Chapter 2 — Identification of a Company’s Organizational Boundary

2.2 Equity Share Approach

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.

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.