Objective
Learn how to define the organizational boundary for your GHG Inventory, which determines the parts of your organization included in emissions reporting. By the end of this step, you will understand how to effectively decide which parts of your organization should be included and have a finalized list of facilities documented clearly using Carbon GPT.
What is an Organizational Boundary?
The organizational boundary defines the scope of your GHG Inventory by specifying which parts of your business are included in your emissions calculations. This boundary can encompass different legal entities, business units, operations, or even specific facilities within your organization. For example, a typical manufacturing company might define its organizational boundary to include all its production facilities, warehouses, and offices that it directly controls, while excluding joint ventures where it has no operational control.
Approaches to Defining the Organizational Boundary
There are two primary approaches to setting your organizational boundary:
Control Approach: Under this approach, you account for 100% of the GHG emissions from operations over which your organization has control. Control can be defined in two ways:
- Operational Control: Your organization has the authority to introduce and implement operating policies related to emissions.
- Financial Control: Your organization has the ability to direct the financial and operating policies of an entity with a view to gaining economic benefits from its activities.
Equity Share Approach: This approach accounts for GHG emissions according to your organization's share of equity in an operation. For instance, if your organization owns 50% of a joint venture, you would include 50% of that operation's emissions in your inventory. Note: Carbon GPT currently does not support this approach.
Importance of Setting a Clear Organizational Boundary
Establishing a well-defined organizational boundary is essential for several reasons:
Consistency: Track progress and trends over time.
Transparency: Provide clear, credible reporting for stakeholders.
Accuracy: Capture all relevant emissions, preventing under- or over-reporting.
Case Study
Suppose Company X has 3 facilities with the following Controls and Equity Share
| Headquarters | Manufacturing Plant | Retail Outlet | |
| Operational Control | Has Operational Control | Has Operational Control | No Operational Control |
| Financial Control | Has Financial Control | No Financial Control | Has Financial Control |
| Equity Share | Has 100% Equity Share | Has 85% Equity Share | As 40% Equity Share |
| Emissions | 1000 kgCO2e | 2000 kgCO2e | 500 kg CO2e |
The table below displays how much GHG Emissions Company X has to account for depending on the approach it takes
| Headquarters | Manufacturing Plant | Retail Outlet | Total Emissions | |
| Operational Control | 1000 kgCO2e | 2000 kgCO2e | 0 kgCO2e | 3000 kgCO2e |
| Financial Control | 1000 kgCO2e | 0 kgCO2e | 500 kgCO2e | 1500 kgCO2e |
| Equity Share | 1000 kgCO2e | 1700 kgCO2e | 200 kgCO2e | 2900 kgCO2e |
An organization shouldn't decide on an approach just based on which approach would result in the lowest emissions. There are other factors to take into account such as:
Ease of access to data: If the organization decides to go with Financial Control, would it be able to easily gather data from facilities it does not have operational control over.
Alignment with stakeholders: If the organization decides to go with Equity Share approach but its Subsidiary uses Operational Control, this may result in double-counting or omission of emissions.
Next Steps
Select Your Approach: Decide between Operational Control and Financial Control.
- Carbon GPT currently does not support Equity Share approach
Create Your Facilities: List all your organization's facilities that fall under your selected control approach in the Facilities module of Carbon GPT.
Avoid Common Pitfalls: Be mindful of common mistakes such as:
Inconsistent Boundaries: Ensure all entities are consistently included or excluded across all reporting periods to avoid data discrepancies.
Ignoring Minor Sources: Don't overlook smaller facilities or emission sources that could still have a significant impact.
Misclassification: Double-check that facilities are classified correctly under Operational or Financial Control to prevent incorrect reporting.