Greenhouse gas (“GHG”) emissions accounting, attesting, and reporting isn’t just a Fortune 500 issue anymore. Middle-market firms are increasingly expected to know their scope 1, 2, and 3 GHG emissions figures.
The middle market is fielding a growing volume of sustainability data requests from customers, investors, and financial institutions. Most, if not all these requests include GHG emissions data.
Without a consistent approach to tracking emissions, firms risk responding with incomplete or inconsistent information that could hurt their credibility, limit commercial opportunities, and slow down financing. Robust GHG accounting practices turn these sustainability inquiries into a strategic advantage rather than a reporting burden.
For middle market firms unsure of where to start on their GHG accounting, or looking to improve their processes, this guide offers a practical, phased roadmap—without breaking the bank or hiring a full sustainability team.
The 3 Scopes of GHG Emissions
The Greenhouse Gas Protocol (“GHG Protocol”) classifies GHG emissions into scopes 1, 2, and 3. Scope 1 and 2 take place within your business operations, while scope 3 occurs in your upstream and downstream value chain. GHG emissions land in the following scopes:
- Scope 1 emissions are direct GHG emissions caused by or in assets an organization owns, leases, or controls. These include buildings, vehicles, HVAC units, and fire extinguishers.
- Scope 2 emissions are indirect emissions from electricity, heat, or steam purchased by or in assets and organization owns, leases, or controls. Emissions are caused when a utility generates heat, electricity, or steam, which falls into scope 2 for the purchasing organization.
- Scope 3 emissions are all other indirect emissions within an organization’s upstream and downstream value chain, from raw material purchasing to eventual customer disposal. This category includes activities not captured on the balance sheet, such as employee commuting.
GHG Emissions Boundaries
Understanding which GHG emissions you should be accounting for is the most critical – and often overlooked – aspect of GHG emissions accounting. There are two boundaries to consider in GHG emissions accounting, the organizational and operational boundaries.
- The Organizational Boundary defines which legal entities your company includes in its emissions accounting. We recommend that you follow the ‘operational control’ approach and include legal entities with full control, reporting 100% emissions for each:
The Operational Boundary then determines which emissions sources in your organizational boundary are categorized into scope 1, 2, and 3. This would include mobile and stationary combustion, electricity, steam, etc.
Please see our detailed thought leadership piece on this subject for more insight.
A Practical 3-Phase Roadmap for Beginners
Calculating your GHG emissions for the first time is daunting. To ensure all emissions are being captured, adhere to the following phases:
Phase 1: Set Your GHG Boundaries
Looking at your organizational chart, examine which legal entities you have operational control over. Entities with a 50%+ stake are typically within operational control.
From there, determine what owned/leased assets fall within each legal entity. The ASC 842 subledger is a great document that shows leased assets. Be sure to consider owned assets as well.
For scope 1 and 2, consider the fuels, energy, and refrigerants these assets buy. Do your vehicles burn gasoline? How are your manufacturing facilities heated and powered? What type of refrigerant is your HVAC system charged with?
For scope 3, map your value chain. What raw materials are coming in? How do they get there? What products/services are we selling? How does our customer use/dispose them?
Phase 2: Collect GHG Data
With the boundaries in place, gather activity data that quantifies the fuels, energy, services, and materials purchased.
For scope 1 and 2, this will include utility bills (for electricity and natural gas), fuel card data (for fleet and generators), and invoices for shop gases (propane, acetylene) and refrigerants.
For scope 3, operational metrics like hours of equipment use, pounds of raw material purchased, miles traveled, spend, or business travel logs, will be needed.
Phase 3: Calculate and Report
Once your data is collected, apply standard emissions factors—such as those from the EPA or GHG Protocol—to convert activity data into metric tonnes of CO₂e. Use a quality, auditable calculation framework that aligns with GHG accounting principles of consistency, accuracy, and completeness.
From there, organize the results by scope, business unit, and geography. Reports should not only meet stakeholder requirements but also provide internal insights. For example, highlight emissions hotspots that align with cost centers or operational inefficiencies. Over time, this reporting can evolve to support reduction targets, investor engagement, or even third-party assurance.
Common Pitfalls and How to Avoid Them
Even with the best intentions, middle-market firms often stumble in their early GHG accounting efforts. Here are some of the most common pitfalls—and how to circumvent them:
- Treating GHG As a ‘Check-the-Box’ Initiative. Diving into deep analysis, such as the energy consumed per square foot, and cost of energy across operations, reveals emissions—and energy—hotspots. Use this insight to reduce both.
- Starting with Scope 3 Too Early. Start with your controlled emission sources, scope 1 and 2, before diving into scope 3. Having a solid foundation makes scope 3 significantly easier down the line.
- Using GHG Reporting as a One-Off Exercise. Stakeholders expect year-over-year consistency and transparency. Set yourself up for success and build repeatable processes off the bat.
Final Takeaways
Most middle market firms will begin with scope 1 and 2 reporting based on readily-available information. Having that baseline allows you to understand where data gaps and emissions hotspots are. From there, move the goalpost as you shift from a first-time reporter to eventually achieving assurance.
We recommend you start small, build confidence, and treat emissions data like any other business KPI—using it to leverage energy and emissions savings.
About Full Scope Insights and Our GHG Emissions Accounting Services
Looking to establish your GHG baseline or improve current reporting practices? Let’s talk.
Full Scope Insights provides fit-for-purpose fractional sustainability program management services. We specialize in developing and executing value-add sustainability strategies for public and private organizations in a cost-efficient manner, including scope 1, scope 2 and scope 3 GHG emissions accounting. Our team of experts possesses the GHG audit experience necessary to produce quality inventories that exceed stakeholder expectations.
Ethan Krohn
Senior Associate
Full Scope Insights