Organizational boundaries determine GHG emissions resulting from a company's operations that should be included in its inventory.
Defining these boundaries is a crucial first step in establishing a comprehensive GHG inventory.
1️⃣ First Step - Selecting the approach
A company can use two approaches to set its organizational and operational boundaries: equity share or control approach.
Equity Share Approach
A company accounts for GHG emissions from operations according to its share of equity in the operation. The equity share reflects the company's economic interest in the operation.
Control Approach
This approach considers whether the company has the authority to introduce and implement financial and/or operating policies at the operation. It's divided into two types:
Operational Control: A company accounts for 100% of the GHG emissions from operations over which it has operational control, regardless of its share of ownership. Operational control exists when the company or one of its subsidiaries has the full authority to implement its operating policies at the operation.
Financial Control: A company accounts for 100% of the GHG emissions from operations over which it has financial control. Financial control occurs when 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.
💡 Most of the time, operational and financial control are equivalent
⚠️ The recommended and most common approach is the operational control one. This is the approach used by Greenly.
2️⃣ Second Step - Defining organizational boundaries
To define organizational boundaries, the reporting company needs to identify the entities that should be included in the company’s GHG inventory (i.e. operations it owns or controls). They can be wholly owned operations (group companies, subsidiaries), associated or affiliated companies, incorporated and non-incorporated joint ventures, fixed asset investments, franchises, etc.
3️⃣ Third Step - Defining operational boundaries
Once the organizational boundaries are set, operational boundaries identify and categorize the direct and indirect emission sources (activities, operations, assets, etc.) within these defined entities. This involves distinguishing between Scope 1 (direct emissions from owned or controlled sources), Scope 2 (indirect emissions from the generation of purchased energy), and Scope 3 (all other indirect emissions).
ℹ️ Operations or activities that are excluded from a company's scope 1 and scope 2 inventories as a result of the organizational boundary definition (e.g., leased assets, investments, and franchises) may become relevant when accounting for scope 3 emissions.
Link between organizational and operational boundaries
💡 Example shared by the GHG Protocol
Organization X is a parent company that has full ownership and financial control of operations A and B, but only a 30% non-operated interest and no financial control in operation C.
Setting Organizational Boundary: X would decide whether to account for GHG emissions by equity share or financial control. If the choice is equity share, X would include A and B, as well as 30% of C’s emissions. If the approach chosen is financial control, X would count only A and B’s emissions as relevant and subject to consolidation. Once this has been decided, the organizational boundary has been defined.
Setting Operational Boundary: Once the organizational boundary is set, X then needs to identify the activities, operations, assets, etc. of A, B and C (if the equity approach is selected) that should be included in its Scope 1, 2 or 3.
✍️ Templates and sources of inspiration
Simplified Templates
Company X operations and supply change. Operational control.
This GHG inventory is for company X and covers all group companies and subsidiaries over which company X has operational control.
Thorough Examples
For setting organizational boundaries and for corporate reporting of GHG emissions, energy, waste, product packaging recyclability and single-use plastics, and water metrics, Microsoft uses the operational control approach. This includes global wholly owned and partially owned subsidiaries over which Microsoft has management and operational control, including Microsoft owned and leased real estate facilities and datacenters.
We use the operational control approach to define our organizational boundary, which means that we account for all emissions from operations over which we have control. We define operational control as having the authority to introduce and implement operational policies over an asset, and we report all energy and emissions for Alphabet Inc. and its subsidiaries’ data centers, offices, and other assets under our operational control. In September 2022, Google acquired Mandiant, and Mandiant’s emissions are included in our organizational boundary for fiscal year 2022.
The sustainability performance data in our most recent Annual Report and Accounts is for Unilever Group and covers all Group Companies. This includes acquired subsidiary undertakings, as soon as the appropriate processes and systems are implemented to enable consistent data collation and Unilever Group level consolidation.
Operations categorised as joint ventures or investments are excluded from the scope of all performance measures, unless otherwise indicated. The results of disposed businesses are included in the performance measures up to the date of disposal.