You've calculated your base-year emissions, but are they still relevant? If your accounting methodology, scope, or data has changed, it may be time to recalculate your base-year emissions to align with your current reporting year. We call this base year recalculation or rebaselining: a process that ensures you capture the most complete and accurate picture of your true progress.
In the realm of sustainable business practices, the recalculation of base year emissions, often termed'rebaselining,' is a cornerstone for accurate and meaningful greenhouse gas (GHG) reporting.
Why Rebaseline?
Rebaselining is necessary to ensure comparability over time when
significant operational changes occur that fundamentally alter a company's emission profile
emission calculation methodologies have been updated
there’reimprovements in data quality can prompt a reassessment of past emissions
At Greenly, we define progress as the actual reduction of a company’s emissions, measured by comparing two footprints calculated using the same methodology, data granularity, and scope. This consistency is key for an accurate analysis of progress. Selling an entity or using more accurate emissions factors can decrease your carbon footprint compared to your base year, but these aren't real progress – they’re simply shifts in scope or data quality. Rebaselining ensures consistency, providing a true sense of your progress.
When to Rebaseline?
If you’ve determined a recalculation is needed, here’s how to confirm the necessity of re-baselining:
Plug base-year data into an updated model aligned with the current year. If, for example, changes were made to the hypotheses for refrigerant leaks and corrections to natural gas consumption. If these changes cause the base year emissions to exceed the significance threshold, update your base year emissions. (SBTi’s recommended significance threshold is 5%)
Measure true impact by comparing these two identical models to showcase progress towards overall goals.
A key concept in rebaselining is the'significance threshold,' which companies set to determine when changes are substantial enough to warrant a recalculation of the base year. This threshold is often quantified as a specific percentage change in emissions compared to the original base year figures. For instance, a common benchmark established by the Science-Based Targets initiative (SBTi) is a 5% change in total emissions, which, if met or exceeded, triggers a recalculation.
Activities that could trigger rebaselining include the scenarios below. These triggers do not automatically mean that a recalculation is mandatory: companies should apply their own recalculation policy and only rebaseline when the change passes the defined significance threshold.
1. Structural changes
Mergers or acquisitions: if a company acquires another entity, the acquired company’s emissions must be included in both the base year and the current year to ensure a valid comparison.
Example: Company A acquires Company B in year 2. Company A must recalculate its base year to include Company B’s emissions.
Divestitures: if a company divests a business unit or facility, those emissions must be excluded from both the base year and future reporting periods.
Example: Company A sells Facility X in year 2. Emissions from Facility X must be excluded from the base year onward.
Outsourcing or insourcing: changes in operational control, such as moving processes to or from third parties, can trigger rebaselining.
Example 1: If a company outsources manufacturing that was previously done in-house, the base year should exclude those emissions if they are no longer in Scope 1 or 2.
Example 2: If a company used third-party freight in the base year, reported under Scope 3, but now operates its own fleet, reported under Scope 1, rebaselining may be needed to shift those emissions into the right scope. If the Scope 3 emissions from third-party freight were not previously reported, rebaselining would be necessary to ensure the inventory reflects the new operational boundary.
Changes in equity shares or joint ventures: when a company changes its stake in joint ventures or equity ownership, it must adjust the base year to reflect its new share of emissions.
Example: Company D increases its equity in a joint venture from 30% to 60%, requiring a recalculation of the base year to reflect the higher responsibility for emissions.
Organizational boundary adjustments: changes in how a company consolidates its emissions, for example based on equity share, operational control, or financial control, require recalculating the base year to reflect the new boundary.
Example: A company initially used the equity share approach but later switched to the operational control approach, requiring recalculation of its base year to reflect the new boundary.
2. Methodological changes
Changes in emission factors: when a company adopts updated or more accurate emission factors, it should recalculate the base year to maintain consistency.
Example: A company uses a new, more precise emission factor for purchased electricity, which requires recalculating the base year to ensure accurate comparisons.
Switching from spend-based to activity-based data: if a company switches from estimating emissions based on expenditure data to using activity-based data, such as actual fuel consumption, it is best to recalculate the base year using the new methodology. If historical activity data is available, companies can recalculate the base year directly. If not, they can estimate past data using proxies such as financial or operational metrics. If neither option is possible, spend-based data can be retained for the base year, with activity-based data used going forward. In all cases, documenting the methodology change and any limitations is essential.
Example: Company F switches from spend-based estimates of freight emissions to actual fuel-use data for its fleet. The base year should be recalculated using the more accurate activity-based data when possible.
Changes in hypotheses or assumptions: if the assumptions used to estimate emissions change, recalculations may be necessary.
Example 1: If a company originally estimated emissions based on a hypothetical energy usage pattern and later obtains accurate measured data, it should recalculate the base year using the updated assumptions.
Example 2: If a company initially made assumptions about the materials used in its products, but has since updated those assumptions based on new information, it should apply the revised assumptions to the base year and recalculate emissions for consistency with the current year’s more accurate data.
3. Data corrections or errors in the base year
Errors or omissions: if errors or omissions are discovered in the base year data, the company must correct and recalculate the base year emissions when the impact is significant.
Example 1: Company G discovers that a significant portion of emissions from its overseas operations was omitted from the base year due to a data-entry error. The company must recalculate the base year to include the correct data.
Example 2: In the base year, Company H excluded Scope 3.7 emissions from employee commuting, but it now includes them in the current year’s report. To ensure comparability, the company should recalculate the base year to include employee commuting emissions.
Example 3: Company J initially excluded Scope 3.1 upstream manufacturing emissions related to purchased products and services in the base year but has included them in the current year’s inventory. The company should revise and recalculate the base year to reflect these upstream emissions for consistency.
Recommendations on how to implement Base Year Recalculations
1. Develop and Communicate a Clear Recalculation Policy: Address when, why, and how you will rebaseline. Compliance with the GHG Protocol requires a recalculation policy.2. Rebaseline When Change is Significant: Follow the SBTi's 5% threshold for significant changes.3. Consolidate Less Significant Changes: Group smaller changes into a single baseline update to avoid frequent recalculations.4. Manage Expectations: Communicate transparently with stakeholders about potential baseline changes.5. Use Accurate and Qualitative Communication: Clearly explain the reasons behind any fluctuations to promote trust.6. Follow GHG Protocol Guidance: This provides a reliable framework for accounting decisions and precision.
Conclusion
As businesses strive to align their operations with global sustainability targets, the practice of rebaselining becomes increasingly important. By ensuring that GHG reporting reflects the most current and accurate data, companies can make more informed decisions about their environmental strategies and communicate their progress more transparently to stakeholders.
For businesses looking to establish or refine their approach to GHG recalculations, adhering to established guidelines such as the GHG Protocol will provide a structured and credible framework to navigate this complex but crucial aspect of corporate sustainability reporting.