Restating GHG Emissions: Why Changing the Numbers Is Not Necessarily a Bad Thing

Nobody likes changing a number that has already appeared in an annual report. Yet recalculating historical greenhouse gas emissions is a normal part of building a more accurate, consistent and useful GHG inventory.

The pattern is familiar. A sustainability team works out that last year’s emissions figure needs to move. The recalculation is sound, the reasoning is documented and the new number is better than the old one. Then the paper reaches the board, and the question comes back: does this mean we got it wrong?

That assumption deserves to be challenged, because it usually runs the wrong way round. A GHG inventory is not a static number. It should become more accurate and more representative as methodologies, emission factors, organisational knowledge and underlying data improve. A restatement can arise from an error. Far more often it shows that the organisation’s GHG accounting has matured.

It is also considerably more common than most boards expect, including among companies with the longest reporting histories.

Two things in that data are worth separating carefully. The 69% covers prior-year adjustments to climate and sustainability metrics generally rather than GHG restatements alone, and the proportion had risen sharply from 46% a year earlier. Of the companies that did adjust GHG figures, three quarters were dealing with Scope 3, which is where estimation, proxy data and supplier information sit.

The last figure is the one boards should sit with. Only a fifth of the latest restatements were attributed to errors. The other four fifths came from something else entirely.

Recalculation is built into the standards

Companies sometimes treat a restatement as a departure from the framework they report against. It is closer to the opposite. Recognised GHG accounting practice expects historical figures to be recalculated in defined circumstances, and asks companies to decide how they will handle it before the situation arises.

Chapter 5 of the GHG Protocol Corporate Standard, which deals with tracking emissions over time, asks companies to establish a base year recalculation policy and, where appropriate, a significance threshold. It then identifies the circumstances that trigger recalculation where the effect is significant:

• ›Structural changes such as acquisitions, disposals, mergers, outsourcing or insourcing
• ›Changes in calculation methodology
• ›Improvements in the accuracy of emission factors
• ›Improvements in activity data
• ›Discovery of significant errors

The qualifier in that list does a lot of work. Not every methodological refinement requires the historical inventory to be rebuilt. A marginally better factor applied to a minor source may not move the total in any way a reader would notice, and reconstructing several years of history for it costs more than the improvement is worth. Materiality and the company’s own significance threshold decide the question, which is precisely why the threshold should be set in advance rather than argued over once the recalculation is already on the table.

Chapter 9 of the GHG Protocol Corporate Value Chain Standard takes a similar position for Scope 3, requiring recalculation where significant changes occur in company structure, inventory methodology or the categories and activities included. Given how much of a Scope 3 inventory begins as estimate, that is a provision most reporters will use.

What IFRS S1 says about comparatives

IFRS S1 deals with the same question in paragraphs B49 to B54, and two of them matter here. Paragraph B50 addresses estimates: where an amount was estimated and new information later becomes available that provides evidence about circumstances existing in the previous period, the comparative amount is revised, unless an applicable exception applies. Paragraph B52 addresses metrics: where an entity redefines or replaces a metric, it should provide a revised comparative amount unless doing so is impracticable, explain the change and explain why the new metric provides more useful information.

Read together, those paragraphs say something close to the argument of this article. Better information arriving after the event is a legitimate reason for a historical number to change, and the standard asks for the change to be explained rather than avoided.

Paragraph B55 then deals with material prior period errors, and it should not be read as an escape route. Where something genuinely was an error, it is disclosed as an error. No restatement policy exists to relabel a mistake as a refinement.

What IFRS S2 says about emission factors

IFRS S2 does not hand companies one universal emission factor for every activity. Paragraph B29 requires the use of emission factors that best represent the activity being measured, which is what makes a move to a more representative factor an improvement rather than an inconsistency.

Global warming potentials need more care. Where an entity measures emissions directly, IFRS S2 requires 100-year GWP values from the latest IPCC assessment available at the reporting date. Where an emission factor already converts the constituent gases into CO2e, the position is more nuanced, and it would be wrong to suggest that every existing factor has to be taken apart and rebuilt on AR6. The practical point is narrower: moving from an AR5-based methodology to an AR6-based one can change the calculated CO2e figure even though the tonnes of methane or nitrous oxide behind it have not moved at all. Where the methodology changes, the comparatives may need to change with it so the trend still means something.

When the emission factor itself is revised

The clearest demonstration that authoritative data evolves sits in Malaysia’s own grid emission factors, and it affects the Scope 2 figure of almost every company reporting here.

There is a timing dimension to this as well. Grid factors are generally published after the year to which they relate, because the national energy data underneath them has to be compiled first. A company reporting on time therefore uses the best factor available at the time, and a newer official figure for the same year can appear afterwards. That is a normal consequence of how the data is produced rather than a failing on anyone’s part, but it does mean Malaysian reporters should expect the question to recur.

