Accounting for GHG emissions

The current GHG emissions reporting landscape is evolving. The number of companies that are reporting on GHG emissions is increasing and will continue to rise as a result of new climate and sustainability standards and regulations across the globe.

While the new climate and sustainability standards and regulations are driving change in the reporting landscape, it is also important to recognize the potential business value of monitoring a company’s GHG emissions. Such monitoring may allow companies to identify business and financial risks that arise from their operations and provide management with insight into how to effectively manage those risks.

Companies within the scope of the E.U. Corporate Sustainability Reporting Directive (CSRD) are required to report on GHG emissions in accordance with (1) the European Sustainability Reporting Standards (ESRS) in general or, when finalized, (2) the ESRS for certain non-E.U. undertakings reporting in accordance with Article 40a of the Accounting Directive (“ESRS-40a”). The reporting timeline for the CSRD varies depending on (1) the structure of the company and (2) the applicability of a directive published in the Official Journal of the European Union on April 16, 2025, that postpones by two years the application of certain requirements under the CSRD for certain entities. However, some entities have already begun to report. For more information about the CSRD and the ESRS (including ESRS-40a), see Deloitte’s January 9, 2023; August 17, 2023 (updated February 23, 2024);March 7, 2025; August 21, 2025; January 14, 2026; and July 17, 2026, Heads Up newsletters.

Various companies will need to comply with the International Sustainability Standards Board’s (ISSB’s) IFRS S1 and IFRS S2, which require disclosures such as information about GHG emissions and sustainability- and climate-related opportunities and risks, subject to jurisdictional adoption. IFRS S2 specifically requires reporting of GHG emissions measured in accordance with the GHG Protocol. IFRS S1 and IFRS S2 are effective for annual reporting periods beginning on or after January 1, 2024, subject to individual jurisdictional mandates. For more information about IFRS S1 and IFRS S2, see Deloitte’s June 30, 2023, Heads Up. For a list of jurisdictions thatare taking steps to adopt or use IFRS S1 and IFRS S2, see Deloitte’s Adoption of IFRS Sustainability Disclosure Standards by Jurisdiction (commonly referred to as the “ISSB Adoption Tracker”).

In the United States, the SEC issued a proposal on May 29, 2026, to formally rescind its final rule on climate-related disclosures that had been stayed pending litigation. However, three bills signed into law in California — SB 253, SB 261, and AB 1305 — require both public and private U.S. companies doing business in California to provide certain climate-related and GHG emission disclosures. AB 1305, which became effective on January 1, 2024, requires disclosure regarding the marketing, sale, purchase, or use of certain voluntary carbon offsets.Portions of Sections 38532 and 38533 of the California Health and Safety Code that were established upon the passage of SB 253 and SB 261 were amended by SB 219 (which, together with SB 253, SB 261, and AB 1305, constitutes what is known as the California Climate Legislation) and require disclosure of GHG emissions and climate-related financial risks.

SB 253 requires disclosure of Scope 1 and Scope 2 GHG emissions at some point in 2026 and disclosure of Scope 1, Scope 2, and Scope 3 GHG emissions starting in 2027 and beyond (with reporting deadlines to be confirmed by the California Air Resources Board [CARB]). On February 26, 2026, CARB approved an initial portion of regulations for the California Climate Legislation regarding applicability, definitions, fees, andthe first-year reporting deadline for SB 253. However, on June 24, 2026, CARB announced its withdrawal of the approved rulemaking package to make minor changes and propose a new 2026 reporting deadline of November 10, 2026.

SB 261 requires disclosure of climate-related financial risks. The first biannual reports were due on January 1, 2026; however, on November 18, 2025, the U.S. Court of Appeals for the Ninth Circuit granted a temporary injunction of SB 261. On December 1, 2025, CARB issued an enforcement advisory stating that it will not enforce the January 1, 2026, due date to post and submit reports for SB 261 while the appellate proceedings are in progress.

For more information about SB 253, SB 261, and AB 1305, see Deloitte’s October 10, 2023 (last updated December 19, 2023), Heads Up. For more information about the amendments in SB 219, see Deloitte’s October 1, 2024, Heads Up and December 4, 2025 (last updated August 13, 2026), Sustainability Spotlight.

