.

A company’s data-consolidation approach must align with the requirements of the relevant GHG emissions reporting program.  For example, the geographic and operational boundaries of a reporting program may impact the data-consolidation approach a company chooses.  The cost of administration and associated liability and risks will also inform the choice of approach.  The consolidation approach also has downstream effects; once the parent company has chosen a data-consolidation approach, it must apply that approach to all levels of the organization.

Setting operational boundariesOnce a company determines its organizational boundaries, it then must set its operational boundaries by identifying the emissions that are associated with its operations.  Here, the Corporate Standard applies the concept of “scope” to divide emissions into three categories: Scope 1 emissions, or direct GHG emissions; Scope 2 emissions, or emissions from the generation of electricity, steam, heat, or cooling that is purchased and consumed by the company; and Scope 3 emissions, or emissions that occur upstream and downstream from a company as a consequence of the activities of the company, but at sources not owned or controlled by the company.  These Scope 3 “value chain” emissions are the most difficult to assess.

The concept of “scope” was pioneered by the GHG Protocol and is used by every major emissions-reporting program, including California’s climate-related disclosure legislation and the EU CSRD.  Once a company has determined its operational boundaries, it must calculate its emissions under each category to determine its carbon footprint.  This carbon footprint is measured in carbon dioxide equivalent (CO2e), or the number of metric tons of CO2 emissions with the same global warming potential—calculated by the Intergovernmental Panel on Climate Change—as one metric ton of another greenhouse gas.  CO2e is calculated by multiplying the business activity, such as the amount of electricity consumed, by an emissions factor.  These emissions factors are standardized by organizations such as the US Environmental Protection Agency and CDP.

     II.         Reporting GHG Emissions

Once a company has determined which parts of its operations it must account for as part of its organizational boundaries, categorized its emissions according to its operational boundaries, and calculated its emissions by multiplying each business activity by an approved emissions factor, it must then report these emissions according to mandatory or voluntary disclosure requirements.  This could prove challenging if different jurisdictions with mandatory disclosure obligations have different requirements for reporting GHG emissions data.  Some programs may also require that companies validate their emissions data by a third-party auditor at different levels of assurance.  And companies must also assess how their reported data aligns with emissions targets and decarbonization commitments made to shareholders and investors.

To prepare for calculating and reporting GHG emissions, Covington recommends companies take the following steps.

Map out the organization.  Understanding the organization and its operational components is key to deciding whether to consolidate GHG emissions data based on an equity share or control approach.  To inform this decision, companies should map out their subsidiaries, affiliated companies, franchises, and other related operations to create a comprehensive picture of the organization.  This map should include the geographic location, equity share, and level of financial and operational control the company has over each operation.  In creating this map, companies must also ensure that their consolidation method can meet a wide range of GHG reporting requirements and does not result in double counting of emissions from joint operations and ventures.

Know your emissions data.  Accurate, granular data is essential to developing an effective GHG emissions reporting program.  But collecting high-quality Scope 1, 2, and 3 emissions data can be a resource-intensive endeavor that, if aspiring to a high degree of accuracy and fidelity to net-zero goals, can involve outreach to a wide group of internal and external stakeholders.  Particularly for Scope 3 emissions, reliance upon economy-wide or industry-average emissions factors based on simple metrics (such as dollars of spend for electronic hardware) is rudimentary, and the GHG Protocol accordingly encourages companies to improve the quality and accuracy of their reports through greater outreach throughout their supply chain.  To ease the burden of collecting emissions data and preparing disclosure reports, companies should consider engaging with carbon consulting and accounting firms that are independent, experienced in the company’s business and industry, and knowledgeable of the various reporting programs and their requirements.

Consolidate the data collection process.  External scrutiny of GHG emissions reports is increasing, which may demand greater oversight and attention by corporate boards concerning the data compilation process and controls put in place to ensure that the data are high quality.  To streamline and coordinate this process, companies should vest authority for managing the data collection process into one department or role, such as the chief sustainability officer.  Companies should also involve legal counsel, financial reporting, and investor relations in this process to ensure that the data collection process and its outputs aligns with external reporting program requirements and internal GHG emissions targets and net-zero commitments. 

Covington’s Carbon Management and Climate Mitigation (CM2) group has extensive experience and capabilities advising on climate mitigation strategies.  Our global team is ready to assist clients as they understand and apply the GHG Protocol, implement their corporate net-zero goals, and identify strategic partnerships and funding opportunities to accelerate the energy transition.

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Photo of Daniel Feldman Daniel Feldman

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member…

Drawing on his prior positions in government service spanning multiple Administrations, former Ambassador Dan Feldman’s practice focuses on environmental, social, and governance (ESG) counseling, business and human rights (BHR), global public policy, as well as broader international regulatory compliance. He is a member of the firm’s Global Problem Solving initiative.

