Organisational boundaries: equity share, financial control and operational control

Before calculating anything, a company has to decide which operations are "its own". The GHG Protocol Corporate Standard calls this setting the organisational boundary, and it requires a choice: "Companies shall account for and report their consolidated GHG data according to either the equity share or control approach". See Scope 1, 2 and 3 emissions explained for the bigger picture.

The three approaches

Equity share. "a company accounts for GHG emissions from operations according to its share of equity in the operation." The standard explains that equity share "reflects economic interest", meaning your share of the risks and rewards.

Control. "Under the control approach, a company accounts for 100 percent of the GHG emissions from operations" over which it has control, and nothing from operations it holds an interest in but does not control. Control can be defined in two ways:

• Financial control: the company "has the ability to direct the financial and operating policies" of the operation "with a view to gaining economic benefits from its activities."
• Operational control: the company or one of its subsidiaries "has the full authority to introduce and implement its operating policies at the operation."

Worked example

A group owns 100% of company A, 60% of company B (which it manages), and 30% of a joint venture C that a partner operates. Their Scope 1 and 2 emissions are 1,000, 500 and 2,000 tonnes CO2e.

Same group, same year, two different totals. That is why the report must state which approach was used.

Which one to choose

• Operational control is a common choice for companies that want their inventory to match what they can actually change: if you run it, you can reduce it.
• Financial control aligns the inventory with consolidated financial statements.
• Equity share suits groups with many joint ventures, and investors interested in economic exposure.

Whatever you choose, apply it consistently to every operation and every year, and recalculate your base year if acquisitions or divestments change the boundary significantly; see base year and recalculation.

Leased assets

Leased buildings and vehicles are where the choice matters most in practice. Depending on the lease and the approach, a leased office may be in your Scope 1 and 2 or in Scope 3 category 8. See upstream leased assets.

In LCALens

Each legal entity records its ownership percentage and whether the group has operational or financial control. Inventories then show totals under the selected approach and under equity share, and list the entities excluded under control approaches.