Chapter 2 — Identification of a Company’s Organizational Boundary

2.1 Introduction

In a manner similar to its preparation of consolidated financial statements, a company is required to consolidate its operations1 for GHG emission reporting purposes. That is, a reporting company needs to determine what companies or assets (or portions thereof) contribute to its consolidated GHG emissions. This determination is referred to as the reporting company’s organizational boundary.

Corporate Standard, Chapter 3, “Setting Organizational Boundaries,” Page 17

For corporate reporting, two distinct approaches can be used to consolidate GHG emissions: the equity share and the control approaches. Companies shall account for and report their consolidated GHG data according to either the equity share or control approach.

A reporting company would select one consolidation approach and apply it across the organization at all levels to report GHG emissions consistently. Consistent application of a consolidation approach allows GHG emissions to be tracked over time in a manner that results in the presentation of consistent data for the reporting company.

There are two main approaches for determining an organizational boundary (i.e., how to consolidate GHG emissions from separate operations): the equity share approach and the control approach, the latter of which may be subdivided into the financial control approach and the operational control approach. Under the equity share approach, a reporting company consolidates GHG emissions from separate operations on the basis of its economic interest in each of those operations. Under the control approach, such emissions are consolidated on the basis of operations over whose policies and activities the reporting company has control (i.e., financial control or operational control, depending on which control approach the reporting company chooses to apply). For any wholly owned subsidiaries, the reported GHG emissions will be the same under either the equity share approach or the control approach.

If a reporting company has any fixed asset investments (defined by the Corporate Standard as “[e]quipment, land, stocks, property, incorporated and non-incorporated joint ventures, and partnerships over which the parent company has neither significant influence nor control”), it is assumed that the reporting company has limited operational control or financial control over such investments. Fixed asset investments’ dividends received are recognized as income, and the investments are carried at cost. As a result, fixed asset investments are not included in a reporting company’s organizational boundary under any of the approaches.

Footnotes

The Corporate Standard defines an operation as a “generic term used to denote any kind of business, irrespective of its organizational, governance, or legal structures. An operation can be a facility, subsidiary, affiliated company or other form of joint venture.”