The GHG Protocol which is the global rulebook for how companies measure and report their greenhouse gas emissions is moving towards a tighter and more realistic assessment with an overarching aim to provide a clearer picture of corporate performance to investors.  This note summarises what is changing, why it is happening now, and what to watch as the consultation progresses through 2026.

THE CASE FOR CHANGE

The GHG Protocol underpins net zero targets, as emissions must be measured and disclosed using recognised standards. Investors and companies rely on GHG data for carbon accounting, target setting and voluntary and mandatory reporting. First introduced in 2005, the standard is now being revised to better reflect how electricity is produced and consumed today, having system wide implications for how all companies account for their role in the decarbonisation of the global economy. The Protocol requires companies to report emissions across three scopes.

• Scope 1 covers emissions from sources a company owns or controls. 
• Scope 2 relates to emissions from purchased electricity, heating or cooling. 
• Scope 3 captures indirect emissions linked to company activities, including supply chains, use of sold products and business travel.

Over the past decade, many companies have reduced their reported emissions footprint by procuring renewable energy, either through local grids using a location based Scope 2 approach or through market based instruments linked to renewable projects. Under current rules, companies can report either figure and often disclose the lower number, even though many regulatory regimes mandate location based reporting.

The case for reform reflects profound changes in energy systems since the standard was designed. Renewable capacity and corporate procurement have expanded rapidly, yet existing rules allow Scope 2 emissions to be reported in ways that may not reflect real world impacts or the true costs of integrating renewables into power systems. 

In practice, many firms rely on low cost certificates linked to projects that would likely have proceeded regardless of corporate demand. Companies can use annual averages or broad regional figures that fail to capture when electricity is used or where it realistically comes from. Firms may consume power during carbon intensive hours while claiming cleaner averages, or purchase certificates from distant, unconnected grids. High profile examples of large technology companies claiming to be fully renewable while both location based and market based emissions rise have reinforced the need for stronger guardrails.

The proposed changes aim to improve accuracy, fairness and transparency so reported emissions better align with what is actually happening on the grid.

WHAT TO EXPECT

Precise matching: The proposed updates to the GHG Protocol would materially tighten how companies account for Scope 2 electricity emissions, with a clear shift towards matching reported emissions to how power is generated and consumed. Companies would be expected to use the most precise location and time data available, ideally on an hourly and grid specific basis. 

Impact: Increase demand for 24/7 matching of energy production and consumption.

Market-based reporting: Stricter rules would also apply to market based reporting. While companies would still be able to use certificates and contracts to claim clean electricity, these instruments would need to meet much tighter criteria. Certificates would have to match the exact hour of electricity use and come from generators that could deliver power to the company’s grid. In practice, this would remove the ability to offset domestic emissions using overseas renewable certificates or generation produced at unrelated times. 

Impact: Some renewable certificates widely used today would no longer qualify for Scope 2 reporting, making emission reductions harder to claim for some companies and forcing a rethink of renewable procurement strategies. An hourly market is also likely to be more expensive, with prices rising during periods of low renewable output, increasing costs for large energy users such as technology companies that rely heavily on certificates.

Location-based reporting: Even where companies do not use market based instruments, location based reporting would become more granular. Firms would need to rely on grid data that reflects specific geographies, specific hours of consumption and the actual carbon intensity of the grid they used. This is intended to prevent the use of cleaner regional averages where companies are in practice drawing power from dirtier local grids. 

Transition: To avoid overburdening smaller firms, transitional measures are proposed, including exemptions, phased implementation and legacy clauses for existing contracts. In practice, thresholds would likely mean the new rules apply primarily to significant energy users. Overall, the changes point to higher compliance demands, higher costs for some companies and wide ranging implications for emissions targets and corporate decarbonisation strategies.

OUR POSITION

PGIM is supportive of the drive for improved accuracy and scientific integrity in reporting emissions under the protocol and believe targeted changes to the standard could better drive real world emissions reduction, subject to technological and market feasibility.
 

For location based reporting, greater clarity and consistency is needed:

Clearer rules on which grid factors apply within common regions would improve consistency and comparability of reported data, supporting investors assessing relative performance. Higher granularity and binding transparency requirements should apply to large energy users, which have the resources to deliver more detailed, methodologically clear disclosures. This would strengthen investor confidence in reported outcomes and reduce scope for inconsistent interpretation.
 

For market based reporting, stronger guardrails are required:

Stronger spatial and temporal matching requirements are appropriate for large energy users and will become increasingly important as renewables account for a larger share of electricity supply. However, certain asset classes, particularly real estate, may face practical challenges. A clear definition of corporate disclosure under the revised protocol, alongside flexibility for real assets, will be essential. Transitional mechanisms or alternative methodologies should be available to avoid unduly penalising investment in these markets.
 

Conclusion:

The primary objective of any update should be accurate, comparable attribution of emissions and closure of existing loopholes. Beyond reporting integrity, the standard should incentivise strategies that reduce real world emissions, not just reported figures. Stronger disclosure of methodologies and assumptions will be critical to improving comparability and investor trust.