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Guide to organizational and operational boundaries

In the critical arena of environmental responsibility, defining organizational and operational boundaries is a pivotal step for businesses in managing their greenhouse gas (GHG) emissions. This article delves into the complexities of these boundaries, crucial for accurate GHG accounting. 

Understanding and effectively managing these boundaries not only aligns with environmental regulations but also reflects a commitment to sustainable business practices. 

What’s the difference between operational and organizational boundaries?

Organizational and operational boundaries may seem similar, but they’re actually quite different. And making the distinction between them can have a crucial impact on the accuracy of tracking greenhouse gas emissions in carbon accounting.

Organizational boundaries determine the extent of an organization's GHG responsibility, either through the equity share or control approach. Operational boundaries, on the other hand, categorize emissions into direct and indirect types, further classified into scope 1, 2, and 3 emissions

This distinction aids companies in identifying and managing their carbon footprint throughout their operations and value chains. Let’s explore each in further detail.

What are organizational boundaries?

Organizational boundaries in the context of greenhouse gas (GHG) emissions refer to the limits within which an organization accounts for its carbon emissions. These boundaries determine the extent of an organization's GHG responsibility. The definition of these boundaries is crucial for accurate and effective carbon accounting and management. 

There are typically two approaches to defining these boundaries: the equity share approach and the control approach, each with its own method for allocating emissions responsibility.

Equity share approach

The equity share approach is a method used for defining organizational boundaries in the context of greenhouse gas (GHG) emissions accounting. In this approach, an organization accounts for GHG emissions proportionally to its share in the equity of a company or operation. 

This means the organization includes a percentage of emissions equivalent to its ownership percentage in its GHG inventory. This method is used to reflect the organization's financial interest and influence in the emissions from its investments (as with financed emissions) or operations.

Control approach

The control approach is another method used in defining organizational boundaries for greenhouse gas (GHG) emissions accounting. In this approach, an organization includes emissions from operations over which it has control. Control can be either operational or financial. 

Operational control refers to the authority to introduce and implement operating policies at the operation, while financial control refers to the ability to direct the financial and operating policies of an operation with a view to gaining economic benefits from its activities. 

What are operational boundaries?

Operational boundaries in the context of greenhouse gas (GHG) emissions accounting refer to the categorization of an organization's emissions into direct and indirect emissions. This classification is further detailed into Scope 1, Scope 2, and Scope 3 emissions: 

  • Scope 1 covers direct emissions from owned or controlled sources, 
  • Scope 2 addresses indirect emissions from the generation of purchased energy
  • Scope 3 includes all other indirect emissions that occur in the value chain of the reporting company.

Prior to data collection, your company must first determine if it falls under the equity share or the financial control approach for accounting GHG emissions. There are a number of reasons that operational boundaries are important, including: 

  • Determining which sources of emissions to include (especially important for organizations with a complex supply chain)
  • Ensuring that sources aren’t double counted in emissions totals
  • Providing key information to stakeholders and important decision makers within the organization

Following this, a decision is needed on whether to assess only Scope 1 and Scope 2 emissions or to also include Scope 3 emissions that are relevant to your business's operations. A proper carbon accounting software can be the difference between getting this right, or getting it wrong.  It’s vital that carbon accounting is as accurate as possible, as incorrect emissions reporting can lead to stakeholder distrust,  and in the worst cases, huge fines from regulatory bodies. 

How can carbon accounting software help with organizational and operational boundaries?

Carbon accounting software can significantly assist in managing organizational and operational boundaries for GHG emissions. It automates the process of data collection and emission calculation, ensuring accuracy and efficiency. The software can help determine which emissions fall under the organization's responsibility, whether under the equity share or financial control approach. 

It also simplifies the categorization of emissions into Scope 1, 2, and 3, making it easier to track and report emissions in compliance with relevant standards and regulations. 

How Minimum can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.