Addressing the disconnect in carbon accounting and reporting in the built environment – A Perspective Piece

The “Greenhouse Gas Protocol Technical Guidance for Calculating Scope 3 Emissions” recommends several methods of accounting for GHG emissions arising from purchased goods and services¹. As companies strive to improve data quality and increase credibility in their greenhouse gas (GHG) inventory, an increasing number are seeking to shift from spend-based emission estimates to supplier- and product-specific data for Purchased Goods & Services (Scope 3 Category 1) accounting and reporting. While this shift results in more accurate data, this transition poses significant practical challenges to companies with complex internal management systems that govern procurement, supplier relationships, and business operations.

When we look at this transition through the lens of the building sector, we face further complexities, namely the number of value chain actors involved in any construction project, and increasing emphasis from policymakers and industry actors on the measurement and regulation of project-level embodied carbon - emissions arising from the production and transportation of construction materials such as partitions, furniture, and the energy used in the construction process itself.

Currently, there isn’t a shortcut to reconcile the difference in the GHG emissions estimates between a spend-based approach and a product-/ supplier-based approach. In instances where lower carbon products come with a price premium (e.g. due to smaller scale of operations or higher manufacturing costs), the consumer is not incentivised to support them under the spend-based approach as the actual emission reduction is not reflected accurately in the inventory. This exacerbates the discord between top-down and bottom-up decision making, and also delays the scaling and adoption of lower carbon products.

This article is written from Deloitte’s perspective as a global occupier-led network and reflects on how we interact with buildings. The exploration into practical challenges and potential solutions will be documented primarily from a building/ real estate angle, whilst recognising the manifold implications on other categories of purchased goods and services.

Why this matters

The building and construction sector contributes 34% of global energy-related CO₂ emissions, the largest of any single sector. This includes the energy used within buildings as well as within the manufacturing of key construction materials, such as cement, steel, aluminium, and glass.

Whilst currently most energy-related CO₂ emissions are associated with energy use in buildings² (categorised as Scope 1 and 2 emissions for the owners or operators of the buildings), we are also expecting:

• A shift towards electrification in new and existing buildings through new regulations and policy on deep retrofits, and
• Decarbonisation of electricity through increased generation and deployment of renewable energy.

As buildings electrify, and energy sources decarbonise, the key remaining emission sources will be those arising from the manufacture of construction and fit-out³ materials – “embodied carbon”.

For corporates that do not manufacture construction products and are mainly consumers of these goods, these emissions are typically included within Purchased Goods & Services (Category 1) of Scope 3 emissions. The same emissions when associated with specific construction projects are also known as embodied carbon; terminology used in building lifecycle assessments (LCA).

Understanding the disconnect

There are two interlinking challenges in accounting for emissions from construction and fit-out activities resulting from the use of spend-based and product LCA based carbon accounting methods.

1. The gap between spend-based GHG estimates and product carbon footprints

Current GHG accounting for PG&S commonly uses a top-down, spend-based estimation, a simplified example of which is shown below:

This method is typically applied across sub-categories of PG&S where supplier-specific data or product LCA emission data is scant, including goods and services relating to construction and fit-out works.

However, ideally, as recommended by Greenhouse Gas Protocol Scope 3 Category 1 guidance, companies should rely more on supplier-specific product lifecycle GHG information in their Scope 3 emissions reporting to improve accuracy and transparency. This method better reflects accurate GHG emissions from purchases, may allow for comparability of supplier data at product category level, and reinforces sustainable procurement practices through the supply chain. Delaying the transition towards supplier-provided data risks disincentivising the development and procurement of lower carbon products that may come at a price premium.

2. GHG accounting data for project-level decision making

Construction product manufacturers, including those making products used in interiors such as carpets and paints, are increasingly adopting product Environmental Product Declarations (EPD), allowing high-quality, product-specific GHG data to be shared. This is a welcome trend in the industry, but it does not readily support the transition towards product-specific scope 3 accounting for corporates who are mainly consumers of the construction industry such as those that lease or own multiple premises, or those who frequently commission construction work.

For construction activities, supplier-provided product carbon footprint data through EPDs usually contributes to the calculation of embodied carbon as well, which is typically a separate exercise to the corporate GHG inventory. Embodied carbon is now increasingly measured and regulated at the level of the project or building to incentivise sustainable design and procurement from the bottom-up. Collection of this information is usually done by the project team for the project in a manner that is entirely independent to the annual corporate GHG inventory activity.

This presents a mismatch in data aggregation as the same emissions are being calculated using two different methods by different actors, driving different decisions from the top-down and bottom-up. For a client of construction activities such as Deloitte, it is important to understand how the two methods and the issue of data aggregation can contribute to divergent outcomes on budget planning and purchasing decisions.

