Corporate climate action begins with effective goal setting. But some situations call for a recalculation of baseline emissions, which can make that goal a moving target.
Emissions reductions targets are tracked against a base year, usually the earliest year in which verifiable emissions data are available. Most companies use emissions across a single calendar year to create their baseline and measure progress towards their goal against that baseline number. Sustainability managers should know when and how to recalculate baseline emissions so their organizations can confidently assess their climate progress.
When Must Organizations Recalculate Baseline Emissions?
Recalculating a baseline is required when there are substantial, inorganic changes to a baseline emissions profile after the target is set.
To define “substantial” change, organizations typically set an internal baseline recalculation policy and a significance threshold. While most third parties like the Greenhouse Gas (GHG) Protocol do not have a recommended threshold, 5% is commonly used in the corporate world. Changes to baseline emissions greater than 5% can be cause for recalculation. Many organizations their baseline recalculation policy publicly on their website or within their sustainability reports for transparency.
For organizations that have an emissions target verified by the Science Based Targets initiative (SBTi), revision and recalculation must occur every five years and/or when substantial inorganic changes occur.
We recommend sustainability managers incorporate baseline validation into your annual emissions accounting process to consistently monitor the quality of your target as you continue to make reduction progress.
What Triggers the Need to Recalculate?
There are two types of events that can trigger baseline recalculation: business structure changes and methodological changes.
Business Structure Changes
Business structure changes include mergers and acquisitions, divestitures, and outsourcing/insourcing of business activities. These changes do not result in a net increase or decrease of emissions, but rather a shift in emissions from one business to another.
In the case of a merger or acquisition, baseline emissions should be adjusted to include the new business unit’s emissions from the baseline year. If Company A has a target with a baseline year of 2018 and acquires Company B in 2020, Company A will need to recalculate its 2018 baseline to include Company B’s 2018 emissions as well.
Similarly, in a divestment the company should recalculate emissions by removing the divested business unit’s baseline year emissions from the baseline. Recalculation ensures that there is no missing or double counting of emissions between entities.
The same principle applies when a company outsources or insources any new carbon emitting activities. However, if these emissions are already counted under another Scope, recalculation is not necessary. For example, should a company switch from purchasing electricity (Scope 2) to generating its own power on site (Scope 1) with the same technology, recalculation is unnecessary, as there is no significant net increase or decrease in emissions.
Unlike structural change, organic business growth or decline do not merit a baseline recalculation. This includes changes in production level or the opening and closing of new facilities. That’s because these activities result in an actual net change in a company’s emissions that should be reflected in emissions accounting, not just the displacement of emissions from one entity to another.
The second type of event that can trigger baseline changes are methodological, such as an improvement in accuracy of data or emissions factors, or the correction of a substantial error.
The organizations that set standards for GHG accounting, reporting, and goal setting, such as CDP or GHG Protocol, may also update their best practices and guidelines. Should these guidelines impact emissions calculations, a baseline recalculation may be necessary.
Similarly, correction of errors can trigger recalculation. If there are multiple methodological changes or errors, organizations should measure the cumulative impact against the significance threshold and .
When recalculating your baseline, check the requirements of any program in which your organization participates to ensure you follow recommended best practices.
Baseline Recalculation is Routine
Corporate sustainability managers will likely have to recalculate their company’s baseline emissions at some point. Having a concrete policy on when baseline emissions get recalculated and knowing best practice can help ensure that this important step happens when needed.