For small and medium-sized manufacturing enterprises (SMEs) in India, the terms "ESG" and "GHG accounting" can seem like complex topics reserved for large multinational corporations. However, as global supply chains and investor expectations evolve, understanding and managing your company's carbon footprint is rapidly becoming a business necessity, not a choice.
This guide demystifies the process of Greenhouse Gas (GHG) accounting, breaking down the essential concepts of Scope 1, 2, and 3 emissions into practical, understandable terms for the Indian manufacturing sector.
What is GHG Accounting?
GHG accounting is the process of measuring the amount of greenhouse gases produced by your company's operations. Think of it as a financial audit, but for your environmental impact. The goal is to create a "GHG inventory"—a comprehensive list of your emissions sources and the quantity of gases they produce.
Demystifying the Three Scopes of Emissions
The global standard for GHG accounting, the GHG Protocol, categorizes emissions into three "scopes." Understanding these is the first step to measuring your footprint.
Scope 1: Direct Emissions
These are emissions that come directly from sources your company owns or controls. For a manufacturing SME, this typically includes:
- On-site Fuel Combustion: Emissions from boilers, furnaces, or generators that burn fuel on your factory premises.
- Company Vehicles: Emissions from trucks, forklifts, or company cars that you own and operate.
- Fugitive Emissions: Leaks from equipment, such as refrigerants from air conditioning units or industrial gases from your processes.
Scope 2: Indirect Emissions from Purchased Energy
These are emissions generated off-site but are a direct result of your company's energy consumption. For most manufacturers, this is straightforward:
- Purchased Electricity: The emissions produced by the power plant that generates the electricity you use to run your factory and offices.
Scope 3: All Other Indirect Emissions
This is the broadest and often most complex category. It includes all other indirect emissions that occur in your company's value chain, both upstream and downstream.
- Purchased Goods and Services: Emissions from the production of the raw materials you buy.
- Transportation and Distribution: Emissions from third-party logistics partners that transport your raw materials and finished products.
- Employee Commuting: Emissions from your employees' travel to and from work.
- Waste Disposal: Emissions from the treatment of waste generated in your operations.
Why This Matters for Your SME
Starting your GHG accounting journey is no longer just about environmental responsibility; it's about business resilience. A clear understanding of your emissions can help you identify operational inefficiencies, reduce energy costs, and meet the growing demands of customers and investors for sustainable partners.