When you set a target based on a base year emissions value, the target you set is based on the calculation of your organisation's emissions as it exists at a given point in time (including the calculation methods available to it). Overtime, however, the structure of your organisation and the calculation methods available to you (either due to improved emissions factors, methodologies, or available business activity data) can change, making the underpinnings of the target set inconsistent with how the business currently calculates its emissions.
For example, you have calculated your 2021 emissions in 2022 and chosen this as your organisation's base year. The value for your 2021 emissions will, therefore, be based on the business data, calculation methods and emission factors available to you when you were collecting data and calculating emissions in 2022. It will also reflect the company structure as it was in 2021 and 2022.
In order to ensure consistency in carbon accounting over time, there are a number of situations under which it is necessary to recalculate base year emissions according to the GHG Protocol:
Structural changes to the reporting organisation which have a significant impact on base year emissions such as mergers, acquisitions, and divestments, OR significant outsourcing or insourcing of emitting activities.
Changes to calculations either through improvements in the accuracy of emissions factors or available business activity data (the raw data you enter into the Plan A Sustainability Platform), which have a significant impact on base year emissions.
The discovery of significant errors or a cumulation of numerous minor errors in emissions data or calculations.
Following the same example, if any of the above changes occur after you calculated the base year in 2022 and apply to your 2021 data, you will need to recalculate the sections of your 2021 emissions affected by the changes.
What is meant by 'recalculating emissions' is twofold. One aspect is actually re-running calculations based on changes due to structural changes, calculation changes, and error fixes. Secondly, this means stating the new base year emissions value and factoring this value into previously set targets.
This article explains what changes require you to recalculate your base year emissions and how to develop a process for handling recalculations.
What constitutes a significant impact on base year emissions?
Significance is key here; however, the GHG Protocol leaves this undefined. For instance, acquiring an early-stage company with a relatively small carbon footprint may have a negligible impact on your base year emissions, which would mean that it doesn't make sense to recalculate emissions to factor this in.
The GHG Protocol suggests reporting companies develop a 'base year emissions recalculation policy' including a 'significance threshold' which defines a qualitative and/or quantitative criterion for what constitutes a significant change to data, inventory boundary, methods, or any other relevant factors.
Whilst the GHG protocol does not make recommendations as to the definition of 'significant', instead leaving this up to reporting companies to decide, a 5% change to base year emissions is a commonly accepted threshold.
However, reporting companies should be aware that some specific GHG programs and initiatives specify quantitative thresholds for base year emissions impact. For instance, the California Climate Action Registry requires base year recalculation following 10% difference to base year emissions, determined on a cumulative basis from the time the base year is established. The Science Based Targets initiative (SBTi), however, requires companies to implement a threshold of 5% or less as part of their review and recalculation policy. As such, if you are reporting to specific standards, make sure to consult whether they provide guidance on this.
Under which circumstances must I recalculate my base year emissions?
The GHG Protocol specifies the cases below as events that trigger the need to recalculate base year emissions value (if the impact is 'significant' to the existing base year) as well as exceptions. Please note, however, that different reporting bodies and programs may have additional requirements.
Case 1: Structural changes such as mergers, acquisitions and divestments, or outsourcing/insourcing of activities
Case 1: Structural changes such as mergers, acquisitions and divestments, or outsourcing/insourcing of activities
The GHG Protocol defines structural changes as those which involve "the transfer
of ownership or control of emissions-generating activities or operations from one company to another."
Structural changes require companies to recalculate base year emissions because the acquired company's emissions allocation is relocated to the controlling company's inventory. This is because the amount of emissions released into the atmosphere is still attached to the acquired company and, therefore, becomes part of the inventory of the new controlling company. The reverse applies to divestments.
Mergers, acquisitions and divestments
Mergers, acquisitions and divestments
Such structural changes can involve the acquisition or divestment of entire companies or business units from other companies (e.g. a facility or department with emissions attached to them). All acquired/divested companies or business units are shifted to the new controlling company's emissions inventory.
Example:
Company A consists of two business units (an office in Manchester and a factory in Sheffield) and calculates its base year emissions for 2020. It experiences some organic growth in emissions in 2021, but this does not require recalculation.
In 2023, it acquires Company B, which has two additional facilities (Offices in London and Paris). The London Office was established in 2020, whereas the Paris Office came into existence in 2022.
In this case, since Company B's London Office existed in 2020, the year Company A set as its base year, meaning its 2020 emissions must be added to Company A's base year value.
Since the Paris office was only established in 2022, it has no associated 2020 emissions and, therefore, does not impact the base year.
