As global and local pressures mount for greater corporate responsibility, Malaysian organizations are increasingly turning their focus toward Environmental, Social, and Governance (ESG) principles. A fundamental component of any credible ESG strategy is understanding and managing your environmental impact. This starts with greenhouse gas (GHG) accounting. For businesses in Malaysia just beginning their ESG journey, measuring your carbon footprint is no longer a niche activity but a strategic necessity.

This guide will walk you through the basics of GHG accounting. We will explore the global standards that shape this practice, break down the different types of emissions, and provide a clear roadmap for your organization to begin measuring its impact. By understanding these fundamentals, you can build a more resilient, sustainable, and competitive business.

What is GHG Accounting and Why Does It Matter for ESG?

GHG accounting is the process of measuring, quantifying, and reporting the greenhouse gas emissions an organization produces. Think of it as financial accounting, but for your environmental impact. Instead of tracking ringgits and sens, you are tracking tonnes of carbon dioxide equivalent (CO2e), a standard unit for measuring carbon footprints.

The importance of GHG accounting in the context of ESG cannot be overstated. For Malaysian organizations, it serves several critical functions:

• Risk Management: Climate change presents significant physical and transitional risks. Flooding, supply chain disruptions, and shifting regulations can all impact your bottom line. GHG accounting helps you identify these risks and develop strategies to mitigate them.
• Competitive Advantage: Customers, investors, and talented employees are increasingly drawn to companies with strong sustainability credentials. Transparent carbon footprint reporting can enhance your brand reputation and open doors to new markets and investment opportunities.
• Regulatory Compliance: Malaysia has committed to becoming a carbon-neutral nation by 2050. Regulations are evolving, and mandatory reporting requirements, like those from Bursa Malaysia for public listed companies, are becoming more common. Proactive GHG accounting ensures you stay ahead of compliance demands.
• Operational Efficiency: The process of tracking emissions often reveals inefficiencies in energy consumption and resource management. By identifying these hotspots, you can implement changes that reduce both your carbon footprint and your operational costs.

Ultimately, GHG accounting provides the data-driven foundation for a meaningful ESG strategy. You cannot manage what you do not measure.

The GHG Protocol: A Global Standard for Malaysia

When it comes to measuring emissions, you don't have to start from scratch. The GHG Protocol is the most widely used international accounting tool for governments and businesses to understand, quantify, and manage GHG emissions. It provides a standardized framework, ensuring that reporting is consistent and comparable across industries and borders.

For Malaysian organizations, adopting the GHG Protocol is a strategic move. It aligns your reporting with global best practices, making your data credible to international investors, customers, and partners. The Protocol's standards are the basis for many national and local GHG programs, including those emerging in Malaysia and across Southeast Asia.

The GHG Protocol simplifies the complex world of emissions by categorizing them into three distinct "scopes." Understanding these scopes is the first practical step in your accounting journey.

Understanding Scope 1, Scope 2, and Scope 3 Emissions

The GHG Protocol divides an organization's emissions into three categories based on the source. This helps companies identify where their impacts lie and prioritize reduction efforts.

Scope 1: Direct Emissions

Scope 1 emissions are direct emissions from sources that your organization owns or controls. These are the most straightforward to measure.

Examples relevant to Malaysia:

• Fuel Combustion: Emissions from company-owned vehicles (lorries, cars, vans) used for deliveries or sales calls.
• On-site Generation: Emissions from burning natural gas in boilers for heating water or from diesel-powered generators used for backup electricity at a factory in the Klang Valley.
• Fugitive Emissions: Unintentional leaks of greenhouse gases, such as refrigerants from air conditioning units in an office building or methane leaks from industrial processes.
• Process Emissions: Emissions released during an industrial process, like CO2 produced during cement manufacturing.

Scope 2: Indirect Emissions from Purchased Energy

Scope 2 emissions are indirect emissions generated from the purchase of electricity, steam, heat, or cooling. Although the emissions don't occur at your facility, they are a direct result of your energy consumption.

Examples relevant to Malaysia:

• Purchased Electricity: This is the most common Scope 2 emission for most businesses. It refers to the emissions produced by power plants (like those operated by Tenaga Nasional Berhad) to generate the electricity your office, retail store, or factory consumes. The carbon intensity of Malaysia's grid, which relies heavily on coal and natural gas, makes this a significant source for most local companies.

Scope 3: All Other Indirect Emissions

Scope 3 is the most complex and often the largest source of emissions for an organization. It includes all other indirect emissions that occur in your value chain, both upstream and downstream. These are emissions from sources you don't own or control but are linked to your operations.

