‍Setting the Boundaries of your GHG Inventory‍

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The Greenhouse Gas (GHG) Protocol is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage greenhouse gas emissions. When companies embark on reporting their GHG emissions, one of the crucial steps is determining the boundaries of their GHG inventory. This involves deciding whether to report emissions based on operational control or financial control. Here, we'll explore these concepts and illustrate them with practical examples from the consumer and retail industry.

What is operational vs. financial control? 

Operational Control Approach

Ask yourself: Does your company have the authority to introduce and implement operating policies that can change how things are done?

In Practice: Consider a large retail chain like Walmart. Walmart owns and operates numerous stores globally. Under the operational control approach, Walmart would include the emissions from all the stores it directly manages. This includes emissions from energy use in the stores, logistics centers, and corporate offices. However, it would not include emissions from franchised stores where it does not have the authority to set operational policies, even if it has a financial interest in these franchises.

Financial Control Approach

Ask yourself: Does your company have the power to govern financial policies and do you get the majority of benefits and risks from the operations?

In Practice: Let's look at another scenario with Starbucks. Starbucks operates many stores worldwide but also has numerous joint ventures and franchised stores. If Starbucks uses the financial control approach, it would report emissions from all operations where it has financial control. This means if Starbucks has a majority stake in a joint venture coffee shop, it would include emissions from this store in its GHG inventory. Similarly, if it has financial control over a franchise, those emissions would also be included, even if Starbucks does not have operational control over the day-to-day activities of these franchises.

What’s the difference?

Under the operational control approach, companies report emissions only for those operations where the company has direct control over policies and procedures. Meanwhile under the financial control approach, companies report all emissions for which they have a financial stake and the ability to control financial and operating policies, regardless of who has day-to-day operational control.

Still can't decide? Think about these factors: complexity, relevance and transparency. What's important for your company?

1. Complexity

  • Operational control: Generally more straightforward to determine since it relies on clear operational authority.
  • Financial control: Can be more complex as it requires assessing financial influence and stakes, which may involve intricate ownership structures.

2. Relevance to Business Decisions

  • Operatonal control: Aligns more closely with direct managerial responsibilities and operational efficiencies.
  • Financial control: Reflects a broader view of a company’s financial interests and may capture emissions from a wider range of activities.

3. Transparency and Stakeholder Communication

  • Operational control: May provide clearer and more actionable data for operational improvements.
  • Financial control: Offers a comprehensive picture of emissions tied to the company’s financial interests, potentially providing more holistic information to investors.

Choosing between operational and financial control approaches for GHG inventories significantly impacts the scope and comprehensiveness of your company's reported emissions. Still have questions? Contact us!