GHG Protocol in a nutshell: what SMEs need to know

A customer contract appendix states that the supplier must report emissions “in accordance with the GHG Protocol”. The company has never done this kind of calculation before, and the question is: what does this actually mean in practice, and what are you committing to? This article explains the structure of the GHG Protocol from an SME perspective: what the family of standards contains, how the scopes are divided, and what the choice between operational and financial control means.

What is the GHG Protocol and who created it

The Greenhouse Gas Protocol is a family of standards developed jointly by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). The first version of the Corporate Standard was published in 2001. The standard is in practice the global de facto norm for corporate-level emissions accounting.

It is voluntary but widely accepted. Most other reporting frameworks (CSRD/ESRS, SBTi, CDP, EcoVadis, VSME) rely on it either directly or indirectly. When a reporting requirement states “in accordance with the GHG Protocol”, it typically refers to the Corporate Standard or its supplementary standards.

The standard’s prevalence also means that a single GHG Protocol-compliant calculation can serve as the basis for responding to many different reporting requirements. The same calculation works as the foundation for customer questionnaires, SBTi targets, EcoVadis responses, CDP submissions, and as an appendix to a CSRD report, provided the boundaries have been set consistently.

The family of standards

The GHG Protocol is a collection of interrelated standards, not a single document.

Corporate Standard is the foundational standard. It defines the organisational boundary, scope categories, and calculation principles. This is the starting point for all corporate-level accounting.

Scope 2 Guidance (2015) adds requirements for reporting Scope 2 emissions using both location-based and market-based methods. More on this in the Scope 2 article.

Corporate Value Chain (Scope 3) Standard (2011) identifies 15 Scope 3 categories and provides guidance on their calculation and boundary-setting.

Product Standard covers product-level carbon footprints. It is comparable to the ISO 14067 standard.

For SMEs, the most important standards are the Corporate Standard and Scope 2 Guidance. The Scope 3 Standard becomes relevant when value chain emissions become subject to reporting.

In addition, GHG Protocol publishes sector-specific guidance (e.g. for cities, projects, and agriculture) as well as calculation tools. For most companies these are not essential, but they are available at ghgprotocol.org when needed.

Scope 1, 2, and 3 in brief

The standard divides emissions into three tiers based on where decision-making authority lies.

Scope	What it covers	Typical sources
Scope 1	Direct emissions from sources owned or controlled by the company	Fuels, owned vehicles, refrigerants, process emissions
Scope 2	Indirect emissions from purchased energy	Purchased electricity, district heating, steam
Scope 3	Other indirect emissions in the value chain	Purchased goods, business travel, transport, use of products, waste

Scope 1 and 2 are mandatory in all standard-compliant reporting. Scope 3 is reported on a materiality basis: categories that are significant for the company’s operations.

For a deeper discussion, see the Scope 1 article and the Scope 2 article.

Organisational boundary: operational vs financial control

Before calculating a single figure, you decide which companies and operations to include. The GHG Protocol offers three options: equity share, financial control, and operational control. In practice, companies choose between operational and financial control.

Operational control. All operations in which the company can make and implement operational decisions are included. This is the most common choice. A practical example: if the company decides what fuel is used in leased vehicles, those vehicles are included in the calculation.

Financial control. Operations over which the company has financial control are included (more than 50% of voting rights, or consolidation in the financial statements). This corresponds to the accounting definition of a group structure.

Example situations:

Wholly-owned subsidiary (100% ownership). Included under both approaches.
50/50 joint venture. Included under operational control if you hold operational authority. Not included under financial control.
Long-term operating lease. Under operational control, in Scope 1. Under financial control, typically in Scope 3.
Leased premises. Depends on who pays for electricity and heating, and who controls the fuel choices. Operational control typically includes both.

For SMEs, operational control is often the clearest choice, as it intuitively matches what the company manages in its day-to-day operations. The choice is made once, documented, and applied consistently across all scopes.

Changing the choice later is possible, but it requires restating two years of comparative figures in line with the revised boundary. For this reason, it is worth making the initial choice carefully and recording the rationale in a boundary memo.

Operational boundary: what is included and what is excluded

After setting the organisational boundary, you decide which activities and emission sources to include in reporting. Scope 1 and 2 are mandatory, but for Scope 3, the materiality principle guides boundary decisions.

