Step 2: Set your organisational boundaries
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This is step 2 of 7 in Build your GHG inventory. Previous: Step 1: What is a GHG inventory?. Next: Step 3: Set your operational boundaries.
Your organisational boundary decides which companies, joint ventures and sites your inventory includes. The GHG Protocol calls the method a consolidation approach, and IFRS S2 calls it a measurement approach. You choose one approach and apply it to the whole group.
The 3 approaches
- Equity share. You count your share of each operation's emissions, in line with your economic interest. If you own 40% of a joint venture, you count 40% of its emissions.
- Financial control. You count 100% of the emissions of each operation whose financial and operating policies you can direct to gain economic benefits from it. You count 0% of the others. Usually this matches the operations that you consolidate in your financial statements.
- Operational control. You count 100% of the emissions of each operation where you, or one of your subsidiaries, have full authority to introduce and implement operating policies. You count 0% of the others. If you hold the operating licence, you usually have operational control.
Leased assets need care. For example, if you lease an office and run it, the office is usually under your operational control.
Worked example
A company has 3 operations:
| Operation | Ownership | Who directs its finances? | Who operates it? | Emissions |
|---|---|---|---|---|
| Head office | 100% subsidiary | The company | The company | 1,000 tCO₂e |
| Factory | 60% joint venture | The company | The partner | 2,000 tCO₂e |
| Warehouse | 30% associate | The partner | The company, under a management contract | 500 tCO₂e |
The inventory total depends on the approach:
| Approach | Head office | Factory | Warehouse | Total |
|---|---|---|---|---|
| Equity share | 1,000 | 1,200 | 150 | 2,350 tCO₂e |
| Financial control | 1,000 | 2,000 | 0 | 3,000 tCO₂e |
| Operational control | 1,000 | 0 | 500 | 1,500 tCO₂e |
The same company can report anything from 1,500 to 3,000 tCO₂e. This is why the approach must be stated in the report, and why a change of approach needs an explanation.
How to choose
Do not choose the approach that gives the lowest number. Choose the one that best fits how your business works and who will use the report:
- Match your financial statements. IFRS S1 requires sustainability disclosures for the same reporting entity as the financial statements. Financial control is often the closest match.
- Think about where you can reduce emissions. Operational control covers the sites where you can change how things are done.
- Think about your joint ventures. If a large part of your business is in joint ventures, equity share shows your economic exposure to them.
- Check what others in your group use. A subsidiary and its parent must use the same approach, or emissions can be counted twice or missed.
- Check your data access. Under financial control, you may need data from sites that a partner runs. Make sure that you can get it.
Whichever approach you choose, IFRS S2 asks you to state it and explain why you chose it. IFRS S2 also asks you to split Scope 1 and Scope 2 between your consolidated group and other investees, such as associates and joint ventures.
What does not count
Emissions from operations outside your boundary do not disappear. Some of them belong in your Scope 3. For example, under operational control, the factory in the worked example falls outside Scope 1 and Scope 2. Its emissions then belong in Scope 3 category 15 (investments).
Common mistakes
- Mixing approaches. Use one approach for the whole group, at every level.
- Forgetting small sites. Include every site inside the boundary, including small offices and warehouses. If you leave one out, say which one and why.
- Not updating the boundary. When you buy or sell a business, update the boundary. If the change is large, you may also need to recalculate your base year.
Check your progress
Before you go to step 3, make sure that you have:
- One written consolidation approach, with the reason for it
- A list of every operation in the group, with its ownership and control status
- A list of the facilities inside the boundary
In Carbon GPT
Add each site inside your boundary in Facilities. Every measure that you record later belongs to a facility, so set them up first. If you use the equity share approach, keep a record of the share that applies to each facility.
Sources
- GHG Protocol Corporate Standard, chapter 3 and chapter 5
- IFRS S2 Climate-related Disclosures, paragraphs 29(a)(iii), 29(a)(iv) and B27
- IFRS: GHG emissions disclosure requirements, educational material
- IFRS S1 General Requirements, paragraph 20
