Defining your reporting boundaries is the foundation for carbon accounting. It establishes which activities and emissions your organisation is responsible for and influences the data you need to gather and report. The two main approaches are operational control and financial control, and each has specific implications depending on the reporting frameworks your organisation follows.
Reporting Boundary Approaches and Key Frameworks
Operational Control:
This approach includes emissions from all assets and activities that your organisation operates or directly controls, like company-owned facilities, vehicles, and equipment.Framework Example: The Corporate Sustainability Reporting Directive (CSRD) primarily uses the operational control approach. Organisations are required to report emissions from activities they manage or have operational control over, ensuring a comprehensive understanding of their environmental impact.
Financial Control:
This boundary approach includes emissions from activities or assets over which your organisation has financial control, even if you don’t directly manage or operate them. For instance, you may lease office spaces or outsource manufacturing processes, but emissions from these activities still fall under your reporting obligations if you have financial control.Framework Example: The Sustainable Finance Disclosure Regulation (SFDR) for financial institutions uses the financial control approach. This ensures that emissions from investment portfolios or managed assets are included, even if the organisation doesn’t have direct operational control.
Equity Share Approach:
In some cases, emissions are reported based on your organisation’s equity share in a joint venture or partnership. If you own a portion of a business, you account for emissions proportional to your share in that entity.Framework Example: The ESG Data Convergence Initiative (EDCI) uses this approach, particularly for private equity firms. Emissions from portfolio companies are reported according to the firm’s equity share in each business.
Practical Guidance: What This Means for You
Determine Your Boundary Approach:
Start by deciding whether your organisation will follow the operational control or financial control approach:Operational Control: You will need to include emissions from any assets or activities your organisation manages directly, such as office buildings, factories, or company vehicles.
Financial Control: You’ll need to report emissions from activities where your organisation has financial control, such as leased office spaces, outsourced manufacturing, or investments in third-party operations.
Define All Entities in your Organisation
Next, you need to identify all the entities, facilities, and sites that your organisation controls or has financial responsibility for. This includes physical locations like offices, factories, and warehouses, as well as business functions such as logistics, finance, and manufacturing.
You can use your organisational chart to map out each department and location, similar to the example shown in the diagram. Each entity in your organisation that contributes to emissions needs to be included within your reporting boundary. For example:
Logistics: Emissions from distribution centres or warehouses.
Finance: Office buildings under your financial control.
Manufacturing: Factories or production facilities, whether owned or leased.
Identifying all relevant entities ensures that no major emission sources are overlooked and that you have a complete understanding of your carbon footprint.
Identify Key Emission Sources:
Once your boundary is defined, identify the sources of emissions that fall within it:Scope 1: Direct emissions from your owned or controlled assets (e.g., fuel combustion in company vehicles).
Scope 2: Indirect emissions from purchased electricity, heat, or steam.
Scope 3: Indirect emissions from activities within your value chain (e.g., purchased goods, logistics, waste, and business travel).
Gather Additional Data:
Depending on your chosen boundary and scope, you will need to collect additional data:Facility-level data: Energy consumption records and invoices from facilities under operational control for Scope 1 and 2.
Supplier-specific data: For Scope 3, gather emissions data from suppliers and vendors, including those that provide purchased goods and logistics services.
Leased assets and outsourced operations: If you follow the financial control approach, obtain emissions data from leased office spaces or outsourced activities like manufacturing.
Example: Reporting Boundaries in Action
Let’s assume your organisation operates with both operational control and financial control boundaries:
You have direct operational control over a UK-based manufacturing plant and a fleet of company vehicles. These activities will be included in your Scope 1 and 2 reporting.
You lease office space in London and outsource your distribution network to a third-party logistics provider. Even though you don’t directly control these operations, you have financial control, so the emissions from the leased office (Scope 2) and outsourced distribution (Scope 3) must be reported.
Extra Data Needed:
Energy consumption records from your UK factory and vehicle fleet.
Emissions data from the landlord of your London office.
Emissions from the third-party logistics provider for distributed goods.
Start Collecting and Uploading Data
Now that you’ve defined your reporting boundaries and mapped emissions to the correct scopes and entities, it’s time to begin collecting data. Accurate data collection is crucial for reliable carbon accounting. Start by working with internal teams like procurement, operations, and HR, and reach out to suppliers and logistics partners for additional information.
Key Steps:
Identify and map all entities in your organisation.
Collect the most accurate and comprehensive data possible for each emission source.
Upload this data to the appropriate metrics in the KEY ESG platform’s calculator, ensuring that Scope 1, 2, and 3 emissions are properly assigned.
The more accurate your data, the better your carbon accounting will be, helping your organisation meet regulatory requirements and sustainability goals.
If you need further assistance with the platform or data collection, reach out to our team via in-platform chat or at support@keyesg.com for expert guidance.