Process of Preparing for an Inventory

Once the resources are in place, the process of preparing for & calculating an inventory for a company includes
several steps:

01 02 03

The plan helps ensure accuracy

and continuity year over year,
along with ensuring the effective
Understand the scope & Data Collection Calculate emissions & use of company resources for
boundaries for put together an
the assessments.
calculating GHG inventory management
emissions. plan.

Corporate Finance Institute®

Process of Preparing for an Inventory
Once the resources are in place, the process of preparing for & calculating an inventory for a company includes
several steps:

01 02 03 04

Understand the scope & Data Collection Calculate emissions & Reporting & Goal Setting
boundaries for put together an
calculating GHG inventory management
emissions. plan.

Corporate Finance Institute®

Process of Preparing for an Inventory
Once the resources are in place, the process of preparing for & calculating an inventory for a company includes
several steps:

01 02 03 04
Based on the emission calculations, a company can choose to report its GHG information in its
reports to stakeholders.

This data can help the company determine its GHG reduction strategies and can
guidethe
Understand thescope
overall
& climate change
Datainitiatives
Collectionof a company. Calculate emissions & Reporting & Goal Setting
boundaries for put together an
Management
calculating GHG must choose the timeframe (calendar year vs. fiscal year) for
inventory clarity on
management
reporting and must decide if the company wants the GHG emission dataplan.
emissions. to be third-
party verified as this needs to be planned in the initial scoping exercise.

Corporate Finance Institute®

Setting Organizational and Operational Boundaries
Once the resources are in place, the process of preparing for & calculating an inventory for a company includes
several steps:

01

This process includes the determination of two sets of boundaries:

Organizational
Understand the scope &
boundaries for
calculating GHG Operational
emissions.

Corporate Finance Institute®

Setting Organizational Boundaries
Organizational boundaries apply where the company structure includes two or more companies and relates to
the level of ownership and control that exists between them.

Straightforward

Equity Share Approach Control Approach

The company will consistently apply the chosen approach to define those businesses/operations that will be
accounted for in the calculation of GHG emissions. Having clearly defined boundaries prevents the risk of
double-counting.

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share %
100
The Equity Share Approach suggests that a company’s economic
risks and rewards are proportional to its ownership interest.

This is not always the case.

If a company’s economic interest differs from its ownership

50 interest, under this approach, the company will only report the
percentage of GHG emissions related to its economic interest.

$
20

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share % Control Approach
100

Financial Control Operational Control

Report on 100% of emissions of the companies/business

units that the company controls.

50

20

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share % Financial Control
100

Reflects activities where a company can direct the financial

policies of other companies for economic benefits. This
indicates that the organization has ownership in the
other business.

Subsidiaries Exceptions:
(wholly or partly owned) If a company has financial control over the other even
50
though it is not the majority owner (i.e. financial
control exists if the company has the right to the
majority of the benefits of the operation).

20
If two companies share joint financial control.

0 Equity Share Approach should be used in the scenarios

mentioned above.
Corporate Finance Institute®
Setting Organizational Boundaries
Equity Share % Financial Control
100
Partnerships & Joint Ventures (JVs)

Partnerships and JVs may have different levels of financial control.

Subsidiaries
(wholly or partly owned)
50

Parent JVs &

Company Partnerships

20

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share % Financial Control
100
Partnerships & Joint Ventures (JVs)

There is no one party with financial control so GHG emissions

should be consolidated using the Equity Share Approach.

Subsidiaries
(wholly or partly owned)
50

JVs &
Partnerships

20

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share % Financial Control
100
Franchises

Franchises are typically excluded from the organizational

boundary. However, if the franchisee has operational or financial
control, then they can be consolidated using either the equity share
or control approach.
Subsidiaries
(wholly or partly owned)
50

20

Corporate Finance Institute®

Setting Organizational Boundaries
Equity Share % Financial Control Operational Control
100

100% as company has 100% only where there is

Control/
Dominant majority of the full control/ authority to
Influence risk/reward implement operating
policies (but not
Subsidiaries
(wholly or partly owned) necessarily operational
50 decisions)

Significant 0% as business has

Influence influence but not control

Associates/Affiliates
20
No 0% as business has no 0% where there is no
Significant
influence nor control operational control
Investments Influence
0

Corporate Finance Institute®

Setting Organizational Boundaries
Organizational boundary selection & information can provide investors with relevant knowledge on how to analyze
operational risks and the accuracy of GHG emissions reported based on the company’s structure.

