Sample Greenhouse Gas Protocol Essay

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Greenhouse Gas protocol

The Greenhouse Gas Protocol Initiative is a partnership of businesses, non-governmental organizations, and governments, convened by the World Resources Institute (WRI), a U.S.-based environmental NGO, and the World Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of many international companies. Launched in 1998, the Initiative's mission is to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards for business and to promote their broad adoption.

According to the (Greenhouse Gas Protocol Corporate Standard, published in September 2001),The Greenhouse Gas protocol (herein referred to as the GHG protocol) corporate Accounting and Reporting Standards assists companies to recognize, determine and report GHG emissions. This GHG protocol is meant to set standards for precise, complete, reliable, applicable and clear accounting and reporting of GHG emissions by companies. This also includes information on setting organizational and operational boundaries, tracking emissions over duration of time and reporting emissions. GHG protocol is also used as a guiding tool on GHG accounting and reporting principles, goals, and inventory design, setting the targets on GHG and verification of GHG emissions.

The Company: The Body shop, UK.

The Body Shop is a leading Company in the UK dealing in beauty products; bath and body products, facial skincare, body moisturizers, cleansers, and exfoliators. It started in 1976 in Brighton South Coast of England as a family's store and has grown over the years to open more outlets within England and in states like the Jordan, Russia, turkey and Estonia. While business has been good to the stakeholders, it has also provided been employment to thousands of people. Achieving both accuracy and comprehensiveness in the GHG inventory process for such a large, disaggregated organization as the Body Shop, is a challenge. Unavailable data and costly measurement processes present major obstacles to improving emission data accuracy. For example, it is hard to disaggregate energy consumption information for shops situated within shopping centers. Estimates for these shops are frequently imprecise but excluding sources due to inaccuracy creates an incomplete inventory. However, with the help from the Business Leaders Initiative on Climate Change (BLICC) program, confronted this problem with a two-tiered solution. First, stores were encouraged to vigorously pursue direct consumption data through disaggregated data or direct monitoring. Second, if not capable of obtaining direct consumption data, stores were given standardized guidelines for estimating emissions based on factors such as, equipment type, square footage and usage hours. This system replaced the previous fragmentary approach, provided better accuracy, and a more inclusive account of emissions by including facilities that formerly were unable to calculate emissions.

In the recent years, the Company has embraced the Greenhouse Gas protocol in its corporate affairs and accounting standards. The following discussion will be based on the financial records and the day to day dealings of the company.

What organizational boundaries has the company used to report its

carbon emissions levels?

Business operations differ in their organizational and legal structures: most include wholly owned operations, incorporated and non-incorporated joint ventures and subsidiaries. For all intends and purposes of financial accounting, everything is according to established rules that depend on the structure of the organization and the interaction among the parties concerned. In setting organizational boundaries, a company chooses an approach for consolidating GHG emissions and then constantly applies the chosen approach to characterize those businesses and operations that comprise of the company for purposes of accounting and reporting GHG emissions.

For corporate reporting, there are two approaches that can be used to consolidate GHG emissions: the equity share and the control approaches. In the case of joint operations, the organizational boundary and the resulting emissions may vary depending on the approach used. However, in both joint operations and wholly owned businesses, the choice of approach may alter how emissions are classified when operational boundaries are set. Under the control approach, a Partner is responsible for 100 percent of the GHG emissions from operations which it has control over. It is not responsible for GHG emissions from operations in which it owns an interest but it does not run. Control can be defined in financial and operational terms. While using this approach to merge GHG emissions, companies choose between either the operational or financial control criteria. Mostly, whether an operation is controlled by the company or not does not differ regardless of the criterion they decide to use. A remarkable exception is the gas and oil industry, which regularly has complex ownership structures.

The Body Shop has adopted the equity share approach in reporting its carbon emissions. Under this approach, a partner accounts for the GHG emissions from operations according to its share of equity in the operation. This approach shows the economic interest, which translates to the rights of a company owing risks, and rewards, which flow from an operation. The share of the economic risks and rewards in an operation is aligned with the company's percentage ownership of that operation, and equity share will generally be the same as ownership percentage. In a situation where the afore stated procedure can not apply, the economic substance of the relationship the company has with the operation will override the legal form to guarantee that equity share reflects the percentage of economic interests. This approach is perfect for this company because it clearly protects the interests of all stakeholders and ensures that the interests of the company are protected as well.

With reference to the interests of the company's stakeholders assess if

the reporting boundaries used by the company are reasonable.

