Setting an organizational boundary is the key first step to calculating a companies carbon footprint. This relates to the decision around which business activities should be included within a company's carbon footprint. If a company has complete ownership over all operations, then all emissions should be included within its inventory. However, if a company has partial ownership across operations, the company will need to determine to what extent it is responsible for emissions. Business operations may include: Wholly owned operations, Incorporate / Non-incorporated, Joint ventures, and Subsidiaries. The same approach needs to be taken across the whole organization otherwise it will lead to gaps and / or double counting.

Established rules apply for the purposes of financial accounting: They depend on the structure of the organization and the relationships among the parties involved. A company's organizational boundary for GHG accounting can differ from your financial accounting boundary, and depends on a number of factors related to the companies ambition.

Across GHG accounting, there are three approaches to setting an organizational boundary.

Under the operational control approach, a company accounts for 100% of emissions from all the operations over which it or one of its subsidiaries has operational control. This means that the company should have the authority to introduce and implement operating policies, even if it doesn’t necessarily have the authority to make all decisions concerning an operation e.g. related to large capital investments. Under this approach, you do not need to account for GHG emissions from operations in which the company owns an interest but has no control over. This is the most commonly-used approach to setting the organizational boundary, and applies to >60% companies.

This approach applies for those companies that have operational control for the majority of its operations. This approach is most frequently used because it reflects where management can have an impact. Carbon data reporting and management is also often most feasible where the company has operational control.

Similar to the operational control approach, if a company uses the financial control approach, it must account for 100% of the GHG emissions from operations over which it has financial control. The company does not need to account for emissions from operations in which it owns an interest but has no control. A company is considered to financially control an operation if it retains the majority risks and rewards of ownership of the operation’s assets. Under this approach, the company may have Financial Control over the operation even if it has less than a 50 percent interest in that operation. This is the next most common approach, and accounts for up to 20% cases.

This approach applies primarily to companies that wish to align their carbon accounting to financial accounting. This approach applies when

Under the Equity Share approach, a company accounts for GHG emissions from operations according to its share of equity in the operation. For example, if your company owns a 10% share in the organization, you report 10% of those emissions. If your company owns a 51% share in the organization, you report 51% of those emissions, and so on. The Equity Share reflects economic interest, which is the extent of rights a company has to the risks and rewards flowing from an operation. This is a rare approach (mostly used for companies with complex ownership structures; e.g., in infrastructure/power generation)

This approach most closely reflects commercial reality, and is most suitable when companies wish to understand liability and risk to their business. It most frequently used by companies that have a complex ownership structure with percent ownership in other operations, assets or entities.

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