7.1 Overview
Accounting for GHG emissions from leased assets can be nuanced, and
preparers must be careful in their analysis. Companies need to understand the types
of leased assets they have so that they can correctly classify the related GHG
emissions into Scope 1; Scope 2; Scope 3, Category 8 (upstream leased assets); or
Scope 3, Category 13 (downstream leased assets).1 In some cases, Scope 3 emissions from products leased to customers may also be
reported in Scope 3, Category 11 (use of sold products); see Section 7.2.3 for more
information. To determine whether to classify a reporting company’s GHG emissions
from leased assets in Scope 1, Scope 2, or Scope 3, preparers need to consider (1)
the company’s elected consolidation approach for establishing its organizational
boundary and (2) the lease classifications in the company’s audited financial
statements.
As discussed in Chapter 2, a reporting company
consolidates GHG emissions by using the equity share approach or one of the control
approaches (financial control or operational control). The company’s choice of
consolidation approach, which is to be applied consistently, affects whether GHG
emissions from a given leased asset are classified in Scope 1, Scope 2, or Scope 3.
For more information, see Sections 7.3 and
7.4.
In addition to applying a reporting company’s consolidation approach consistently,
preparers will need to understand the different types of leases. Appendix A of the
Scope 3 Standard, which is adapted from Appendix F of the Corporate Standard, classifies leases into
two types as follows:
Scope 3 Standard, Appendix A, “Accounting for Emissions From
Leased Assets,” Page 124 (Page 126 in E-Reader Version)
Differentiating Types of Leased Assets . . .
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Finance or capital lease: This type of lease enables the lessee to operate an asset and also gives the lessee all the risks and rewards of owning the asset. Assets leased under a capital or finance lease are considered wholly owned assets in financial accounting and are recorded as such on the balance sheet.
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Operating lease: This type of lease enables the lessee to operate an asset, like a building or vehicle, but does not give the lessee any of the risks or rewards of owning the asset. Any lease that is not a finance or capital lease is an operating lease. [Footnote omitted]
The leasing guidance in ASC 842, which is now fully effective for
all entities that report their financial results under U.S. GAAP, contains lease
classification criteria for determining (1) whether a lessee would account for a
lease as a finance lease or an operating lease and (2) whether a lessor would
account for a lease as a sales-type lease, direct financing lease, or operating
lease. However, since the GHG Protocol was released before the guidance in ASC 842
was issued, the lease classifications in the GHG Protocol are consistent with those
of the FASB’s legacy leasing guidance in ASC 840. Consequently, for purposes of
accounting for GHG emissions from leased assets under the GHG Protocol, preparers
would determine whether a lease classified under ASC 842 is a finance/capital lease
or an operating lease as defined in the GHG Protocol. For more information about
lease classifications under ASC 842, see Sections 8.3 (for lessees) and 9.2 (for lessors) of
Deloitte’s Roadmap Leases.
Preparers also need to think through these various factors from a lessor’s
perspective if the reporting company leases assets to another entity. Accordingly,
preparers must consider the following factors when determining whether emissions
from leased assets are included in a company’s GHG inventory:
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The selected organizational boundary.
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The lease classification.
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The effective owner of the asset (i.e., landlord/lessor or customer/lessee).
Footnotes
1
Throughout this chapter, it is assumed that the reporting
company has elected to report Scope 3 emissions under the Scope 3
Standard.