Understanding Emissions Boundaries in GHG Accounting

As sustainability becomes a key focus for businesses globally, understanding greenhouse gas (GHG) emissions boundaries is critical for accurate reporting and meeting compliance requirements. Boundaries are central to defining what emissions a company takes responsibility for and can influence the outcomes of its sustainability strategies. 

In this blog, we explain inventory boundaries, organisational boundaries and operational boundaries, the main components of emissions accounting, and explore their implications for companies, with an illustrative example.  

What Are Boundaries in Emissions Accounting? 

The inventory boundary in emissions accounting is defined as the combination of: 

1. Operational Boundary – Emissions the company directly controls within its operations. 

2. Organisational Boundary – Emissions the company accounts for across its supply chain and operations, including direct and indirect emissions. 

   
   

These boundaries help classify emissions into: 

• Scope 1: Direct emissions from controlled sources. 

• Scope 2: Indirect emissions from imported heat, cooling and purchased energy. 

• Scope 3: All other indirect emissions within a company’s value chain. 

Organisational Boundary: Control vs. Equity Share 

When setting an organisational boundary, companies choose between two approaches: 

Control Approach: 

• Companies take responsibility for 100% of emissions from assets they control, regardless of ownership percentage. 

• Control can be defined either: 

• Financially: When a company directs financial and operational policies for economic benefit. 

• Operationally: When a company has full authority to implement operating policies. 

• For non-operated assets, emissions are accounted for under Scope 3, typically under the investments category. 

Equity Share Approach: 

• Emissions are attributed based on a company’s ownership or economic interest for each of their assets. 

• This approach ensures alignment with the financial interest, regardless of operational control. 

Illustrating Boundary Definitions: Company A 

Let’s consider a fictional entity, Company A, which operates multiple assets. Some assets are fully operated, while others are equity stakes. It also owns one office building, leases another, and uses company vehicles shown in Figure 1. Below, we explore how the company’s emissions inventory changes depending on its chosen boundary. 

Figure 1. A schematic showing the operations included within Company A's emissions accounting.

Scenario 1: Operational Control Approach 

Included in Scope 1 & 2: 

• Emissions from operated assets, the owned office building, and company vehicles. 

  
  

Excluded from Scope 1 & 2: 

• Non-operated assets fall under Scope 3 (Category 15: Investments). 

Figure 2 below highlights which emissions sources fall outside the operational control boundary. The organisational boundary and inventory boundary are shown in Figure 3. 

Figure 2. A schematic showing which assets will not be included in Company A's Scope 1 and 2 emissions reporting based on the Operational Control approach.

Figure 3. A schematic showing the boundaries of Company A's emissions reporting using an operational control approach.

A note on Leased Assets: 

The categorisation of leased assets can get very complicated! The GHG Protocol has a specific set of guidance covering this – here.  The categorisation depends on the type of lease (finance or operating) and the organisational boundary approach adopted (e.g., operational or equity share/financial control). To clarify how emissions from leased assets are categorised, Table 1 below summarises the key distinctions from the lessee's perspective: 

Lease Type	Ownership and Control	Emissions Categorisation
Finance / Capital Lease	Lessee assumes ownership risks and rewards. Asset is recorded on the balance sheet.	Scope 1: Emissions from fuel combustion (direct).   Scope 2: Emissions from purchased electricity (indirect).
Operating Lease	Lessee has the right to operate the asset but does not own it. Asset is not recorded on the balance sheet.	Depends on Boundary Approach:  Equity Share or Financial Control:   All emissions (fuel combustion and electricity) as Scope 3 Cat 8.  Operational Control:   Scope 1: Emissions from fuel combustion (direct).  Scope 2: Emissions from purchased electricity (indirect).

This categorisation helps organisations align with the GHG Protocol while ensuring clarity and consistency in reporting emissions from leased assets.

Scenario 2: Equity Share Approach 

• Included in Scope 1 & 2: 

  • Emissions from all assets based on the company’s ownership share, except the leased building. 

    
    

• Excluded from Scope 1 & 2: 

  • Leased office building emissions are part of the company’s Scope 3 reporting (operating lease and equity share approach, see Table 1). 

Figure 4 demonstrates the broader inclusion of assets under this approach and Figure 5 summarises the organisational and inventory boundaries for Company A. 

Figure 4. Schematic showing the operations included with Company A's Scope 1 and 2 reporting if applying the Equity control approach.

Figure 5. A schematic showing the boundaries of Company A's emissions reporting using an equity control approach.

Why Does This Matter? 

For industries like oil and gas, boundary decisions significantly affect GHG inventory results due to complex ownership structures. Companies must carefully align their reporting approach with: 

• Regulatory requirements. 

• Industry standards like the Greenhouse Gas Protocol. 

• Stakeholder expectations for transparency and comparability. 

Key Takeaways 

1. Clearly defining boundaries is essential for transparent and consistent emissions reporting. 

2. The choice between Control and Equity Share approaches depends on regulatory guidance, stakeholder needs, and operational complexity. 

3. Documenting the rationale and methodology for boundary selection ensures credibility and readiness for audits. 

   
   

At sustain:able, we specialise in helping companies establish robust emissions inventories tailored to their unique operational and organisational structures.  

Drop us a line to discuss how we can support you with your emissions inventrory, forecasts anfd reduction planning info@esgable.com