When measuring and reporting greenhouse gas (GHG) emissions, companies must define their organisational boundaries—determining which parts of their business are included in their emissions reporting. Since business operations can have varied legal and organisational structures, companies need a consistent approach to consolidating emissions. Establishing clear organisational boundaries ensures accurate emissions reporting, enhances comparability across companies, and supports regulatory compliance and sustainability goals.
To establish organisational boundaries, a company must select one of two approaches: the equity share approach or the control approach. Once chosen, this approach should be applied consistently across all business operations. We have summarised these approaches below, but we highly recommend reading Chapter 3 of the GHG Protocol to learn more.
Equity share approach
Under the equity share approach, a company accounts for emissions based on its share of equity in an operation. This means emissions are attributed in proportion to the company’s economic interest (the extent to which it shares in the risks and rewards of the operation).
Control approach
Under the control approach, a company reports 100% of the emissions from operations it controls, regardless of its ownership stake. It does not account for emissions from operations where it has an interest but no control. Control can be defined in two ways: financial control or operational control.
1. Financial control
A company has financial control over an operation if it has the power to direct financial and operating policies to gain economic benefits. Financial control usually exists if a company:
Has the right to the majority of benefits from the operation
Retains the majority of risks and rewards related to ownership
Fully consolidates the operation in its financial accounts
Even if a company owns less than 50% of an operation, it may still have financial control if it holds the majority of economic risks and benefits. If financial control is used as the boundary-setting approach, emissions from joint ventures where control is shared must instead be accounted for using the equity share approach.
2. Operational control
A company has operational control over an operation if it has full authority to introduce and implement operating policies at the site. This approach is commonly used by companies that report emissions from facilities they operate (e.g., those for which they hold an operating licence). CSRD and ESRS requires an operational control approach.
How do I deal with complex company structures and shared ownership?
The GHG protocol outlines the best practices when dealing with complex company structures here.