Jeanette Hill, CPA, CMA, MSc Candidate

Let’s start with the very basics, what is a methodology?

In sustainability reporting, a methodology is the documented set of principles, rules, and processes that define what information is included, how data is collected, calculated, estimated, reviewed, and disclosed across environmental, social, and governance metrics. It establishes consistent boundaries, data sources, assumptions, and controls to ensure reported information is accurate, comparable over time, transparent, and aligned with reporting standards and organizational objectives. In practice, sustainability methodologies function like accounting policies, providing governance and discipline so non-financial data can support decision-making, regulatory compliance, and external assurance.

Sustainability reporting methodology should be aligned directly to applicable reporting standards because the standards define not only what must be disclosed, but how metrics are intended to be measured, scoped, and interpreted. Designing methodology from the standards backward ensures consistent boundary setting, appropriate calculation approaches, and defensible assumptions that meet regulatory and investor expectations. When methodology is developed independently of standards and mapped afterward, organizations often introduce gaps, inconsistencies, and higher assurance risk that undermine comparability and credibility.

We will focus GHG emissions since it is likely the most used and necessary and has defined global standards for data collection (GHG protocol) aligned with international reporting standards like ESRS and ISSB/CSSB.

To illustrate the importance of clear methodology, I will also use an illustrative example comparing two companies both using GHG protocol that are in the same industry but have different emissions due only to different methodologies.

A robust GHG emissions methodology must begin with a clear understanding of purpose and strategic alignment. Organizations should first define why they are collecting emissions data. Is it for regulatory compliance, investor disclosure, risk management, target setting, or internal decision-making? This objective directly determines the level of precision, scope coverage, governance, and control required. Methodology designed solely for high-level reporting often relies heavily on estimates and aggregated data, while methodology intended to support assurance, capital planning, and decarbonization strategies demands granular, activity-based data, consistent boundaries, and formal policies. When emissions methodology is explicitly aligned to organizational strategy and treated with the rigor of financial data (see my previous post on data ownership), the resulting data becomes not just reportable, but decision-useful, comparable over time, and capable of withstanding regulatory and assurance scrutiny.

When sustainability data is collected without a clear link to organizational strategy, companies often end up with inconsistent metrics, shifting boundaries, and numbers that cannot withstand assurance or support real business decisions. In contrast, organizations that design their GHG methodology around strategic objectives such as capital allocation, risk management, and decarbonization planning tend to build more robust, transparent, and defensible reporting systems.

Nowhere is this more evident than in how organizations define their organizational and operational boundaries.

For example: Company A and Company B operate comparable manufacturing facilities, generate similar revenues, and purchase from many of the same suppliers.

Yet their reported GHG emissions look like this:

• Company A: 120,000 tCO₂e
• Company B: 185,000 tCO₂e

At first glance, stakeholders may conclude Company A is performing better environmentally.

However, the difference is largely methodological.

The first major methodological decision relates to how each company defines its organizational boundary, usually according to the Greenhouse Gas Protocol (GHGP). Organizational boundary definition establishes which entities, operations, and assets are included within an organization’s sustainability reporting scope and forms the foundation for consistent, comparable data. It requires organizations to determine whether emissions and other sustainability impacts are reported based on a choice of:

• Control
  • operational control: a company reports 100% of GHG emissions when it has full authority to introduce and implement operating policies
  • or financial control: a company reports 100% of GHG emissions when it has authority to introduce and implement financial and operating policies for economic benefit.

• Equity share method
  • GHG emissions are counted based on the share of ownership in the corporation.

For more information on these methods of organizational boundaries please see GHGP Resources

Organizations must clearly define the treatment of subsidiaries, joint ventures, leased assets, and minority investments. A well-documented boundary approach aligned with financial consolidation practices prevents double counting, ensures year-over-year consistency, and provides transparency for stakeholders interpreting reported performance. Without clear organizational boundaries, sustainability data quickly becomes fragmented, misleading, and difficult to assure.

Company A – Operational Control Approach

Company A includes:

• 100% of emissions from facilities it operates and controls
• Excludes joint ventures where it has minority ownership but no operational authority
• Includes leased assets where it controls day-to-day operations

Company B – Equity Share Approach

Company B:

• Reports emissions proportional to its ownership share
• Includes partial emissions from joint ventures based on equity percentage
• Excludes some leased operations not owned

Practical Impact

Both companies hold a 40% interest in a joint venture emitting 50,000 tCO₂e annually.

• Company A reports 0 tCO₂e (no operational control)
• Company B reports 20,000 tCO₂e (40% equity share)

Company B appears to have higher emissions due to boundary selection.

