Skip to main content

Handling Complex Scenarios

While ERP-derived data provides a strong foundation for comprehensive carbon accounting, certain categories and scenarios within the GHG Protocol’s framework may not be explicitly distinguishable based on financial records alone. Understanding these nuances is essential for ensuring that emissions are allocated to the correct categories, maintaining methodological consistency, and upholding the integrity of the reported inventory.

Differentiating Capital Goods from Purchased Goods & Services (Category 2 vs. Category 1)​

The GHG Protocol distinguishes between Category 1 (Purchased Goods & Services) and Category 2 (Capital Goods) within Scope 3 emissions. In practice, financial and ERP data may not readily indicate whether an item qualifies as a capital good rather than a purchased good or service. For example, a company may record expenditures on manufacturing equipment, components, or infrastructure enhancements in the same manner as routine consumable purchases.

Implication:
Without explicit categorization in the ERP system, all such expenses may initially be treated as Category 1. If a company wishes to separately track and report Category 2 capital goods, it must apply additional judgment or supplemental data to identify and reallocate such expenditures. This often involves consulting asset registers, depreciation schedules, or engineering records beyond the standard financial ledger.

Reselling Fuels vs. Consuming Fuels​

The classification of fuel-related emissions hinges on the underlying activity. If a company purchases fuel for combustion within its own operations, these emissions typically fall under Scope 1 (Fuel Combustion). Conversely, if the company is purchasing fuel solely for resale—without combusting it—then emissions from these products at a later stage by another entity would align with relevant Scope 3 categories, such as Purchased Goods & Services (Category 1) rather than Scope 1.

Implication:
ERP data might only show a “fuel purchase” expense without clarifying the intended use. If the fuel is not combusted by the company, the user must reassign the resulting emissions to a Scope 3 category (e.g., Category 1), reflecting that the company is effectively acting as a distributor rather than a consumer.

Leased Assets: Scope 1 vs. Scope 3 Upstream Leased Assets​

Determining whether emissions from leased assets should be categorized under Scope 1 or Scope 3 Category 8 (Upstream Leased Assets) is another area where ERP records may lack sufficient contextual detail. Under operational control guidelines, if leased assets are integral to the company’s operations and the company exerts full operational control, these emissions may be reported under Scope 1. However, if the organization elects to treat these activities as outsourced and not under its operational control, assigning them to Scope 3 Category 8 may be more appropriate.

Implication:
This choice often depends on the company’s interpretation of operational and financial control and whether leased assets are treated as integral components of its operational boundary. ERP data may simply record lease-related expenses without indicating how the asset is utilized within the organization’s operational decision-making processes.

Importance of Informed Judgment and Supplementary Data​

In each of these scenarios, the ERP data alone does not provide a complete picture of how to classify emissions. Instead, organizations must consider the nature of their business. This often calls for:

  • Supplemental Information: Asset lists, contractual details, internal policy documents, or engineering records.
  • Policy Clarity: Documented internal methodologies for categorizing capital goods, distinguishing fuel purchases for resale vs. consumption, and handling leased assets.
  • Transparency: If assumptions or reclassifications are made (e.g., reassigning certain expenses from Category 1 to Category 2), these should be clearly documented and communicated for auditing and verification purposes.
Example

Assume a company’s ERP system shows a significant expenditure for machinery. The ERP description simply states “Industrial Equipment Purchase.” Without further details, this expense might default to Category 1. However, upon reviewing the asset register, it becomes clear that the machinery is a long-term capital investment used over multiple reporting years. In this case, the company may reassign the expense to Category 2 (Capital Goods) for more accurate reflection of its carbon footprint.

Adhering to the GHG Protocol’s Principles​

The GHG Protocol encourages clarity, completeness, and consistency. Users should apply professional judgment and consider supplemental data sources to ensure that expenditures are appropriately categorized. This due diligence upholds data quality, reinforces credibility, and enhances the auditability of the final emissions inventory.

In summary, while ERP data forms a robust base for carbon accounting, certain GHG Protocol categories require additional discernment. Identifying capital goods distinct from routine purchases, determining how to classify fuel-related activities, and deciding on the appropriate scope for leased assets all demand careful consideration. By complementing ERP data with informed judgment and supplementary records, organizations can ensure their emissions inventory remains both accurate and methodologically consistent.