Introduction
When we talk about "cross-entity," we’re referring to activities, transactions, or data that span multiple organizational units or legal entities within your larger corporate structure. These could be subsidiaries, divisions, or separate companies under a parent organization. Managing cross-entity data is critical for ensuring accurate and consolidated information across your entire organization.
There are two main types of cross-entity data:
💶 Financial Data
This involves monetary transactions between different entities, such as inter-company loans, shared service costs, and transfer pricing.
⚛️ Activity Data
This covers non-financial information about operations that involve multiple entities but without using a monetary approach. Cross-entity activity data becomes especially relevant when financial transactions don’t capture all the interactions between entities.
Both types of cross-entity data require careful management, often involving distinct processes, systems, and stakeholders.
📜 Regulation
The GHG Protocol and Bilan Carbone® both offer guidelines for managing cross-entity emissions in carbon accounting. Here’s a summary of their approaches:
🌎 GHG Protocol
Requirements: You’ll need to define your organizational and operational boundaries for GHG accounting and reporting clearly.
Accounting approach: The GHG Protocol suggests three approaches:
Equity share: Account for GHG emissions based on your share of equity in the operation.
Financial control: Account for 100% of emissions from operations where you have financial control.
Operational control: Account for 100% of emissions from operations under your operational control.
Threshold: The GHG Protocol doesn't set a fixed threshold for including cross-entity emissions. Instead, it stresses completeness, meaning that all relevant emissions sources within your defined boundaries should be accounted for.
Reason for accounting: The goal is to ensure a comprehensive and accurate representation of your GHG emissions, avoiding double-counting or omissions.
🇫🇷 Bilan Carbone®
Requirements: Bilan Carbone® is similar to the GHG Protocol but places more focus on transparency in reporting.
Accounting approach: It follows the same consolidation methods as the GHG Protocol (equity share, financial control, or operational control).
Threshold: Bilan Carbone® suggests including all emissions significant to the overall carbon footprint. While there’s no fixed percentage, it recommends considering emissions contributing to at least 5% of the total carbon footprint.
Reason for accounting: The aim is to provide a comprehensive view of your carbon impact, including both direct and indirect emissions throughout your value chain.
Both frameworks stress the importance of consistency in applying the chosen consolidation method across reporting periods and being transparent in disclosing the methods used. They also recommend regular reviews and updates to ensure the approach remains relevant as your organizational structure changes.
🧑🧑🧒 Consolidation
Managing cross-entity emissions in carbon accounting requires careful consolidation practices, particularly when reporting at both the group and entity levels. Here's how to handle consolidation for cross-entity emissions:
🏘️ Group level reporting
When calculating the carbon footprint at the group level, it's important to eliminate cross-entity emissions to avoid double counting. This means:
Identify and remove emissions from transactions between entities within your group
Only include emissions from transactions with external parties
Ensure that shared resources or services are accounted for only once at the group level
🏠 Entity level reporting
For individual entity-level reporting, cross-entity emissions must be included. This approach:
Provides a full picture of an entity's carbon footprint, including interactions with other group entities
Allows for more detailed analysis of each entity’s environmental impact
Helps identify areas for improvement within specific entities
This distinction between group and entity level reporting is crucial for accurate and transparent carbon accounting.