1. Define organisational boundaries

Your first step is to define the organisational boundaries. This determines what emissions are part of your organisational footprint, and which are not. To determine these boundaries, you first have to choose between three consolidation methods:

  • Equity share. Under the equity share approach, a company accounts for emissions from operations according to its share of equity in the operation that is under assessment.
  • Financial control approach. The company has financial control over the operation if the former has the ability to direct the financial and operating policies of the latter, with a view to gaining economic benefits from its activities.
  • Operational control approach. A company has operational control over an operation if the former (or one of its subsidiaries) has the full authority to introduce and implement its operating policies at the operation. 
    Don’t know which consolidation method to choose? This approach is appropriate for most businesses.

Notion: once you picked a method you have to keep following this approach, in order to keep reporting correctly.

Based on the adopted approach, you can determine what parts of the emissions of the organisation that you’re reporting on are included in your carbon footprint, and what not.

If your organisation is part of a larger conglomerate of businesses or business units, it can be extra beneficial to draw an organisational diagram like the one below. This diagram gives you the overview and ensures that you’re not overlooking parts of your emissions.

Below, you can see an example from the GHG protocol guideline on the three different consolidation approaches.

Organisational boundaries illustrated

Holland Industries is a chemicals group comprising a number of companies/joint ventures active in the production and marketing of chemicals. Table 2 outlines the organisational structure of Holland Industries and shows how GHG emissions from the various wholly owned and joint operations are accounted for under both the equity share and control approaches.

In setting its organisational boundary, Holland Industries first decides whether to use the equity or control approach for consolidating GHG data at the

corporate level. It then determines which operations at the corporate level meet its selected consolidation approach (financial or operational).

Based on the selected consolidation approach, the consolidation process is repeated for each lower operational level. In this process, GHG emissions are first apportioned at the lower operational level (subsidiaries, associate, joint ventures, etc.) before they are consolidated at the corporate level. The previous figure presents the organisational boundary of Holland Industries based on the equity share and control approaches.

In this example, Holland America (not Holland Industries) holds a 50 percent interest in BGB and a 75 percent interest in IRW. If the activities of Holland Industries itself produce GHG emissions (e.g., emissions associated with electricity use at the head office), then these emissions should also be included in the consolidation at 100 percent.

Table 2

2. Define operational boundaries + video

Next is setting the operational boundaries. The operational boundaries categorise the direct and indirect emissions, and determine the scope of accounting and reporting for the indirect emissions. 

Video: scopes explained

Scopes according to the GHG-protocol

In this step, you categorise all your emissions sources according to the GHG-protocol. The previous step is arbitrary and sets your choice. This step’s categorisation flows from your decision on the organisational boundaries in the previous step. These emissions sources are divided in three scopes, where the main difference between direct and indirect emissions has to do with the origin of the emissions and the degree of control an organisation has over them:

  • Scope 1 are direct emissions from direct energy sources, from the activities of the organisation itself. This consists of all the emissions from exhausts, chimneys, etc. that are in your control. 
  • Scope 2 are indirect emissions from direct energy sources. This is direct energy use (e.g. electricity), however the GHG emissions are felt somewhere else (i.e. the power plant).
  • Scope 3 are all other indirect emissions resulting from activities in your supply chain. You can think of emissions from your logistic supplier, supplier’s emissions during production of components, employee commuting, emissions during use phase of products or services, etc. 

Below you can read more on the difference between scope 1,2 &3 emissions.

Impact of scope 1, 2 and 3 visualised

For most companies, scope 3 emissions are by far the largest contribution to the business carbon footprint. In general, you can assume that the further your business is downstream in the supply chain, the larger the share of scope 3 emissions will be.

Below you find an overview of all the emissions sources per scope according to the GHG protocol.

The difference between scope 1 and 2 vs scope 3 emissions

Scope 1 and scope 2 emissions are easier to assess compared to scope 3 emissions. For scope 3, you may need information from your supply chain partners and other stakeholders. Scope 3 emissions are emissions in scope 1 and scope 2 of the other entities in your supply chain. However, since you have some relationship with, and control over these emissions, it is very important to include these emissions in your footprint. 

Scope 3 emissions can be reduced by choosing other suppliers, alter design, avoid specific services, etc. etc. The most climate action opportunities you can achieve with your organisation will lie in scope 3 emissions. Scope 1 and scope 2 emissions can be reduced by energy efficiency improvements on your site, switching to electric vehicles and renewable energy supplier.

To support identifying and assessing scope 3 emissions, the GHG-protocol has released an additional standard elaborating all the different scope 3 emissions sources. Please refer to this standard, the Corporate Value Chain (scope 3) Accounting and Reporting Standard, if you need additional information on scope 3 emissions. 

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