Measure & Verify
Set organizational boundaries for your GHG inventory
The way your company is structured will directly impact what should be considered in your company's GHG footprint
The way your company is structured and operates will directly impact what should be considered in your company's GHG footprint. In example, choose among the operational, financial or equity share approaches to consolidate GHG emissions and then consistently apply it throughout the entire GHG accounting process.
1. Select the most relevant organizational boundaries approach for your company
Three approaches to set organizational boundaries
There are three different approaches to set organizational boundaries. The operational and financial control approaches are commonly considered best practice. Once your company has selected an approach, ensure that it is consistently applied across all entities to account for the GHG emissions.
Operational Control | Financial Control | Equity Share | |
Description | Accounts for GHG emissions where your company has operational control and the “full authority to introduce and implement its operating policies at the operation” | Accounts for GHG emissions over which your company has financial control, which is the “ability to direct the financial and operating policies of the operation” | Accounts for GHG emissions from operations according to your company’s share of equity |
Accounting rule according to the GHG protocol corporate standard | 0% if your company has no operational control or 100% if your company has operational control | From 0% to 100% based on treatment in financial accounts (e.g., associated company = 0%; JV = proportionally to % of interest; subsidiary = 100%) | From 0% to 100% based on economic interest held by the company |
Examples | Company A reports 100% of emissions from its global operations. It owns a 25% stake in a supplier company, but no operational control so reports 0% of that company’s emissions | A holding company B has interests in companies across sectors. It reports 100% of emissions from: - all companies where they maintain financial control - properties managed by a wholly-owned subsidiary | Company C has a 10% share in factories in Asia. It reports 100% of emissions from its own operations and 10% from Asian factories |
Advantages | Gives full ownership of GHG emissions to the company that can actually reduce them, allowing for performance tracking. Companies have better access to operational data and greater ability to ensure quality. The most commonly chosen approach by regulators | Closer alignment between carbon and financial accounting | Assigns ownership of GHG emissions based on economic interest in an activity Gives comprehensive coverage of risks as financial liability often rests with the holding company |
Frequency of use in CDP | Most | Medium | Least |
2. Example of how the consolidation approach affects the GHG inventory
A reporting company has an equity share in four entities (Entities A, B, C and D) but has operational control over three of those entities (Entities A, B, and C).
Image: Example of the operational control approach
Source: GHG: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
Emissions from sources controlled by Entities A, B, and C are included in the company’s scope 1 inventory, while emissions from sources controlled by Entity D are excluded from the reporting company’s scope 1 inventory because the reporting company do not have operational control over Entity D
Emissions in the value chain of Entities A, B, and C are included in the company’s scope 3 inventory as the reporting company operationally controls Entities A, B and C
Emissions from the operations of Entity D are included in the reporting company’s scope 3 inventory as an investment (according to the reporting company’s share of equity in Entity D)
Image: Example of the equity share approach
Source: GHG: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
The reporting company includes emissions from sources controlled by Entities A, B, C, and D in its scope 1 inventory, according to its share of equity in each entity
The company will include value chain emissions from Entities A, B, C, and D in its scope 3 inventory, according to its share of equity in each entity