Examples relevant to Malaysia:

• Purchased Goods and Services: Emissions from the production of raw materials you buy, such as the palm oil sourced for a food manufacturing business or the electronic components for an assembly plant.
• Business Travel: Emissions from employees flying with airlines like Malaysia Airlines or AirAsia for work-related trips.
• Employee Commuting: Emissions from your employees' daily travel to and from the workplace, whether by car, motorcycle, or public transport.
• Waste Disposal: Emissions from the waste your organization generates, which is typically sent to landfills.
• Use of Sold Products: Emissions produced when your customers use your products. For example, the electricity consumed by a refrigerator you manufactured and sold.
• Transportation and Distribution: Emissions from third-party logistics providers that transport your raw materials or finished goods.

For companies starting their ESG journey, focusing on Scope 1 and Scope 2 is a practical first step. However, a complete carbon footprint reporting effort must eventually address the significant impacts within Scope 3.

A 4-Step Guide to Starting GHG Accounting in Malaysia

Beginning your GHG accounting journey can feel daunting, but breaking it down into manageable steps makes it achievable.

Step 1: Define Your Boundaries

First, decide what to include in your inventory.

• Organizational Boundary: Will you measure emissions for the entire parent company, specific subsidiaries, or individual facilities? For example, a large conglomerate might start with just one of its manufacturing plants.
• Operational Boundary: Decide which scopes you will measure. As a best practice, start with Scope 1 and Scope 2. You can expand to include relevant Scope 3 categories later as your capabilities mature.

Step 2: Collect Your Data

This is often the most time-consuming step. You need to gather activity data, which are the raw numbers that quantify your operations.

• For Scope 1: Collect data like litres of fuel purchased for company vehicles, cubic meters of natural gas used, and records of refrigerant top-ups for AC units. Fuel receipts and utility bills are excellent sources.
• For Scope 2: Your primary data source will be your electricity bills from providers like TNB. These bills will show your consumption in kilowatt-hours (kWh).

Step 3: Calculate Your Emissions

Once you have your activity data, you need to convert it into CO2e. This is done using emission factors. An emission factor is a value that quantifies the amount of GHG released per unit of activity (e.g., kg CO2e per litre of diesel).

Formula: Emissions = Activity Data x Emission Factor

You can find emission factors from various sources, including the Intergovernmental Panel on Climate Change (IPCC) and national databases. The Malaysian Green Technology and Climate Change Corporation (MGTC) also provides resources, such as specific emission factors for the Malaysian electricity grid.

Step 4: Report and Verify

The final step is to compile your data into a GHG inventory report. This report should clearly state your boundaries, methodologies, and results. It's a tool for internal decision-making and external communication with stakeholders.

For added credibility, consider having your inventory verified by an independent third party. Verification ensures your calculations are accurate and your report is a trustworthy reflection of your company’s carbon footprint.

Challenges and Opportunities for Malaysian Businesses

Organizations in Malaysia face a unique set of circumstances as they embrace GHG accounting.

Challenges:

• Data Availability: For Scope 3 in particular, getting accurate data from suppliers and other partners in the value chain can be difficult.
• Lack of Expertise: There is a growing demand but a limited supply of local talent with the technical skills for GHG accounting and verification.
• Cost of Implementation: The initial investment in software, training, and potential consulting services can be a barrier for some small and medium-sized enterprises (SMEs).

Opportunities:

• Government Support: The Malaysian government is actively promoting sustainability. Incentives like the Green Investment Tax Allowance (GITA) can help offset the costs of investing in green technology identified through GHG accounting.
• Supply Chain Leadership: Larger corporations are increasingly requiring their suppliers to report on emissions. By getting ahead of this trend, SMEs can become preferred partners and secure their place in green supply chains.
• Access to Green Finance: Banks and financial institutions are offering preferential rates and products for businesses with strong ESG performance. A credible GHG inventory is often a prerequisite for accessing this "green finance."

Conclusion

The journey towards robust ESG performance is a marathon, not a sprint. For Malaysian organizations, GHG accounting is the essential first step on this path. It transforms abstract sustainability goals into concrete, actionable data. By measuring your carbon footprint, you gain the clarity needed to manage climate-related risks, uncover operational efficiencies, and strengthen your brand in an increasingly eco-conscious market.

The task may seem complex, but the frameworks and resources are available to guide you. Start by focusing on what you can control—your Scope 1 and Scope 2 emissions. Build your capabilities, engage your team, and take that first crucial step. Embracing GHG accounting is not just about compliance or reporting; it is a strategic investment in the long-term resilience and success of your organization in a changing world.