OK, we need to set some boundaries
3 steps in setting Greenhouse Gas Boundaries, the foundation in calculating an organization's footprint.
In this series, I am peeling back the basics of developing a Greenhouse Gas (GHG) reduction strategy. In my previous post, I provided some background as to why… why an organization needs to address GHG emissions. Once you understand why, it is time to address what…. in the world of greenhouse gas emissions, what defines what emissions you are responsible for. We refer to these as boundaries.
The World Business Council for Sustainable Development (WBCSD) and the World Resources Institute (WRI) jointly developed the “Greenhouse Gas Protocol” (GHG Protocol) in 1998. Like most things in the universe of sustainability, the foundation of the GHG Protocol is data. However, before we actually consider the actual consumption of energy for the organization, under the WBCSD/WRI GHG Protocol, we need to establish which emissions are the organization's responsibility. There are three steps (or boundaries) that need to be established as part of this process.
The first step is to set the temporal boundaries. Temporal boundaries are simply the time period we will be considering. Often this will mirror the overall reporting period you are considering or the organization’s calendar or fiscal calendar, but it can be another time period so long as it is defined. The most common period is, of course, a calendar year.
The next step is to establish organizational boundaries. This becomes a bit nuanced depending on the organization but is basically the process of determining what parts of the organization the GHG calculation will cover. More complicated organizations may have subsidiaries, joint ventures, partnerships, or franchises. The focus of the study may also include only a specific department, or it may include the entire enterprise.
The organizational boundary definition does not concern itself with the location or ownership (if space is leased or owned). The only consideration for this boundary is which level of the organization are we going to include in the calculation or strategy.
The third step is setting operational boundaries, and many consider this the most complicated. In this step, we define which activities within the organization will be included in its calculation. The most straightforward consideration is ownership. If the organization owns and controls all of its operations, it is responsible for 100% of the GHG emissions related to those emissions.
This gets complicated, however, when a company has partial ownership or control. In this case, the organization must determine to what extent they are responsible for these emissions. To help address this, the WBCSD/WRI GHG Protocol and ISO standards have established two accepted approaches that can be used to set these boundaries. These two approaches are
Equity Share
Control Approach
The equity share is related to responsibility based on the percentage of ownership. Typically, a check with accounting will answer what percentage of ownership the organization has in an asset. Using the equity share approach, that percentage of ownership matches what we will include, so if you own 80%, you report on 80% of the emissions. The logic is that your proportion of ownership is equal to your proportion of responsibility. While relatively simple, the issue with this approach is it isn’t always an accurate reflection of actual control or influence.
There is a nuance to this approach in cases where the percentage of ownership does not match the percentage of profit or losses. An example might be when two organizations have a joint venture in which both own 50%; however, the financial agreement between the two ownership interest split the profits and losses differently; for example, perhaps one owner receives 75% of the profit and loss, despite only having 50% ownership. In these rare cases, the equity share should reflect the organization’s economic interest. The intent is to align the financial interest with the emissions responsibility.
The other approach is called the control approach. Under this approach, the company is responsible for 100% of the emission it controls, regardless of ownership. If you control the operation of the emissions, you own the emissions; however, if the company has no control over the operations, it has no responsibility.
Just like the equity approach, there are nuances here as well. To help further refine this WBCSD/WRI GHG Protocol and ISO standards evaluate two different types of controls:
Financial Control
Operational Control
Financial Control is when the organization has the ability to direct its financial policies to gain economic benefits from its activities. This is directly related to the risks and rewards of that investment. If most of the risks and rewards of the financial policy are retained, then that organization also retains financial control of the related emissions. This also means the organization has an element of ownership of the operation.
Operational control is when the organization has full authority to introduce and implement day-to-day operating policies. Operational control does not require the full authority to make all operational decisions; for example, large capital decisions may require approval by the parties with financial control of the operation.
Real estate can be a good example of where an asset may have financial control by one entity and operational control by another.
Consider a multi-family community. The ownership in acquiring the asset carries the financial burden of the investment, and that investment also has the risk and reward associated with ownership of that asset.
During the leasing of each apartment, however, the owner may be ceding operational control of the apartment to a tenant. The tenant is generally not limited to the amount of energy they wish to consume within their space.
During these cases, the organization will decide on which approach to utilize, be that financial control and claim the emissions or operational control and not claim the emissions.
It should be noted, the WBCSD/WRI GHG Protocol does not recommend which approach or control to use. However, whichever one is used, it should be consistently applied across the organization.
Factors that may be taken into account when determining which approach to use include:
Does the definition reflect reality
When considered, does the definition you are using mirror the conclusions that a reasonable person would also come to
Who is deriving the profit from the operations that resulted in GHG emissions
What are the liabilities and risks, and who carries the burden of these
The owner has the ultimate liability
Alignment with financial accounting practices
Are emissions financially treated as liabilities
Are emission credits and allowances treated as assets
As you can see, setting the boundaries requires forethought. To ensure consistency across an enterprise, there need to be some overall strategic decisions made on the approach that will be used.
For more detailed information, follow this link for the GHG Protocol Site:
In the business world, this is one of those exercises that can benefit from turning to outside expertise to facilitate a GHG strategic planning exercise. The use of an objective consultant can help draw out the overall organizational interests and concerns. Pulling those thoughtful leaders of your organization into a room with a dry erase board and a session leader can really help talk through the considerations that need to be taken into account. There is not a right or wrong answer unless your answer is to take an inconsistent approach.
If you are considering developing a GHG Strategy, our expert consultants on the Goby Team at Conservice can help. This link can get you started:
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Stay well!
Chris Laughman is the ThirtyNine Blog author, a blog dedicated to reducing the impact of the built environment. When not blogging, Chris is helping the real estate industry reduce energy and water impact as the Vice President of Sustainability for Conservice, the Utility Experts. Whether Multifamily, Single Family, Student Housing, Commercial, or Military, we simplify utility billing and expense management by doing it for you. Our insight into your utility consumption provides an opportunity to identify risks. Leveraging innovation and experience, we ignite solutions with real impacts and track performance to ensure the trendline stays laser-focused on the goal. To get there, we must build relationships within our organizations and outside of our organizations building the critical mass needed to truly make a difference. We have before us a tremendous opportunity. Standing shoulder to shoulder, we will get this done. Contact me at claughman@conservice.com for more information.
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