For a company with significant purchased electricity, a revision to the grid factor runs straight through the Scope 2 figure. Whether it warrants restating the comparative comes back to the significance threshold, applied consistently rather than only when the revision happens to be favourable.

When estimates give way to evidence

The GHG Protocol recognises the use of proxy data to fill gaps where information of sufficient quality is not available. In practice this is how most first inventories get finished. A group with many branches, franchises or subsidiaries may receive complete energy data for only part of the reporting boundary, and estimating the remainder from comparable operations is a reasonable and disclosed way to produce a complete figure.

A year later the picture is usually different. Data collection processes have been built out, responsibilities have been assigned across the group and the actual historical consumption can be obtained for operations that were previously estimated. Replacing a proxy with the real figure is a straightforward improvement in data quality, and where the effect is significant, restating the comparative period gives users a more meaningful trend than leaving an estimate standing next to an actual.

The same progression runs through Scope 3. A category such as upstream transportation and distribution is often calculated first from expenditure, because the accounting system already holds it and the GHG Protocol permits spend-based methods for relevant categories. As the inventory matures, shipment weights, distances, freight modes, fuel consumption and logistics provider data become available, and they describe the activity rather than the price paid for it. Where equivalent historical information can be reconstructed from invoices or logistics records, recalculating the earlier year on the improved method is often worth doing.

When the boundary becomes more complete

A first GHG inventory rarely arrives with every source perfectly mapped. As data collection develops, a sustainability team may identify an energy source, a refrigerant, a transport activity, a leased asset, a franchise operation or a value chain activity that earlier inventories never captured.

Added to the current year on its own, that discovery produces a spike which never happened.

Illustrative figures, not client data.

The company in that example did not suddenly emit 45% more. Its measurement became more complete. Where the historical information can be obtained and the effect is significant, recalculating the earlier period gives a far fairer picture of what the business actually did.

Restatement protects the trend

The strongest argument for restating has little to do with the accuracy of any single figure. It is about what happens to the trend when the methodology moves and the history stays where it is.

Consider two consecutive reporting years built on different foundations.

Every line in that table describes a change in method rather than a change in emissions. Place the two totals side by side without adjusting either, and the movement between them says almost nothing about how the business performed. It describes the inventory, not the company.

Recalculating the earlier period onto the current basis is what restores the comparison. It is also what allows a reduction target, an intensity ratio or a trend line in a sustainability report to carry any weight, because each of those depends on both ends of the comparison having been measured the same way.

What a good restatement disclosure looks like

A reader of the comparative needs three things: what changed, why it changed and what it did to the figures. Most of the discomfort around restatement disappears once the disclosure says those three things plainly.

None of that wording is a euphemism, and the exact phrasing should follow whatever actually changed. A company that writes “previous emissions were incorrect” when nothing was incorrect has misdescribed its own work, and a company that hides a genuine material error behind the language of refinement has done something rather worse. Transparency matters more than finding a comfortable form of words.

Where the restatement affects a base year, a target or an intensity metric, say so in the same place. Those are the figures an investor, a rating agency or a customer will use, and they are the ones most easily misread if the restatement is disclosed somewhere else.

Before restating GHG emissions

Five steps, in order. The first one decides how the rest of the exercise is described.

One further thing belongs alongside those steps. A restatement should leave a record behind it, because the people asking about it later will not be the people who made it. The audit trail should carry:

• ›The original figure as published
• ›The restated figure
• ›The reason for the change
• ›The methodology applied
• ›The emission factor version and its source
• ›The calculation supporting the revision
• ›Who approved the change, and when

That record turns a restatement from a decision somebody remembers into evidence somebody can check, and it becomes considerably more valuable as assurance expectations tighten under the National Sustainability Reporting Framework.

Judge the method, not the stability of the number

Which brings the argument back to the boardroom. A GHG inventory should not be judged on whether its historical figures have stayed still. It should be judged on whether the methodology is transparent, whether it is applied consistently across the periods shown and whether it rests on the best information reasonably available.

Measured that way, some historical numbers will change. That is not necessarily a weakness in the reporting process. Quite often it is evidence that the process is working, because someone went back to the data and found something better. A figure that has never moved may only mean that nobody has looked at it a second time.

GHG inventories evolve. Better data should produce better numbers. A historical figure should not be preserved simply because it has already been published.

Ace CSR supports Malaysian companies with GHG accounting, Scope 3 assessment, IFRS S1 and S2 advisory and sustainability reporting, including emission factor selection, recalculation policies, methodology notes and the disclosure wording that explains a restatement to the people who read it.