When conducting a carbon audit, the GHG Protocol provides three different methods for companies to report emissions.  The options available are defined as follows:

  • equity based
  • financial control
  • operational control.

In most instances, unless legislation or an emissions trading scheme dictates otherwise, we recommend that companies should choose operational control approach for their carbon audit

In line with the GHG protocol, The Carbon Report provides for the following organisational boundaries.  Explanations for each are as follows:

Operational Control

A company has operational control over an operation if it or one of its subsidiaries has the full authority to introduce and implement its operating policies at the operation. This criterion is consistent with the current accounting and reporting practice of many companies that report on emissions from facilities, which they operate (i.e. for which they hold the operating license). It is expected that, except in very rare circumstances, if the company or one of its subsidiaries is the operator of a facility, it will have the full authority to introduce and implement its operating policies and thus has operational control.

Under the operational control approach, a company accounts for 100% of emissions from operations over which it or one of its subsidiaries has operational control.

It is recommended that the operational control approach is chosen unless a company or legislative requirement dictates otherwise. The operational control approach offers the following benefits:

  • Provides companies with the most complete carbon audit for reporting emissions.
  • Enables companies to track performance. This approach is generally better since managers can be held accountable for activities under their control.
  • Companies are also more likely to have better access to operational data and therefore, better able to ensure that the information meets minimum quality standards when reporting on the basis of this control.
  • It has the advantage that a company takes full ownership of all the GHG emissions that it can directly influence and reduce.

Financial Control

The company has financial control over an operation if it has the ability to direct the financial and operating policies of an operation with a view to gaining economic benefits from its activities. For example, financial control usually exists if the company has the right to the majority of benefits of the operation, however these rights are conveyed. Similarly, a company is considered to financially control an operation if it retains the majority risks and rewards of ownership of the operation’s assets.

Under this approach, the economic substance of the relationship between the company and the operation takes precedence over the legal ownership status, so that the company may have financial control over the operation even if it has less than a 50% interest in that operation.

In assessing the economic substance of the relationship, the impact of potential voting rights, including both those held by the company and those held by other parties, is also taken into account. This criterion is consistent with international financial accounting standards; therefore, a company has financial control over an operation for GHG accounting purposes if the operation is considered as a group company or subsidiary for the purpose of financial consolidation, i.e., if the operation is fully consolidated in financial accounts.

If this criterion is chosen to determine control, emissions from joint ventures where partners have joint financial control are accounted for based on the equity share approach.


Under the equity share approach, a company accounts for GHG emissions from operations according to its share of equity in the operation.

The equity share reflects economic interest, which is the extent of rights a company has to the risks and rewards flowing from an operation. Typically, the share of economic risks and rewards in an operation is aligned with the company’s percentage ownership of that operation, and equity share will normally be the same as the ownership percentage. Where this is not the case, the economic substance of the relationship the company has with the operation always overrides the legal ownership form to ensure that equity share reflects the percentage of economic interest.

The principle of economic substance taking precedent over legal form is consistent with international financial reporting standards. The resources preparing the inventory may therefore need to consult with the company’s accounting or legal staff to ensure that the appropriate equity share percentage is applied for each joint operation.

The Carbon Report caters for all organisational boundary approaches when defining your carbon audit.

Pin It on Pinterest

Share This