Organizational boundaries determine which legal entities, branches and facilities have their emissions included in a company's inventory, and in what proportion. The GHG Protocol and ISO 14064-1 offer three approaches: operational control, financial control and equity share. The chosen approach is applied consistently across the whole group and stated in the report.
Three approaches to setting boundaries
Operational control approach. The company accounts for 100% of the emissions from facilities where it introduces and implements operating policies: it runs operations, appoints staff and sets operating modes. Facilities it does not control are excluded from Scope 1 and 2, even if it holds an equity stake in them.
Financial control approach. The company accounts for 100% of the emissions from facilities whose financial and operating policies it can direct in order to gain economic benefits. This usually matches what is consolidated as subsidiaries in the financial statements.
Equity share approach. The company accounts for the emissions of each asset in proportion to its share of the equity. This reflects economic interest, but requires data on all assets, including those you do not operate.
Example: one asset, three results
A group owns 60% of a joint venture, but the venture is operated by a partner. The joint venture's annual emissions are 10,000 t CO₂e.
| Approach | What goes into the group's Scope 1 and 2 |
|---|---|
| Operational control | 0 t (the partner operates it) |
| Financial control | 10,000 t if, under the accounting policy, the venture is consolidated as a subsidiary; otherwise, the rules for joint ventures apply |
| Equity share | 60% × 10,000 = 6,000 t |
As you can see, the choice of approach can change the total significantly. That is why it is set in the methodology before data collection begins and is not changed without recalculating the base year.
How to choose an approach
- Operational control is the most common option for industrial and energy companies: you account for what you actually run and can influence with emission reduction measures.
- Financial control is convenient when the inventory needs to be aligned with the consolidated financial statements.
- Equity share suits holding companies with many joint ventures, where it is important to reflect economic risks.
Also consider what the report's users expect: a bank, a customer or a reporting program may prefer a particular approach. Check national requirements in the regulatory map.
Organizational and operational boundaries
Once the organizational boundaries are set, you define the operational boundaries: which sources within the included facilities fall under Scope 1, Scope 2 and Scope 3. For example, under operational control a leased warehouse that you operate produces Scope 1 and 2 emissions; if you do not control it, its emissions may fall under Scope 3. For more, see Scope 1, 2 and 3.
Changes in company structure
Acquisitions, divestments, mergers and leasing out a facility all change the boundaries. Significant changes require the base year to be recalculated, so that the year-on-year comparison reflects the real trend in emissions rather than a change in the group's composition. It is good practice to record such events in an inventory change log.
How it works in the platform
The organization's sites are kept in the Facilities section. A new facility is added with the four-step New facility wizard; the “Ownership and contacts” step records the site operator, participation share, floor area and contacts. When the annual company report is created, each facility can be included in the report or excluded with a stated reason. Describe the boundary approach you have chosen in the report's methodology and apply it the same way to all facilities.
Frequently asked questions
Can we use different approaches for different subsidiaries?
No. A single approach is chosen for the entire inventory and applied consistently. You may additionally disclose data under another approach if a user of the report asks for it.
What do we do with a facility in which the company holds 50%?
Under operational control, look at who actually runs the operations; this is usually set out in the contract. Under the equity share approach, include 50% of the emissions.
How do boundaries relate to ISO 14064-1?
ISO 14064-1:2018 also requires organizational boundaries to be set on the basis of control or equity share and the chosen approach to be documented. For more, see ISO 14064-1.