GHG intensity metrics

What is GHG intensity?

GHG intensity expresses emissions relative to activity, so companies of different sizes, or the same company in years of different output, can be compared. The numerator should state which scopes it includes, such as scope 1 and 2 market-based, and the denominator should be defined precisely and drawn from the same boundary and period. See ESG KPIs explained.

Which denominators are used?

• Economic: revenue, value added or enterprise value. Comparable across sectors, but affected by prices, inflation, currency and business mix.
• Physical: tonnes of steel, cement or aluminium; megawatt-hours generated; passenger- or tonne-kilometres; square metres of buildings; units produced. Comparable within a sector and closer to real efficiency.
• Per employee: sometimes used for offices and services, but sensitive to outsourcing.

GHG intensity in practice: a cement producer's three measures

A cement producer raises output from 5.0 to 5.4 million tonnes, and revenue from EUR 700 million to EUR 840 million, partly because cement prices rose.

The physical intensity shows a real efficiency gain of 3.2%, from more alternative fuels and less clinker per tonne. The revenue intensity falls four times as fast, mostly because of higher prices, which say nothing about the kilns. Absolute emissions rose. The producer reports all three, leads with physical intensity for its sector comparison, and explains that its absolute target needs carbon capture to be met. See climate transition plans.

When should physical intensity be used?

In sectors with a homogeneous product, such as power, cement, steel, aluminium, transport and buildings, where sector pathways exist. The SBTi's sectoral decarbonisation approach converts a global carbon budget into intensity pathways for each sector, so a company's intensity target can be compared with its sector's path. Intensity targets should still be backed by disclosure of absolute emissions, because growth can cancel out efficiency gains; product makers often add use-phase intensity per unit sold, see use of sold products. See setting and reporting net zero targets.

What do the ESRS and IFRS S2 require?

The first set of ESRS required GHG intensity per net revenue; in the revised ESRS it became voluntary, and energy intensity per net revenue was deleted, while intensity targets remain allowed. IFRS S2 does not prescribe an intensity metric, but requires companies to say whether each target is absolute or intensity-based, and many SASB industry metrics are intensities. Financial institutions report financed emissions intensity under PCAF and IFRS S2. See ESRS E1 and industry-based metrics.

What is weighted average carbon intensity?

WACI is the average of each holding's scope 1 and 2 emissions per million of revenue, weighted by its share of the portfolio. It was recommended for asset managers and owners by the Task Force on Climate-related Financial Disclosures, and a similar measure is a principal adverse impact indicator under the EU Sustainable Finance Disclosure Regulation.

The utility drives almost all of the result. Unlike financed emissions, WACI does not depend on ownership share, but it is sensitive to revenue. See financed emissions and PCAF.

What are the pitfalls of intensity metrics?

Revenue intensity that improves through price rises or currency moves; mixing scopes or scope 2 methods between years; changing the denominator definition; and presenting an intensity improvement while absolute emissions grow. Disclose the definition, show the absolute figures alongside, and restate comparatives if the method changes. See greenwashing risk.

This guide is general information. It is not tax or legal advice for your situation.