Data should be adequately precise to enable future users to make decisions with rational assurance that the reported information is reliable. GHG measurements, estimates, or calculations should be systemically neither over nor under the real emissions value, as far as can be judged, and that reservations are mitigated as far as practicable. The quantification process should be carried out in a manner that minimizes any ambiguity or uncertainty. Reporting on measures taken to guarantee accuracy in the accounting of emissions can help promote integrity while enhancing transparency.

Transparency refers to the level to which information on the procedures, assumptions, processes, and limitations of the GHG inventory are disclosed in a comprehensible, truthful, neutral, and understandable manner based on clear documentation and archives (i.e., an audit trail). Information needs to be recorded, compiled, and analyzed in a way that enables internal reviewers and external verifiers to attest to its reliability. Specific exclusions or inclusions need to be clearly identified and justified, assumptions disclosed, and appropriate references provided for the methodologies applied and the data sources used. The information should be adequate to enable a third party to get the same results if provided with the same source data. A "transparent" report will provide a clear understanding of the issues in the milieu of the reporting company and a significant appraisal of performance. An independent external verification is a good way of ensuring transparency and determining that an appropriate audit has been established and documentation provided.

For an organization's GHG report to be applicable it should contain the information that users—both internal and external to the company need for their decision making. An imperative aspect of relevance or applicability is the selection of a suitable inventory boundary that mirrors the substance and economic authenticity and reality of the company's business relationships, not merely its legal form. The alternative of the inventory boundary is dependent on the individuality of the company, the intended purpose of information, and the needs of the users. When choosing the inventory boundary, a number of factors should be considered, including but not limited to the following: operational boundaries, organisational structures, business context etc. All appropriate emissions sources within the chosen inventory boundary should be accounted for so that a comprehensive and meaningful inventory is compiled. Practically, lack of data or the cost of collecting data may be a limiting factor. Sometimes it is tempting to define a minimum emissions accounting threshold stating that a source not exceeding a certain size can be omitted from the inventory.

The equity share approach ensures that the economic substance takes precedent over legal form is well situated for a company like the Body shop because of its international business and clientele. This ensures that it (the company) conforms to the international financial reporting standards. In such cases, the staff and contractors(if any) preparing the inventory usually consult with the partner's legal and accounting staff in order to provide the appropriate equity share percentage is applied for each joint operation. In most cases, the parent company has the power to direct 100% of the equity share to financing and operating policies of the company's GHG emissions with the aim of gaining economic benefits form its emissions activities. For a company with a number of subsidiary companies, the Body shop has ensured that it benefits from the approach of choice in reporting the GHG emissions. This is because 100% of the subsidiary's income and expenses, assets and liabilities are taken into the parent company's income statement and the statement of financial position respectively.

What are the carbon emissions sources reported (e.g., various direct

and indirect types), using what periods, and in what volumes?

Different companies report different GHG emissions depending on the company's operations and available sources within the company. Direct GHG emissions are basically as a result of the following; generation of electricity, heat and or steam. This is as a result of fuel combustion in immovable or stationary sources such as boilers and turbines. These emissions can also result from chemical processing as a result of manufacturing and processing of chemical materials and waste processing. Likewise, transportation of such materials and products waste can also result to GHG emissions; their source is primarily the company owned vehicles and airplanes. Lastly, there are the fugitive emissions which are as a result of intentional and unintentional releases. For instance, leaks on equipments and gaskets, methane emissions from gas transportation, emissions during the course of refrigeration and air conditioning equipments. Being a large company, serving more than 51 countries, the Body shop has a lot of transportation trucks and planes for quicker supply. These and the buses used in transporting staff to and from work are some of the major causes of direct emissions of GHG.

In the recent years the Body Shop has taken on a new way of maximizing profits and minimizing costs by producing their own beauty products in their headquarter premises in UK. This has also been a major source for the GHG emissions. Although the ongoing initiative to encourage companies to "go green" has seen the Body shop reduce its volumes in the past year, GHG emissions have been high for the most part of the recent years. However, it is important to note that the initiative to use more environment friendly machines will take time to implement, it is a lesser costly way to go for most companies and the Body Shop is seizing the opportunity to embrace it.

How has the company selected a base year against which future

emissions will be measured?

Most companies undergo changes over a given duration due to mergers, acquisitions and divestments. All these structural changes may result to a change in the reported GHG emissions. For a company intending to keep a meaningful profile of their GHG emissions it might prove difficult due to all these structural changes and making it even harder to maintain consistency. Over time companies have discovered the need to track emissions in response to their goals including reporting to the public, managing risks and opportunities, establishing GHG targets and most importantly, addressing the needs of investors and stakeholders alike. The base year is basically the set datum which companies use to compare current emissions to. Therefore, as companies undergo the above mentioned structural changes, the base year emissions need to be recalculated over time for consistent tracking. For every company planning to track its emissions, the first step is always to pick a base year.