Practical solutions, including increasing production and adoption of product-level GHG information through EPDs, are therefore needed to tackle these interlinking challenges to ultimately drive more informed decision making to bolster decarbonisation efforts in the industry.

Why is Deloitte interested?

Deloitte currently leases over 700 properties in 150 countries and takes an active role in seeking to decarbonise both the operational and embodied carbon emissions footprint in relation to the spaces it occupies. To decarbonise in the most effective and efficient way possible, it is important to improve our emissions reporting (both at the corporate and project levels), which in turn improves our understanding of how to approach this challenge. By addressing this challenge and seeking to improve the methods and processes used, we also hope to develop insights that we can share with other organisations of similar size and operating model.

In 2024 alone, we had over 100 lease events (expiries or breaks), many of which resulted in fit-out activities. Tracking our carbon impact on the project level can be done through LCAs, but it is often a time and resource-intensive process and there is no efficient way to connect that data with our spend data used in our corporate carbon inventory as LCA data remains sparse. The real impact teams are making on projects can therefore be easily missed when taking a top-down view, leading to a loss of opportunities to effectively plan and secure budget for sustainability initiatives. This work contributes to the World Green Building Council's goal of harmonising standards and empowering financial institutions to drive climate action and deliver on their transition.

Through this exploration with WorldGBC and their global network, the hope is that a broad set of businesses - beyond those who are directly connected with the industry such as building engineers or developers - are made aware of their role within the built environment supply chain, and how their carbon inventory process can affect change in the wider sector.

Next steps

Over the next 12 months, Deloitte is committed to lead a pilot project to document and explore solutions to the practical challenges:

• Carry out fit-out LCAs on large projects and develop carbon intensity benchmarks based on spend and product/project-level carbon data
• Test hybrid accounting methods, e.g. using Environmental Product Declaration (EPD) data for most impactful product categories and spend-based carbon factors for the rest
• Identify the main gaps in supplier-based product EPDs in determining carbon intensity of a project
• Review data and project outcomes to assess value add and impact on driving decarbonisation vs. effort required
• Review existing internal data management and procurement practices and highlight changes required to support wider adoption of product-based carbon data in the scope 3 inventory

We welcome others who would like to join us in the pilot to broaden the data pool and enrich the project insights. We intend to make our thinking available to relevant standards-setters, including the GHG Protocol, with the aim of providing a useful input into their ongoing research and informing their projects.

Additionally, we have identified other initiatives the built environment sector could take forward as part of this perspective piece:

1. Undertake analysis of existing research on scope 3 reporting vs. embodied carbon assessments, adding existing information from carbon intensity of fit-out / construction projects to develop deeper understanding of the following:

• Most impactful product categories (those that are carbon intensive and commonly used) and how they differ between project types
• Variation between different carbon databases (e.g. different EPD libraries)
• Variation across geographies

2. Develop scoping guidance to support the use of project-level LCA data in corporate carbon inventories:

• Categories of products and services to be included for different project types and scales
• Define minimum required data to streamline the adoption of project-level LCA data in top-down accounting

Benefits of addressing this reporting challenge

The following benefits could be realised by addressing the disconnect between these carbon accounting methods:

• Enable organisations to make more informed decisions and investments, whether on a corporate strategy level, or on a project level.
• Drive uptake in sustainable, lower carbon products, which can come at a cost premium, ultimately supporting deep supply chain decarbonisation and enabling economies of scale.
• Help to streamline reporting processes by sharing insights with standard-setters and inputting into moves further to align standards and definitions
• Harmonize tools and approaches to improve efficiency, reduce resource and cost, and automate data collection.
• Support shift towards product and activity-based emissions reporting in other PG&S categories through this project.
• Engender more credibility in carbon reporting processes and reported carbon emissions overall.

We believe that all parties across the value chain (from consultants to manufacturers, landlords to occupiers) will benefit from addressing this disconnect, either for their direct operations and emissions, their business and client base, or both.

Footnotes:

1. Greenhouse Gas Protocol Scope 3 Guidance Category 1 Purchased Goods and Services Chapter1.pdf
2. Global Alliance for Buildings and Construction, Global Status Report for Buildings and Construction 2024/25.
3. Fit-out refers to the customisation of the interior space of a building. This process is typically undertaken by tenants in commercial properties such as offices and retail and can involve the installation of mechanical plant, lighting, partitions and furnishing.

Additional references:

1. International Energy Agency, World Energy Outlook 2004
2. London Energy Transformation Initiative, Climate Emergency Design Guide