The company defines its organisational boundaries and indicates this choice in the presentation of the inventory
What structures of the organisation will be taken into account? Which sites, subsidiaries, facilities will be analysed? It is recommended that companies conform to the organisational boundaries already defined for their general accounting.
In corporate reporting, companies can use one of two methods to consolidate GHG emissions: the equity share or the control approaches. Companies must account for and report their GHG emissions in accordance with one of these approaches. If a company wholly owns all its operations, the organisational boundary remains consistent regardless of the chosen approach. However, for companies with joint operations, the organisational boundary and corresponding emissions may vary based on the selected method. This choice affects how emissions are categorised when defining operational boundaries. ISO 14064-1 standard describes two approaches to determining the organisational boundaries:
"Equity share" approach
Under the equity share approach, a company calculates GHG emissions from operations based on its share (in %) of equity in those operations. Equity reflects the extent of a company's economic interest, meaning its rights to the risks and rewards that arise from an operation. Generally, this share of economic risks and rewards is proportionate to the company’s ownership share in the operation, hence the equity share typically matches the ownership percentage. However, in cases where this does not align, the economic substance of the company's relationship with the operation takes precedence over legal ownership to ensure that the equity share accurately reflects the true percentage of economic interest. This principle of economic substance over legal form aligns with international financial reporting standards. Therefore, staff preparing environmental inventories may need to consult with accounting or legal departments to verify that the correct equity share percentage is used for each joint operation.
"Control" approach
Under the control approach, a company accounts for 100% of the GHG emissions from operations that it controls, disregarding emissions from operations in which it has an ownership interest but no control. Control is determined by financial or operational criteria. When consolidating GHG emissions using the control approach, companies must choose between operational control or financial control as their criterion.
In most instances, the determination of control does not change whether operational control or financial control is applied. However, in the oil and gas industry, where ownership and operational structures are often complex, the selection of the control criterion can significantly impact the company’s GHG inventory. In choosing the appropriate criterion, companies should consider how the accounting and reporting of GHG emissions can be best adapted to meet the demands of emissions reporting and trading schemes, align with financial and environmental reporting, and accurately reflect the company’s real influence over operations.
Financial control: A company exercises financial control over an operation if it can direct the financial and operational policies of that operation to derive economic benefits from its activities. Financial control typically exists when the company holds the rights to the majority of benefits from the operation, regardless of how these rights are assigned. Similarly, a company is deemed to have financial control if it assumes the majority of risks and rewards associated with ownership of the operation's assets.
Operational control: A company has operational control over an operation if it, or one of its subsidiaries, possesses the complete authority to set and enforce its operational policies at the site. This criterion aligns with the common accounting and reporting practices of many companies that report emissions from facilities they operate (i.e., for which they hold the operating license). It is generally expected that, barring exceptional circumstances, if a company or one of its subsidiaries operates a facility, it will possess full authority to dictate and enforce its operational policies, thereby establishing operational control.
