Carbon Accounting for Multi-Site Operations: Setting Organizational Boundaries

The First and Most Critical Step in Carbon Accounting

The first question every company preparing a greenhouse gas (GHG) inventory faces is this: which facilities, subsidiaries, and operations should be included in the inventory scope? This question requires a complex structural decision, particularly for companies operating across multiple locations with subsidiaries and joint ventures.

Organizational boundary setting forms the foundation of a GHG inventory. An incorrect or inconsistent boundary definition can invalidate all of the inventory's results. ISO 14064-1:2018 and the GHG Protocol Corporate Standard offer two fundamental approaches for structuring this decision (ISO 14064-1:2018, Section 5.1; GHG Protocol Corporate Standard, Chapter 3).

Three Consolidation Approaches

1. Equity Share Approach

Under this approach, a company accounts for GHG emissions proportional to its economic interest (equity share) in an operation.

How it works:

• 100 percent owned facility: 100 percent of emissions included
• 50 percent owned joint venture: 50 percent of emissions included
• 25 percent owned associate: 25 percent of emissions included

Advantages:

• Aligned with financial reporting (particularly IFRS consolidated statements)
• Accurately reflects economic exposure
• Provides an understandable perspective for investors

Disadvantages:

• Includes emissions from facilities over which the company has no operational control
• Data access may be difficult for minority holdings
• May not directly reflect the impact of emission reduction actions

(GHG Protocol Corporate Standard, Chapter 3)

2. Financial Control Approach

The company includes 100 percent of emissions from all operations over which it has financial control.

Financial control definition: Having the power to direct the financial and operating policies of an operation. Typically achieved through more than 50 percent voting rights or board majority.

How it works:

• Financial control exists: 100 percent of emissions included
• No financial control: 0 percent of emissions included (entirely excluded)

Advantages:

• Calculation is straightforward (either 100 percent or 0 percent)
• Aligned with IFRS consolidated financial statements
• Coincides with the financial reporting scope for most companies

Disadvantages:

• The binary structure (included/excluded) can leave certain operations entirely outside the boundary
• Significant emission sources in minority holdings may be hidden

3. Operational Control Approach

The company includes 100 percent of emissions from all activities over which it has operational control.

Operational control definition: Having full authority to introduce and implement operating policies for an operation. This is not necessarily proportional to ownership share.

How it works:

• Operational control exists: 100 percent of emissions included
• No operational control: 0 percent of emissions included

Advantages:

• Reflects emissions the company can directly influence
• Directly shows the results of emission reduction actions
• Preferred by most regulatory frameworks (EU ETS, CBAM)
• Data access is easier (facilities under management authority)

Disadvantages:

• May not represent the full extent of economic exposure
• Excludes emissions from investments with high ownership stakes but no operational control

(ISO 14064-1:2018, Section 5.1)

Choosing an Approach: A Comparative Guide

General recommendation: The operational control approach is the most practical and regulatory-compatible option for most industrial companies. However, the choice should be made based on the company's structure, regulatory requirements, and stakeholder expectations.

Handling Joint Ventures and Associates

One of the most complex issues for multi-site companies is how to treat joint ventures and associates within the inventory.

Scenario 1: 50-50 Joint Venture

A steel producer and an energy company operate a 50-50 joint venture (JV).

• Equity share: Each partner includes 50 percent of the JV's emissions
• Operational control: The partner that actually manages the operation includes 100 percent; the other partner excludes it
• Financial control: Typically neither partner has financial control — both may exclude it

Scenario 2: Minority-Held Associate (30 percent)

A holding company owns a 30 percent stake in a cement plant.

• Equity share: 30 percent of emissions included
• Operational control: If the holding does not manage the operation, it is excluded
• Financial control: Financial control typically does not exist at a 30 percent stake — excluded

Scenario 3: Facility Managed Under an Operating Agreement

A company manages a facility owned by another entity under an operating agreement.

• Equity share: Excluded if there is no ownership stake
• Operational control: Included at 100 percent if operating authority exists
• Financial control: Excluded if there is no ownership

(GHG Protocol Corporate Standard, Chapter 3; WRI/WBCSD Scope 2 Guidance, Section 2)

Multi-Site Consolidation: Practical Steps

Step 1: Mapping the Organizational Structure

List all facilities, subsidiaries, joint ventures, and leased operations. For each unit:

• Ownership percentage
• Operational control status
• Financial control status
• Types of emission sources (production, office, logistics, etc.)
• Data access status

Step 2: Approach Selection and Consistent Application

Select a consolidation approach and apply it consistently across all units. ISO 14064-1 requires that approaches not be switched within the same inventory period. The chosen approach must be applied in the same manner across all components of the inventory (ISO 14064-1:2018, Section 5.1.3).

Step 3: Facility-Level Data Collection

For each included facility:

Scope 1 (Direct emissions):

• Fuel consumption data (natural gas, diesel, LPG, coal, etc.)
• Process emissions (cement clinker, steel production, etc.)
• Fugitive emissions (refrigerant leaks, methane seepage)

Scope 2 (Energy indirect emissions):

• Purchased electricity quantity
• Purchased steam, heating, or cooling
• Location-based and market-based calculation (WRI/WBCSD Scope 2 Guidance, 2015)

Scope 3 (Other indirect emissions):

• Supply chain emissions
• Business travel and employee commuting
• Product use and end-of-life emissions

Step 4: Consolidation and Quality Control

Consolidate facility data according to the chosen approach:

• Verify proportional data accuracy (under the equity approach)
• Prevent double counting (especially in internal trading and energy transfers)
• Validate unit conversions (energy units, emission factors)
• Define the base year recalculation policy (for facility acquisitions or disposals)

Step 5: Documentation

Clearly document the following:

• Chosen consolidation approach and rationale
• List of included and excluded operations
• Applied proportions for each unit (under the equity approach)
• Data sources and quality assessment
• Emission factors used and their sources
• Assumptions and estimation methods

Common Challenges and Solutions

Data Access Issues

Challenge: Inability to access facility data from minority-held associates or joint ventures.

Solution: Include environmental data sharing clauses in partnership agreements. Alternatively, use sector averages or estimation methods and clearly state this in the inventory.

Leased Facilities

Challenge: Classification between operational leases, financial leases, and owned facilities.

Solution: The GHG Protocol Corporate Standard ties the treatment of leased facilities to the chosen consolidation approach. Under the operational control approach, if the lessee has operational control, the facility is included in Scope 1 and 2.

Base Year Recalculation

Challenge: Whether to recalculate the base year when company acquisitions, mergers, or facility closures occur.

Solution: Structural changes require base year recalculation. The GHG Protocol recommends a 5 percent significance threshold — if the structural change affects more than 5 percent of base year emissions, recalculation should be performed.

Regulatory Compliance Perspective

The organizational boundary decision is also determinative for regulatory compliance:

• EU ETS and CBAM: Based on the operational control approach — the facility operator is the reporting obligor
• TSRS/ISSB: Leaves the approach choice to the company but recommends consistency with the financial reporting scope
• CDP: Accepts either the operational control or equity share approach; requires consistent application of the chosen method

Bottom Line: Organizational boundary setting is an architectural decision that directly affects the reliability of the GHG inventory. Choosing the right approach, applying it consistently, and documenting it transparently are the three fundamental principles of multi-site carbon accounting.