Materiality means that a category is included if it is significant in terms of emission volume, influence, stakeholder interest, or regulatory relevance. Example: Scope 3 category 11 (use of sold products) may be zero for a small service company because it does not sell physical products.

Boundary decisions must be justified and documented. Verifiers will specifically ask about this: why a particular category was excluded and on what grounds.

Relationship to other standards

The GHG Protocol underpins most other frameworks.

ISO 14064-1. Compatible with the GHG Protocol, used particularly in connection with verification. Certification bodies frequently conduct ISO 14064-1 audits. More on this in the verification article.

CSRD / ESRS E1. The climate criterion ESRS E1 requires Scope 1, 2, and 3 reporting structured in accordance with the GHG Protocol. Large companies are reporting in phases from 2024 onwards.

VSME (EFRAG). The voluntary reporting standard for SMEs uses the same scope categories and refers to the GHG Protocol. EFRAG published VSME in 2024.

SBTi. The underlying data for target-setting is GHG Protocol-compliant. The SBTi Corporate Net-Zero Standard requires Scope 1, 2, and Scope 3 on a materiality basis.

EcoVadis and CDP. Both use the GHG Protocol structure as the basis for their reporting.

Practical implication: a single GHG Protocol-compliant calculation addresses almost all reporting requirements. Different frameworks require different boundary definitions and additional information, but the core calculation does not change.

Common interpretation questions

Excluding a small site. The standard permits excluding minor emission sources on materiality grounds. In practice, the threshold is often 5% of total emissions, and the justification is documented.

Electricity in leased premises. Under operational control, it falls under Scope 2 if the company is party to the supply contract. Also under financial control if the premises are consolidated in the financial statements. If the landlord supplies electricity as part of the rent and the company is not party to the contract, it falls under Scope 3 category 8.

Charging an electric vehicle elsewhere. Charging a company-owned vehicle at a public charging point is still Scope 2 (operational control) when the vehicle is part of the company’s own fleet. The distinction is that the fuel is electricity rather than diesel.

Carbon offsets. The standard does not permit offsets to reduce reported figures. Offsets are reported separately as a distinct line item (out-of-scope) and do not affect gross Scope figures.

Year-end timing in a new group structure. Corporate restructurings require a boundary date to be selected. The most common practice is to use the group structure as at the end of the financial year and to document the boundary change in the annual report.

Where should an SME start

A three-step path to the first calculation.

1. Decide the financial year and organisational boundary. In most cases the natural choice is the most recently completed financial year and operational control. Write the decision down.

2. List Scope 1 and 2 sources. Fuels, vehicles, refrigerants, purchased electricity, and heat. This typically covers 60–80% of emissions for a service or trading company, if Scope 3 is left for a later phase.

3. Assess the materiality of each Scope 3 category. Go through all 15 categories and mark each one as: significant, not significant, or not applicable. This becomes a report appendix and the foundation for more comprehensive accounting later.

Decide one thing this week: will you use operational or financial control? This single choice determines which companies and operations are included in your calculation.

Frequently asked questions

Is the GHG Protocol mandatory?

The standard itself is voluntary. However, most regulatory requirements and customer requests require GHG Protocol-compliant accounting, so in practice it is mandatory for a large proportion of companies.

What is the difference between operational and financial control?

Operational control covers operations in which the company makes operational decisions. Financial control corresponds to accounting consolidation. Operational is the more common choice for SMEs, as it is more intuitive.

Which standard is Scope 3 based on?

The GHG Protocol Corporate Value Chain (Scope 3) Standard, published in 2011. It defines 15 categories for upstream and downstream emissions.

Is ISO 14064 the same as the GHG Protocol?

It is not the same, but the two are compatible. ISO 14064-1 defines the requirements for organisational-level accounting and is compatible with the GHG Protocol. ISO 14064-1 is frequently used in verifications.

Can an SME use a lighter-weight standard?

VSME (EFRAG, 2024) is a voluntary reporting standard developed for SMEs. It relies on the GHG Protocol’s scope categories but is structurally lighter than full CSRD reporting.

Do you need a GHG Protocol-compliant calculation?

We carry out the calculation on your behalf in line with the standard. We act as the active coordinator; you provide access to your systems and answer clarifying questions.

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