Companies may choose any of the approaches to suit their business priorities but there is increasing
scrutiny on them to ensure that complete information is disclosed.

Corporate Finance Institute®

 Setting Organizational Boundaries
Zeta Corp. Company A Company B Company C Company D Company E
Incorporated Company Subsidiary Incorporated JV JV of a Subsidiary Incorporated JV Incorporated Company

Zeta’s:
Equity 100% 80% 50% 83% (depends on E) 40% 83%
Operational Control 100% 100% 100% 0% 0% 0%
Financial Control 100% 80% 0% E and Zeta have joint 100% 83%
financial control

Operational
100% 100% 100% 0% 0% 0%
Control

Financial
100% 100% 100% 0% 100% 0%
Control

Equity Share
100% 80% 50% 41.5% 40% 83%
Approach
(EquityZeta x EquityE)
Corporate Finance Institute®
 Operational Boundaries & Scope 1, 2, 3 Emissions
Operational boundaries are decided at the corporate level and encompass Scopes 1, 2, & 3 emissions. Scope 1 & 2 has
to be accounted for and businesses can make a decision whether to include relevant scope 3 categories.

CO2 CH4 N2O HFCs PFCs SF6

Scope 2
Scope 3

Purchased goods Transportation

& services Leased assets & distribution Investments
Purchased electricity, Company
steam, heating, cooling facilities
Capital goods Employee commute Processing of
sold products Franchises

Fuel & other energy Business travel Company

vehicles Use of sold
products Leased assets
Transportation Waste generated in ops. End-of-life- treatment
Scope 1
& distribution of sold products
Upstream Activities Reporting Company Downstream Activities
Corporate Finance Institute®
Source: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
 Scope 1, 2, 3 Emissions

CO2 CH4 N2O HFCs PFCs SF6

Scope 2
Scope 3

Purchased goods Transportation

& services Leased assets & distribution Investments
Purchased electricity, Company
steam, heating, cooling facilities
Capital goods Employee commute Processing of
sold products Franchises

Fuel & other energy Business travel Company

vehicles Use of sold
products Leased assets
Transportation Waste generated in ops. End-of-life- treatment
Scope 1
& distribution of sold products

Upstream Activities Reporting Company Downstream Activities

Corporate Finance Institute®
Source: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
Determining Sources of Emission
Source types are groups that encompass the categories within each scope. Corporations must decide which source
types are applicable to the business.

Companies determine the sources of scope in terms of geographic locations for each of the activities
based on the organizational boundary (broader category).

Corporate Finance Institute®

Determining Sources of Emission
Source types are groups that encompass the categories within each scope. Corporations must decide which source
types are applicable to the business.

Scope 1 Stationary Combustion Fugitive Emissions Mobile Combustion

Stationary Refrigeration and air Comes from direct GHG

combustion conditioning leakages over the emissions from owned/leased
Fugitive emissions Boilers, turbines, heaters, operational life of the mobile sources:
and incinerators equipment, followed by disposal
Mobile combustion at the end of its useful life.

Cars & Trucks

Fuel

Construction Equipment
(i.e. forklift)

Electricity

Corporate Finance Institute®

Determining Sources of Emission
Source types are groups that encompass the categories within each scope. Corporations must decide which source
types are applicable to the business.
This scope is based on the level of operations that are owned/controlled by the company, which may
Scope 1 vary considerably based on the type of industry (e.g. a manufacturing company will have a higher
scope 1 vs. a service-based firm).
Stationary
combustion

Fugitive emissions

Mobile combustion Scope 1: emissions from onsite fuel consumption to run refrigerators for temporary storage
capacity, fugitive emissions from refrigeration and air-cooling equipment, refrigerants such as HFCs
and mobile combustion from the transportation of goods from warehouses to stores.

Corporate Finance Institute®

Determining Sources of Emission
Source types are groups that encompass the categories within each scope. Corporations must decide which source
types are applicable to the business.
Almost all businesses generate indirect emissions due to the purchase of electricity.
Scope 1 Scope 2 There are two required methods followed under Scope 2:

Stationary Purchased electricity,

combustion heat, and steam Market-based Location-based

Fugitive emissions Reflects GHG emissions Uses average emission factors

Mobile combustion associated with the specific for the electricity grids that are
choices a company makes providing electricity to the
regarding its electricity supplier company’s facility.
or product, as conveyed through
contractual agreements
between the processor and the
provider.

Corporate Finance Institute®