Operational boundary definition specifies which types of activities and impact sources are included in sustainability reporting and how they are categorized across direct and indirect impacts. In the context of GHG reporting, this typically involves clearly identifying Scope 1 direct emissions, Scope 2 purchased energy emissions, and relevant Scope 3 value chain emissions, along with documented criteria for inclusion or exclusion based on materiality and data availability. Establishing consistent operational boundaries ensures completeness, supports meaningful year-over-year comparisons, and prevents selective reporting that can distort performance trends. Well-defined operational boundaries also provide transparency to stakeholders and form the basis for credible target setting and risk assessment.

This is an inventory of what goes into each scope.

Once boundaries are set, the methodology should formally define:

• Base year selection, outline why it was selected.
• Triggers for recalculation (acquisitions, divestitures, boundary changes, data improvement, methodology improvements, emission factor updates (if change is material). For example if you made an acquisition will you Includes emissions only from acquisition date forward or restates your base year to reflect full-year ownership?
• How emissions are treated in the year of change (partial year vs full-year restatement)
• Materiality thresholds for restatements
• Estimation and Assumptions Policy
• Acceptable estimation thresholds (e.g., ≤10–20%)
• Proxy data rules
• Escalation process for missing data
• Documentation requirements for assumptions
• Approval process for material estimates

This step protects trend integrity and comparability over time.

The organization should document data sources for example what are the data sources for each emissions source within each scope that will be used for example, in a trucking company perhaps fuel invoices would be used to calculate scope 1 emissions. Other sources of primary data could be fleet logs.

It is also important to define

• data collection frequency
• cut off or accrual rules
• % of emissions allowed by estimation
• escalation process for missing data
• calculation formula, units of activity (recorded in L, KG, KwH etc..), emission factor source and selection, Global Warming Potential (GWP) version used, conversion factors
• documented data hierarchy
  • For example, primary data is the best and most reliable data, coming straight from operations, second most reliable is supplier provided data on product emissions or energy use tied to purchases etc.., third would be hybrid data so activity data X industry emission factors, life cycle estimates from data bases and spend-based data is often the least reliable. Companies should state their data hierarchy preference, for example: Primary activity data must be used where available. Where unavailable, supplier-specific data is preferred, followed by modeled estimates. Spend-based methods may only be used when no activity data exists and must be disclosed. They may also include goals to to reduce spend-based data per year etc..

To illustrate this we will return to Company A and take a quick look at calculation methodologies for scope 3 emissions for purchased goods and services.

Both companies report Scope 1 and Scope 2 emissions consistently. The major divergence occurs in Scope 3 for purchased goods and services.

Company A – Uses Spend-Based methods : 35,000 tCO₂e scope 3 reported

Spend-based methods take the amount Company A spends with suppliers (unit of activity) and multiply it by industry averages of Co2 emissions for purchased goods.

Company A purchased $350,000 worth of cement last quarter (frequency) to build a new facility and estimated an emissions factor of .1 tCO₂e per dollar spent this is obtained from XYZ website on emission averaes for the cement industry (for illustrative purposes only, does not reflect actual emissions of cement). No conversions are necessary here, however, if let’s say cement emission factors were .1 kg of CO₂e and needed to be converted into tCO₂e before reporting, this should all be define, documented and formulas locked to help prevent errors (see my blog on data ownership and governance)

• Calculation formula and logic behind its use should be documented per emissions source.
• Logic should include emission factor sources and update frequency and last review for those sources should be documented.

Spend-based strategies will often underestimate emissions, however, this can be acceptable depending on what the purpose of data collection was.

Similar methodology decisions must be made for other sources of scope 3 and scope 2 emissions for example, for scope 2, will you be using location-based vs market-based reporting? Further details are available in GHGP Scope 2 guidance.

Lastly good internal controls and governance are required for each step of this methodology! For more on this see my post on data governance (opens in new tab).

A strong sustainability and GHG emissions methodology is built on clear strategic purpose, well-defined organizational and operational boundaries, and direct alignment with reporting standards to ensure consistency and credibility. It formalizes calculation approaches, data hierarchies, estimation rules, and emission factor governance while embedding policies for base year selection, recalculations, acquisitions and divestitures, and transparent disclosure of methodological choices. Supported by documented procedures, internal controls, and ongoing change management, a robust methodology transforms sustainability data from isolated metrics into reliable, comparable, and decision-useful information that can withstand regulatory scrutiny and external assurance.

Here’s a quick look at some of the key elements of good methodologies that can be utilized in GHG emissions and other sustainability reporting metrics.