When evaluating the accuracy of your greenhouse gas (GHG) emissions reporting, consider it through the same lens as financial accounting under GAAP standards—where precision, transparency, and consistency are fundamental to credibility. Just as financial misstatements can erode investor confidence and trigger compliance risks, incomplete or imprecise emissions data can undermine trust and expose firms to regulatory and reputational risks. Accurate emissions accounting is more than just a compliance task—it is essential for meeting evolving regulations, managing public disclosure risks, strengthening investor confidence, unlocking energy cost savings, and enhancing enterprise valuation.
At Full Scope Insights, we apply rigorous accounting principles to GHG emissions measurement, ensuring firms establish clear organizational and operational boundaries that align with regulatory requirements and withstand audit scrutiny. The foundation of this process, per the GHG Protocol (GHGP), is defining GHG reporting boundaries to comprehensively capture all applicable emission sources, analogous to the way financial statements must faithfully represent all material financial transactions.
The key question is: how do you set GHG emission reporting boundaries correctly? In this article, we share some relevant information about GHGP consolidation approaches and the recommendations about annual boundary setting under the operational control approach.
Overview
The GHG Protocol identifies two key boundaries in GHG emissions reporting:
- Organizational Boundary – Defines which legal entities your company includes in its emissions accounting.
- Operational Boundary – Determines which emissions sources are categorized into scope 1, scope 2, and scope 3.
Source: GHG Protocol Corporate Standard
Determining and setting an operational boundary per the GHGP can be complex due to varying organizational structures, ownership and control relationships, emission source classifications, and the need to align with financial or equity-based reporting frameworks while avoiding double counting.
1. Setting Your Organizational Boundary
The GHG Protocol defines organizational boundaries as:
“The boundaries that determine the operations owned or controlled by the reporting company, depending on the consolidation approach taken (equity or control approach).”
There are two consolidation approaches a company can take when setting its organizational boundary: the equity or control approach, where the control approach is determined either via operational or financial control:
Source: GHG Protocol Corporate Standard
The operational control approach is the most common consolidation approach taken in the corporate GHG emissions accounting marketplace. It additionally limits the reporting complexity, as companies either report 0% or 100% of their legal entities’ scope 1, 2, and 3 emissions, as opposed to a unique percentage when using the equity share approach.
Example: Setting the Organizational Boundary
Let’s visualize a real-life example of how setting the organizational boundary can affect GHG emissions. A parent company owns varying levels of financial interest in four entities. Here’s how its emissions footprint changes, depending on the consolidation approach taken:
Source: GHG Protocol Corporate Standard
The parent company is using the operational control approach in this example, and will include Companies A, B, and C in its GHG reporting, while Company D is excluded:
2. Determining Your Operational Boundary
Once the companies included have been selected, the next step is to determine the operational boundary. The GHG Protocol defines the operational boundaries as:
“The boundaries that determine the direct and indirect emissions associated with operations owned or controlled by the reporting company. This assessment allows a company to establish which operations and sources cause direct and indirect emissions, and to decide which indirect emissions to include that are a consequence of its operations.”
The same parent company with operational control has determined Companies A, B, and C’s owned and leased assets to include factories, an office, equipment in a collocated data center, and a fleet of vehicles housed at Company B’s office. However, one office owned by Company C is subleased to a third party and is therefore not part of the parent company’s own operations (scope 1 & 2):
Within these operations, many sources of scope 1, 2 and 3 emissions will be active. Potential sources of scope 1, 2, and 3 emissions include:
Scope 1, Direct Emissions
- Stationary Combustion: Emissions resulting from the combustion of fuels in stationary sources, such as boilers and furnaces. This typically includes natural gas for heating, propane for forklifts, and acetylene, carbon dioxide, and other gases used in metal fabrication and welding.
- Mobile Combustion Emissions, resulting from the combustion of fuels in company-controlled mobile combustion sources, such as trucks, trains, ships, airplanes, buses and cars.
- Process Emissions, resulting from the manufacture or processing of chemicals and materials, such as cement, aluminum, and waste processing.
- Fugitive Emissions, resulting from the unintentional release of gases and refrigerants, such as CO2 from fire extinguishers, and HFCs from HVAC equipment, refrigerators, and vehicle AC units.
Scope 2, Electricity Indirect Emissions
- Indirect Electricity Emissions, resulting from the upstream generation of electricity by power plants, as well as steam generation.
Scope 3, Other Indirect Emissions
- Other Upstream and Downstream Value Chain Emissions, such as upstream processing and customer use, are broken down into 15 unique categories. See the GHG Protocol’s scope 3 standard for more information.
In this example, the parent company is only calculating its scope 1 and 2 emissions, and excluding sources of scope 3, an approach we typically recommend to first-year reporters.
Now that we understand each location’s unique business activities and sources of scope 1 and 2 emissions, we can set their operational boundaries:
- The factories and office will report scope 1 emissions from natural gas and refrigerants.
- The office’s vehicle fleet will report scope 1 emissions from fuel consumption.
- The factories, office and data center will report scope 2 emissions from electricity consumption.
- The subleased office falls under scope 3 (category 13: upstream leased assets), based on their lessee’s scope 1 & 2 GHG emissions and is out of scope.
Ensuring Year-Over-Year Accuracy
Determining sources of GHG emissions is a complex, yet critical exercise to ensure you’re capturing all relevant sources of emissions. Before embarking on your data collection, conversions, estimates and factor application for GHG accounting, we strongly recommend an annual review of your organizational and operational GHG emissions boundaries to reflect facility openings/closures, differing business activities, and investments and divestures, to ensure accurate reporting.
Think of setting your GHG reporting boundaries as you would structuring your financial accounts—getting it right isn’t just about compliance, it’s about building trust, reducing risk, and unlocking strategic advantages. Establishing clear boundaries today ensures your emissions data is defensible and positioned for long-term success.
About Full Scope Insights and Our GHG Emissions Accounting Services
Full Scope Insights provides fit-for-purpose fractional sustainability program management services. We specialize in developing and executing value-add sustainability strategies for public and private organizations in a cost-efficient manner, including scope 1, scope 2 and scope 3 GHG emissions accounting. Our team of experts possesses the GHG audit experience necessary to produce quality inventories that exceed stakeholder expectations.
For more information on Full Scope Insights, contact us today.
Ethan Krohn
Senior Associate
Full Scope Insights