For a comparison of significant sustainability-related reporting requirements issued by the SEC and the state of California in the United States, the European Union via the CSRD, and the ISSB within the IFRS Foundation, seeDeloitte’s May 13, 2025, Sustainability Spotlight.

Under the GHG Protocol, GHG emissions are classified into three scopes as follows:

The organizational boundary provides the basis for identifying emission sources from assets owned or controlled by the reporting company. For this reason, it is critically important to correctly identify the organizational boundary.

Applicable climate and sustainability standards and regulations may prescribe organizational boundaries that differ from those delineated in the GHG Protocol. Therefore, if a company is reporting on emissions in accordance with a specific standard or regulation, it would need to carefully consider the organizational boundary requirements of that standard or regulation.

If a company is reporting on emissions in accordance with the GHG Protocol rather than a specific standard or regulation, it may choose one of three approaches to identify its organizational boundary. However, once the company selects an approach, it must apply that approach consistently across the organization. The three approaches are outlined below.

The GHG Protocol standards and related guidance provide latitude in application and related judgments, which has led to diversity in practice in how companies report GHG emissions. The WRI and WBCSD are currently evaluating this diversity through their transformation process, which is discussed in How the GHG Protocol Is Transforming. Companies are encouraged to consult with their advisers on the application of the GHG Protocol to ensure that their accounting and reporting treatment is appropriate.

The GHG Protocol was initially developed over two decades ago to achieve multiple objectives, one of which, as stated in the Corporate Standard, is “[t]o provide business with information that can be used to build an effective strategy to manage and reduce GHG emissions.” Since that time, the regulatory landscape has evolved to reflect the capital markets’ heightened demand for disclosures about companies’ GHG emissions, resulting in an increased focus on transparency, consistency, and standardization. Such evolution has shifted how the GHG Protocol is being applied by companies to suit their purposes.

As business models evolve and transform, some companies may find that the current guidance in the GHG Protocol on accounting for emissions does not clearly address their circumstances. For example, since the GHG Protocol was developed before the introduction of circular business models (i.e., reduce and reuse), companies operating under such models must use greater judgment to apply the guidance. In such instances, companies are encouraged to provide clear and robust disclosures to ensure that users of their GHG emission reports can understand the judgments, inputs, and assumptions on which their GHG emission calculations are based.

As investors shift their focus and the economy transforms, companies are starting to set GHG emission targets. These targets are widely focused on reducing Scope 1 and Scope 2 emissions. Companies often cite their ability to more easily control Scope 1 and Scope 2 emissions as the primary reason for focusing GHG emission targets solely on Scopes 1 and 2. Management uses these GHG emission targets in transforming their businesses but are also increasingly linking them to compensation and bonuses. Lenders are also using GHG emission targets in debt covenant agreements and financing arrangements.

Companies often cite their ability to more easily control scope 1 and scope 2 emissions as the primary reason for focusing GHG emissions targets solely on scopes 1 and 2. Management uses these GHG emissions targets in transforming their businesses but are also increasingly linking them to compensation and bonuses. Lenders are also using GHG emissions targets in debt covenant agreements and financing arrangements.

Companies may use renewable energy credits to offset their scope 2 emissions. Given the prevalence of renewable energy credits in the marketplace, companies may have the opportunity to completely offset their reported scope 2 emissions and meet GHG emissions targets even though they may still generate a significant amount of scope 2 emissions.

The heightened focus in the marketplace on GHG emissions and the increasing linkage of GHG emissions targets to compensation and bonuses make it important for companies to measure their GHG emissions accurately. Management and the board of directors may want to consider focusing on the GHG emissions targets set by the company and the targets’ potential impact on the company’s financial or operational metrics or other risks within the company. Specifically, they may want to ask themselves the following questions:

The WRI and WBCSD have undertaken a process to gather feedback from stakeholders to refine, amend, and provide enhancements to the GHG Protocol standards and related guidance. Feedback was gathered in the first quarter of 2023, and revisions to the standards and guidance are expected to be proposed and finalized in phases that began in 2025 and will continue through 2028.

The WRI and WBCSD have released a webcast recording discussing their findings on scopes 1 and 3, as well as a summary of findings on scope 2. Key themes and points raised by stakeholders are summarized in the figure below.