Greenhouse gas (GHG) inventories have become foundational tools in corporate climate reporting. With the introduction of IFRS S2, namely the heightened climate-related disclosures, organizations face an imperative to disclose consistent, comparable emissions data. At the heart of these disclosures lies the GHG Protocol Corporate Accounting and Reporting Standard, the global benchmark for quantifying and managing emissions. This article explores why a robust GHG inventory is the first critical step toward IFRS S2 compliance, outlines a practical roadmap for building that inventory and embedding GHG inventory into corporate strategy.
Why GHG Inventories Matter for IFRS S2
A GHG inventory transforms scattered data points into a coherent narrative of an organization’s climate footprint. Under IFRS S2, issuers must disclose:
• Absolute gross emissions for Scope 1 and Scope 2
• Material Scope 3 emissions, explained by category
• The organizational boundary and whether reporting based on equity share or control
Without a standardized inventory, these disclosures lack integrity, comparability, and transparency. Anchoring disclosures in the GHG Protocol Corporate Accounting and Reporting Standard ensures that data are reliable and aligned with peers, laying the groundwork for credible year-on-year reporting and meaningful benchmarking.
Aligning with the GHG Protocol Standard
The GHG Protocol establishes five core quality principles, namely, relevance, completeness, consistency, transparency and accuracy to guide every inventory decision. If offers two accounting approaches: equity-share, which allocates emissions based on ownership percentage in joint ventures and control, which attributes 100 percent of emissions from operations over which the company holds financial or operational authority.
Selecting the appropriate approach and categorizing emissions into Scope 1, Scope 2 and Scope 3 would enable organizations to create a clear, defensible framework that satisfies both the Protocol’s standards and IFRS S2 requirements.
Building a GHG Inventory: A Practical Roadmap
The first step in building an inventory is establishing the organizational boundary. This involves mapping every business unit, site and partnership to define which emissions must be accounted for, using either the equity-share or control appraoch.
Next, companies design a data collection system that assigns ownership for each data stream such as fuel usage logs, utility bills, vendor/supplier reports and implements calculations to convert activity data into carbon-dioxide equivalents using the emission factors and global warming potentials (GWP) calculation.
Selecting a base year with reliable, verifiable data provides a benchmark for future comparison and documenting recalculation procedures ensures consistency when organizational changes or methodological updates occur.
Finally, external assurance by an accredited third party assurance providers under standards such as ISAE 3000 confirms the integrity of the inventory and reinforces investor confidence.
Looking Ahead: Embedding the Inventory into Strategy
Rather than treating the GHG inventory as a one-time compliance exercise, forward-thinking organizations weave it into everyday decision-making. Establishing clear science-based targets, such as a 20 percent reduction in Scope 1 emissions over five years and breaking these goals into annual action plans maintains momentum and accountability.
Scenario analysis further strengthens strategic thinking by simulating “what if” questions, like how a 10 percent headcount increase might affect emissions. This dynamic approach ensures that the inventory informs budgeting, capital allocation and risk management, making climate considerations an integral part of corporate strategy.
Breaking down emissions by source and location in a GHG inventory would enable an organization to identify its biggest carbon hotspots, whether that is an aging boiler that guzzles fuel, an overly lit factory floor or a trucking route that east up diesel. Once an organization knows exactly where most their emissions are coming from, they can target upgrades to optimise delivery and production. In this way, the inventory guides organizations to the most cost-effective fixes and leading to a more efficient operations.
Conclusion
If an organization’s ambition is to conquer IFRS S2 reporting with confidence, building a GHG inventory in strict accordance with the GHG Protocol is non-negotiable. It lays the groundwork for credible disclosures, illuminates decarbonization priorities, and unlocks a wealth of strategic insights. Moving forward, GHG inventory will evolve from a compliance checklist into a linchpin of climate strategy by guiding science-based targets, informing operational improvements, and strengthening stakeholder trust.
About the authors
Tan Poh Yee
Senior Associate
ESG Practice Group
Halim Hong & Quek
pohyee.tan@hhq.com.my
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