As Chief of Staff and Counselor to Secretary John Kerry when he was appointed the first Special Presidential Envoy for Climate (SPEC) by President Biden, Dan helped drive the U.S. government’s international climate agenda, coordinating high level interagency policy-making, engaging with corporate stakeholders, and contributing to key bilateral and multilateral climate discussions, including the 2021 Leaders’ Summit on Climate and the landmark UN Conference of Parties (COP26) in Glasgow.

Previously, Dan served as deputy and then U.S. Special Representative for Afghanistan and Pakistan at the U.S. Department of State in the Obama Administration, as Director of Multilateral and Humanitarian Affairs at the National Security Council in the Clinton Administration, and as Counsel and Communications Adviser to the U.S. Senate Homeland Security and Governmental Affairs Committee. He also has served as a senior foreign policy and national security advisor to a number of Democratic presidential and Congressional campaigns.

Dan has extensive experience counseling multinational corporations on mitigating risk and maximizing opportunities in the development and implementation of their ESG and sustainability strategies, with a particular background in advising on BHR matters. He was one of the first attorneys in the U.S. to develop a practice in corporate social responsibility, and has been cited by Chambers for his BHR expertise. He assists clients in strategizing about their engagements with a range of key stakeholders, including Members of Congress, executive branch officials, foreign government officials and Embassy representatives, multilateral institutions, trade and industry associations, non-governmental organizations, opinion leaders, and journalists.

Photo of Kevin Poloncarz Kevin Poloncarz

Kevin Poloncarz co-chairs the firm’s Environmental and Energy Practice Group, Energy Industry Group and ESG Practice.

Kevin is ranked by Chambers USA among the nation’s leading climate change attorneys and California’s leading environmental lawyers and by Chambers Global among the top climate change…

Kevin Poloncarz co-chairs the firm’s Environmental and Energy Practice Group, Energy Industry Group and ESG Practice.

Kevin is ranked by Chambers USA among the nation’s leading climate change attorneys and California’s leading environmental lawyers and by Chambers Global among the top climate change lawyers, with sources describing him as “exceptional,” “a superb attorney,” and “one of the most gifted advocates in this space in the country.”

He represents electric utilities, financial institutions, investors and companies in policy, litigation and transactional matters concerning power and carbon markets, carbon dioxide removal (CDR) technologies, carbon capture, utilization and storage (CCUS), sustainable aviation fuel, and clean hydrogen.

Kevin convenes the Energy Strategy Coalition, whose members include Austin Energy, Calpine Corporation, Constellation Energy Corporation, National Grid USA, New York Power Authority, NextEra Energy, Inc., Pacific Gas and Electric Company, and Sacramento Municipal Utility District. He also leads the Clean Energy Group, whose members include Austin Energy, Calpine Corporation, Consolidated Edison, Inc., Constellation Energy Corporation, Exelon Corporation, National Grid USA, New York Power Authority, Pacific Gas and Electric Company and Tenaska Energy, Inc. Both groups focus on federal environmental policy efforts affecting the power sector.

Kevin also teaches Climate Law and Policy at Stanford Law School.

Photo of W. Andrew Jack W. Andrew Jack

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with…

Andy Jack is a broad gauge corporate and securities lawyer who leads multidisciplinary teams to help clients achieve complex business objectives and solve complex business problems.

Andy often serves in outside general counsel or senior strategist roles working closely on strategic matters with C-suites and boards. His practice spans mergers and acquisitions, strategic alliances and joint ventures, venture capital, capital markets, securities compliance, corporate governance counseling, crisis management and dispute settlements.

With deep experience in the energy, diversified industrials, transportation, technology, sports and hospitality industries, much of Andy’s recent transactional and advisory work focuses on issues arising from global sustainability trends and ESG considerations, including the energy transition, vehicle electrification and advanced mobility.

Some examples of this trending work include:

  • Energy
    • Structuring and negotiating joint ventures to produce sustainable aviation fuels and to develop and deploy shared resources to respond to offshore well blowouts.
    • Advising on a carbon capture project funded by the U.S. Department of Energy.
    • M&A, finance, capital raising and commercial projects for solar PV panel suppliers.
    • Representing corporate offtakers in virtual power purchase agreements to procure renewable energy in support of wind and solar power projects.
    • Advising on U.S. public policy matters affecting the energy transition.
  • Vehicle Electrification and Advanced Mobility
    • A capital markets transaction for an industry leader in advanced mobility.
    • Multiple venture capital financing rounds for an electric truck manufacturer.
    • Joint venture restructuring and M&A transactions for EV battery manufacturers.
    • Collaboration agreements among vehicle electrification technology providers and OEMs.
    • M&A of advanced vehicle components suppliers and engineering service providers.
  • Other industries
    • Advising on board governance structures to address ESG and Sustainability oversight.
    • Assisting clients in developing voluntary sustainability reports and improving SEC reports and proxy statements to address these topics.
    • Responding to shareholder proposals on various ESG issues.