For a company to pick a certain year as its base year, it has to pick one that has verifiable emissions data and state the reasons for choosing that particular year. It also important to pick a year that is earliest in relevant point of their operations. Many organizations, including the Body Shop have adopted 1990 as their base year in order to be in line with the Kyoto Protocol. This however, has been questioned whether there are any available and verifiable data for that year. For companies formed in the early 90's this might be so but for the Body shop, this was a very convenient year for them considering that all required documentation is available. Therefore, to be inline with Kyoto Protocol and as its best and well documented year, the body shop picked 1990 to be its base year and according to their reporting and the response from stakeholders, so far so good.

With reference to the interests of the company's stakeholders assess if

the information disclosures that you have identified provide a clear

picture on how the company accounts for its carbon emissions.

A plausible GHG emissions report presents relevant information that is complete, consistent, accurate and transparent (Greenhouse Gas Protocol Corporate Standard, published in September 2001). This means that to compile such a report should be done with the utmost care and professionalism. Therefore, the GHG Protocol Corporate Standard states that a public report contain the best data available at the time of publication while maintaining the highest standards of transparency and accuracy. This is important in informing the public on the operations of the Company and ensuring that all aspects are considered while documenting this report. The reported emissions should include both direct and indirect and incase of any discrepancies, such should be included in the report. According to the Company's accounts, the Body shop has done a good job in protecting the interests of the stakeholders in the way that they report their emissions.

When bigger emitters are involved, emission costs and credits are relatively easy to understand: as a requirement, companies that use more than their allotted level should buy extra credits or allowances at open-market prices from their competitors. Companies thus have an incentive to reduce their emissions, and the incentive increases if they reduce emissions because they can then sell the extra credits to companies which exceed the limit. Decreasing the need for credits through smart investments in better an advanced technology, for example can become an important strategic consideration, as well using import barriers or other means to fight competition from companies-often in less regulated countries-that have lower emission costs.

The likely impact of regulation and emission costs on the economics of several organizations in Europe and found surprising differences among them. Differences that are also characterize other regions. Carbon regulation, for example, the raise on costs for all European beauty products producers, but those that face greater competition from cheaper imports, such as makers of counterfeited goods, could suffer more. For instance, the interests of the Board of directors are that the company operates within the legal parameters provided by the Law and maximize on its profits. According to the Body shop accounts, the company has been running on profits reporting up to morethan1million£lastyearalone. Considering the challenges in today's world the Body shop has done a commendable job in its trading and ensuring the GHG emissions are well documented for the purpose of reporting.

Imagine the UK government sets a minimum price on carbon of 50 per metric tonne of emissions. How might this carbon price change your assessment of the costs and benefits of carbon accounting for this company? For example, can you identify any operational areas or projects of the company that would be affected by the new carbon

price, and if so, how?

Any vigorous business strategy needs set targets for revenues, sales and all core business indicators and their tracking performance against those goals. Setting GHG targets helps to raise internal awareness about risks or opportunities which are presented by climate change and ensure that such risks are well anticipated and a way out established. It also important to be prepared for the opportunities that might be presented by such climate change and be ready to invest and take charge of such opportunities. When this is well executed, the business can avoid a lot of risks and capitalize on the opportunities. By preparing for possible future regulations, a company can understand better the possible impacts of future trading options and know how to respond to them when the time comes.

While this is important, companies should put some targets on the trading products which will increase the market share and reduce emissions associated with the use of such products. For instance those products which require a longer and elaborate procedure yet are not popular on the market should be minimized on the production. Instead, the company should capitalize on such products which use lesser GHG emissions and are very popular and needed by the customers thus boosting their income and minimizing on the GHG emissions and expenditure.

In order to achieve such success, it is very important to decide on the target boundary, analyze the direct and indirect emissions, the geographical operations and whether to separate the businesses or treat them as one entity. There are certain days which businesses ran on a profit, losses and on other days, it is "business as usual". Such should be put into consideration in evaluating the target prospects for the Company. Body shop as a company can capitalize on this directive (50£ per metric tonne) by setting goals and procedure in which they chose to use the above mentioned strategies in planning for their trading purposes.


API (2004), Compendium of Greenhouse Gas Emissions Methodologies for the Oil and Gas Industry, Final Draft, American Petroleum Institute

Corporate Standard | Greenhouse Gas Protocol Initiative. (n.d.). Greenhouse Gas Protocol Initiative. Retrieved January 18, 2012, from

DEFRA (2003), Guidelines for the Measurement and Reporting of Emissions by direct participants in the UK Emissions Trading Scheme, UK Department for Environment, Food and Rural Affairs, London, UK ETS(01)05rev2