Going forward after the acquisition in 2023, Company A's emissions calculations must account for the acquired London and Paris Offices. Optionally, Company A can recalculate emissions for all years in between for transparency and to show trends against emission reduction targets, but this is not required.
Outsourcing and insourcing of emitting activities
Outsourcing and insourcing of emitting activities
This is relevant when outsourced or insourced activities change the way emissions are accounted for.
For instance, if your organisation only calculates scope 1 and 2 emissions (something we don't recommend), and outsources scope 1 activity (making it a scope 3 activity), the base year must be recalculated. An example of this would be when a company outsources the transportation of its products because Scope 1 mobile combustion emissions become Scope 3 Category 9 Downstream Transportation and Distribution.
Similarly, if your organisation decides to track emissions over time on a scope-by-scope basis, having different base years for each scope, then emissions recalculations for outsourcing or insourcing must be made.
Case 2: Improvements in calculation quality through changes in available business activity, emission factors, and/or calculation methods
Case 2: Improvements in calculation quality through changes in available business activity, emission factors, and/or calculation methods
As per Plan A's Data Update Policy, updates and upgrades to our methodologies, conversion factors and emission factors are only applied to the current year's data, meaning these changes won't require you to recalculate your base year.
Two circumstances may arise in which you may be required to recalculate your base year emissions:
Firstly, you may unlock access to more precise business activity data, allowing you to use a more accurate calculation method to calculate emissions.
As scientific knowledge and Plan A's calculation methods develop, Plan A may also release more accurate calculation methods. Should you wish to use these, you may have to recalculate your base year emissions if doing so were to result in significant changes to emissions.
Case 3: Identification of significant errors or a cumulation of minor errors
Case 3: Identification of significant errors or a cumulation of minor errors
Errors could arise for one of two reasons. Firstly, although a very rare case due to stringent quality assurance and due diligence processes at Plan A, it may occur that there is an error in our emission or conversion factors. See here for more information on how we inform you about this.
Secondly, human error in data collection and entry may result in the need for recalculation.
Exceptions
Facilities that did not exist in the base year
No recalculation of base year emissions is required if acquired or divested business units did not exist in the base year.
For instance, if Business A sets 2020 as its base year and acquires Business B in 2022, but Business B only came into existence in 2021 (after Business A's base year), then there is no requirement for Business A to recalculate its base year.
They may, however, optionally choose to recalculate and re-report their emissions from the year Business B came into existence (i.e. their 2021 emissions).
'Outsourcing or insourcing' where emissions are already reported under Scope 2 and/or Scope 3
No recalculation of base year emissions is required as a result of structural changes due to outsourcing or insourcing if the company already reports its indirect emissions from relevant activities.
Organic growth or decline
No recalculation of base year emissions should be carried out as a result of organic growth or decline. This entails increases or decreases in output, product mix, and openings or closings of operating units owned and controlled by the reporting company (e.g., opening a new office). Rather, these should be reflected as increases or decreases in your company's emissions over time.
How should I manage re-calculations?
Establish a base year review and recalculation policy
Reporting companies must establish a base year review and recalculation policy, which outlines when and how recalculations should be carried out, including a 'significance threshold' which defines a qualitative and/or quantitative criterion for significant changes to data, inventory boundary, methods, or any other relevant factors.
Such thresholds for recalculation should be known to those overseeing the company's carbon accounting so that recalculations can be swiftly carried out when necessary. Alternatively, this can be a factor in yearly reviews of the decarbonisation process.
Third-party reporting considerations must also be accounted for in your review and recalculation policy. EFRAG E1 requires companies with CSRD requirements to review their base year emissions every 5 years starting from 2030. Similarly, organisations with emissions reduction targets verified by the Science Based Targets initiative (SBTi) are also required to review their base year every 5 years, and those with targets approved in 2020 or earlier must review and, if necessary, revalidate these by 2025.
Review and recalculation, therefore, must be routine for sustainability professionals and should not be thought of as one-off events.
Timing
When significant structural changes occur midway through a year, base year emissions should be recalculated for the entire year, and the current year's emissions should be recalculated to the beginning of the reporting year to ensure comparability.
Intermediate years
According to the GHG Protocol, recalculating for all years in between is optional; however, is useful in providing relevant progress insights. Companies can also optionally report originally reported and recalculated emissions side-by-side so as to increase transparency and represent the company's evolution over time.
However, EFRAG E1 requires an explanation of how the new base year value affects set reduction targets, their achievement and presentation of progress over time. This effectively requires companies to recalculate intermediate years if reporting in the EU.