Organisational boundaries: equity share or control

Before a company can add up its emissions, it has to decide whose emissions they are. Joint ventures, partly owned subsidiaries, associates and leased buildings can each be in or out of scope 1 and 2 depending on the boundary, and the choice can move the total by 15% or more. This guide explains the three approaches, works through a group with four kinds of holding and a lease, and covers what IFRS S2, the ESRS and California's rules require and when the boundary changes.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. 4 minute read.

Short answer

Organisational boundaries decide which parts of a group's emissions it reports as its own scope 1 and 2. The GHG Protocol Corporate Standard allows three approaches. Under the equity share approach, a company reports its share of each operation's emissions in line with its economic interest, usually its ownership percentage. Under the financial control approach, it reports 100% of the emissions of operations whose financial and operating policies it directs, broadly the subsidiaries it consolidates, and its share of jointly controlled ones. Under the operational control approach, it reports 100% of the emissions of operations it runs, whatever it owns. A company chooses one approach, applies it across the group and discloses it; emissions outside the boundary may belong in scope 3. In this guide's example, the same group reports 9,400, 10,000 or 8,500 tonnes depending on the approach.

At a glance

Three approaches
Equity share or control
Equity share
Emissions by ownership %
Financial control
Follows the accounts
Operational control
100% of what it runs
Choose
One, applied to all
Disclose
The approach used
Organisational boundaries: equity share or controlThree approaches: Equity share or control; Equity share: Emissions by ownership %; Financial control: Follows the accounts; Operational control: 100% of what it runs; Choose: One, applied to all; Disclose: The approach used.KEY FACTS AT A GLANCEOrganisational boundaries: equity share or controlThree approachesEquity share or controlEquity shareEmissions by ownership %Financial controlFollows the accountsOperational control100% of what it runsChooseOne, applied to allDiscloseThe approach usedTax BakersOrganisational boundaries: equity share or controlThree approaches: Equity share or control; Equity share: Emissions by ownership %; Financial control: Follows the accounts; Operational control: 100% of what it runs; Choose: One, applied to all; Disclose: The approach used.KEY FACTS AT A GLANCEOrganisational boundaries: equityshare or controlThree approachesEquity share or controlEquity shareEmissions by ownership %Financial controlFollows the accountsOperational control100% of what it runsChooseOne, applied to allDiscloseThe approach usedTax Bakers
Key facts at a glance, as set out in this guide.

What are organisational boundaries?

The GHG Protocol Corporate Standard asks a company to set its organisational boundary first: which entities and operations it includes, and in what proportion. It then sets its operational boundary, which emissions of those operations it reports as scope 1, 2 and 3. The organisational boundary must be applied consistently to every operation and from year to year, so that totals can be compared and trends tracked. See the GHG Protocol explained. See operational boundaries.

How does each organisational boundaries approach work?

  • Equity share: the company reports its share of each operation's emissions according to its economic interest, the share of risks and rewards it holds, which is usually its ownership percentage.
  • Financial control: the company reports 100% of an operation it can direct financially and operationally with a view to gaining economic benefits. This usually matches the subsidiaries consolidated in the financial statements; for operations under joint financial control, it reports its equity share, and for associates, none. See control under IFRS 10.
  • Operational control: the company reports 100% of an operation where it has full authority to introduce and implement operating policies, typically as the operator, and nothing for operations it does not run, even if it owns a large share.

Emissions that fall outside the boundary are not lost: for a company with investments, they may be reported in scope 3, category 15, and for leased assets in categories 8 or 13. See the 15 scope 3 categories. See financed emissions.

Organisational boundaries: one group, three totals

A manufacturing group has four kinds of holding and leases a warehouse on an operating lease, which it runs itself. Each operation's scope 1 and 2 emissions are measured in full, then included according to the approach.

OperationTonnes CO2eEquity shareFinancial controlOperational control
Parent's own plants5,0005,0005,0005,000
Subsidiary, 60% owned, run by the group3,0001,8003,0003,000
Joint venture, 50%, run by the partner4,0002,0002,0000
Associate, 30%, no control2,00060000
Warehouse on an operating lease, run by the group500Scope 3Scope 3500
Scope 1 and 2 reported9,40010,0008,500
Scope 1 and 2 emissions under each approach (tonnes CO2e)Scope 1 and 2 emissions under each approach (tonnes CO2e)9,400Equity share10,000Financial control8,500Operational controlControl or equity basisOperational control
The same operations give three different totals.

Financial control gives the highest total because the 60% subsidiary counts in full. Operational control gives the lowest, because the joint venture run by its partner drops out entirely, although the leased warehouse comes in. Equity share sits between them and is the only approach that includes part of the associate. None of the totals is wrong; what matters is choosing one, applying it to every operation and saying which it is. Groups whose operations are mostly wholly owned see little difference; those with many joint ventures, common in oil and gas, mining and real estate, can see large gaps. See joint operating agreements.

How are leased assets treated?

The GHG Protocol's guidance on leased assets distinguishes finance leases from operating leases. A lessee includes assets held under a finance lease in scope 1 and 2 under all three approaches. For an operating lease, a lessee using operational control usually includes the asset, because it runs it, while one using equity share or financial control reports the emissions in scope 3, category 8. Because IFRS 16 puts almost all leases on the lessee's balance sheet, companies reporting under IFRS should state how they classify leases for emissions purposes and apply it consistently.

Which approach do reporting rules require?

The GHG Protocol allows any of the three. IFRS S2 requires a company to disclose the approach it used and to split scope 1 and 2 emissions between its consolidated accounting group and other investees, such as associates and joint ventures. The revised ESRS E1 lets companies choose any of the three GHG Protocol approaches, replacing the original standard's mix of financial and operational control. CARB's proposals for SB 253 from 2027 require companies to disclose their consolidation approach. See IFRS S2, ESRS E1 and SB 253 from 2027.

What happens when the boundary changes?

Acquisitions, disposals and mergers change what is inside the boundary. To keep trends meaningful, the GHG Protocol requires the base year to be recalculated when such changes, or changes in methods, would significantly distort comparisons, using a significance threshold the company sets and discloses. Organic growth, such as a new plant the company builds, does not trigger a recalculation. Consolidation is one of the topics under review as the GHG Protocol and ISO prepare a joint corporate standard planned for late 2028. See base year recalculation and calculating scope 1 and 2 emissions.

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Questions people ask

What are the three organisational boundary approaches in the GHG Protocol?

Equity share, financial control and operational control.

How are joint ventures treated under operational control?

The operator reports 100% of the joint venture's emissions; a partner that does not operate it reports none in scope 1 and 2.

Can a company use different approaches for different subsidiaries?

No. It chooses one approach and applies it consistently across the group.

What does IFRS S2 require about organisational boundaries?

Disclosure of the approach used and scope 1 and 2 emissions split between the consolidated accounting group and other investees.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. GHG Protocol Corporate Accounting and Reporting Standard
  2. GHG Protocol Scope 2 Guidance
  3. GHG Protocol: key standard development updates, including the joint corporate standard with ISO, July 2026
  4. GHG Protocol: scope 2 public consultation, summary of feedback, July 2026
  5. IFRS Foundation: IFRS Sustainability Disclosure Standards (IFRS S1 and IFRS S2)

Rules and fees change. If you are reading this long after October 11, 2026, confirm the figures with the source before you rely on them.

SustainabilityThe GHG Protocol explainedSustainabilityCalculating scope 1 and 2 emissionsSustainabilityThe 15 scope 3 categories

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This guide is general information. It is not tax or legal advice for your situation.