Andy co-chairs the firm’s multidisciplinary global Energy Industry Group and multidisciplinary Sustainability Solutions Initiative. He also serves as pro bono outside general counsel to the American Council on Renewable Energy and as a member of the World Resources Institute Global Leadership Council. With this background and experience, Andy frequently speaks at industry conferences and publishes on these topics. He also serves as an editor of the firm’s Inside Energy & Environment blog

He is Chambers-ranked in Corporate M&A & Private Equity, where clients report that Andy “gives practical advice with commercially reasonable solutions to problems.” He also has been ranked in Legal 500, both for Energy – Renewable/Alternative and Mergers & Acquisitions.

Photo of Jayni Hein Jayni Hein

Jayni F. Hein co-chairs the firm’s Carbon Management and Climate Mitigation industry group.

Jayni joins the firm after serving as Senior Director for Clean Energy, Infrastructure & the National Environmental Policy Act (NEPA) at the White House Council on Environmental Quality (CEQ).

During…

Jayni F. Hein co-chairs the firm’s Carbon Management and Climate Mitigation industry group.

Jayni joins the firm after serving as Senior Director for Clean Energy, Infrastructure & the National Environmental Policy Act (NEPA) at the White House Council on Environmental Quality (CEQ).

During her tenure at CEQ, she oversaw the Biden Administration’s ambitious environmental and clean energy agenda, leading work on low carbon projects and climate disclosure, and advancing the successful implementation of the Infrastructure Investment and Jobs Act (2021) and Inflation Reduction Act (2022).

Jayni has extensive experience advising clients on climate and environmental laws and regulations, including the Clean Air Act, NEPA, and Endangered Species Act, as well as corporate decarbonization goals and reporting. Leveraging her senior government experience, Jayni advises companies and investors on compliance and strategy in light of increased scrutiny of corporate climate and net-zero commitments. She advises clients on the legal and policy issues relating to ESG and climate-related regulatory requirements, investor demands, global reporting frameworks, and strategic business opportunities.

In addition, as the former senior political appointee spearheading work to revise permitting regulations and issue guidance on climate change and greenhouse gas emissions, Jayni offers clients first-hand experience with infrastructure projects that require federal and state permits and authorization. She helps clients identify new funding opportunities and successfully advance clean energy and other infrastructure projects, including onshore and offshore wind, solar, hydrogen, transmission, semiconductor, and carbon, capture, and sequestration (CCS) projects.

Clients benefit from her ability to creatively troubleshoot issues, establish relationships across government, and engage policymakers, industry, non-profit organizations, and other key stakeholders in constructive conversations around climate change, environmental justice, and corporate decarbonization goals.

Photo of Paul Mertenskötter Paul Mertenskötter

Paul Mertenskötter advises companies, investors, and governments on regulatory environmental, social, and governance (ESG), international trade, and public policy matters.

He has particular experience advising clients on the European Union’s Green Deal, including the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence…

Paul Mertenskötter advises companies, investors, and governments on regulatory environmental, social, and governance (ESG), international trade, and public policy matters.

He has particular experience advising clients on the European Union’s Green Deal, including the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CS3D), EU Forced Labor Products Ban, and Carbon Border Adjustment Mechanism (CBAM). He also advises clients on the rules of the World Trade Organization (WTO), free trade agreements, the Paris Agreement, and general public international law.

Prior to joining the firm, Paul was a Visiting Scholar at the WTO in Geneva, clerked at the International Court of Justice in The Hague, and was a Fellow at the Institute for International Law and Justice at NYU Law School.

Photo of Tim Duncheon Tim Duncheon
Tim Duncheon is an associate in the firm’s San Francisco office and a member of the Environmental and Energy Practice Group. He represents clients in litigation, policy, and transactional matters involving greenhouse gas regulation, carbon markets, environmental review, ESG commitments, and other related
Tim Duncheon is an associate in the firm’s San Francisco office and a member of the Environmental and Energy Practice Group. He represents clients in litigation, policy, and transactional matters involving greenhouse gas regulation, carbon markets, environmental review, ESG commitments, and other related issues. Prior to joining Covington, Tim clerked for the Honorable William A. Fletcher of the United States Court of Appeals for the Ninth Circuit and the Honorable Charles R. Breyer of the United States District Court for the Northern District of California.