2.2 Equity Share Approach | DART – Deloitte Accounting Research Tool

The Corporate Standard provides that “[u]nder the equity share approach, a company accounts for GHG emissions from operations according to its share of equity in the operation.” The equity share, or economic interest, reflects the reporting company’s rights to the risks and rewards from an operation. If the legal ownership percentage does not equal the reporting company’s economic interest in a business, the economic interest will be the prevailing determinant for calculating the reporting company’s reported GHG emissions, since the economic interest is expected to be a better representation of the rights to the risks and rewards than legal ownership.

A reporting company applying the equity share approach accounts for GHG emissions on the basis of its economic interest in the following investees:

Subsidiaries consolidated under ASC 810.
Investments in associates over which the reporting company has significant influence under ASC 323.
Joint ventures accounted for under ASC 323.

For this purpose, the economic interest is the percentage of interest in the investee used in preparation of the entity’s financial statements (e.g., the percentage of interest determined under U.S. GAAP).

Under the equity share approach, if an entity holds an economic interest in an investee over which it does not have control, joint control, or significant influence, the entity would not include the investee’s GHG emissions in its Scope 1 and Scope 2 GHG emissions. Emissions related to such investees would instead be reported in the entity’s Scope 3, Category 15, emissions.

As noted, under the equity share approach, an entity accounts for GHG emissions in accordance with its economic interest in an investee (e.g., subsidiary, associate). For example, if an entity has an associate accounted for under the equity method for financial reporting purposes, the entity would determine its equity share of the GHG emissions of the associate by using the same percentage it used to determine the share of the results of the associate for financial reporting purposes.

A key difference between the application of the equity method of accounting and the application of the equity share approach under the Corporate Standard is the presentation. The entity’s financial reporting framework may require the entity’s share of the investee’s result to be presented as a single line item in the statement of profit or loss. Under the Corporate Standard, the GHG emissions from the investee would be included along with the other Scope 1, Scope 2, and Scope 3 emissions of the investor, as applicable. In effect, the Corporate Standard requirements are similar to the proportionate consolidation method applied to certain investments in some accounting frameworks.

The example below illustrates how a reporting company would apply the equity share approach to determine how to consolidate GHG emissions from other companies within its group structure.

Example 2-1

Company A, a reporting company, elects to apply the equity share approach to consolidate emissions from companies and other business entities in which it holds a direct or indirect economic interest. Assume the following:

Company B is a wholly owned subsidiary of A.
Company C is a subsidiary of B, which holds a 90 percent economic interest in C.
Company D is a subsidiary of C, which holds an 80 percent economic interest in D.
JV1 is a joint venture (JV) in which two JV partners, A and Company E, each hold a 50 percent economic interest.
JV2 is a JV in which two JV partners, B and Company F, hold economic interests of 75 percent and 25 percent, respectively.
JV3 is a JV in which two JV partners, C and Company G, each hold a 50 percent economic interest.
JV4 is a JV in which two JV partners, A and Company H, each hold a 50 percent economic interest.

The diagram below illustrates the economic interests held by the various companies.

The table below presents A’s consolidation under the equity share approach of GHG emissions from the companies and JVs in which A holds a direct or indirect economic interest.

Company or JV	Legal Structure	Economic Interest Held by Immediate Parent or JV Partners	Percentage of GHG Emissions Consolidated by Company A Under the Equity Share Approach
Company B	Wholly owned subsidiary of A	100%	100%
Company C	Subsidiary of B	90%	90%*
Company D	Subsidiary of C	80%	72%**
JV1	JV in which A and Company E are partners	50% by A, 50% by E	50%
JV2	JV in which B and Company F are partners	75% by B, 25% by F	75%***
JV3	JV in which C and Company G are partners	50% by C, 50% by G	45%†
JV4	JV in which A and Company H are partners	50% by A, 50% by H	50%
* Calculated as (B’s 90% economic interest in C) × (A’s 100% economic interest in B). Calculated as (C’s 80% economic interest in D) × (B’s 90% economic interest in C) × (A’s 100% economic interest in B). * Calculated as (B’s 75% economic interest in JV2) × (A’s 100% economic interest in B). † Calculated as (C’s 50% economic interest in JV3) × (B’s 90% economic interest in C) × (A’s 100% economic interest in B).

The diagram below further illustrates the emission percentages consolidated by A under the equity share approach.