The first step in the certification process is determining exactly which part of your organisation you want to certify. This demarcation is known as ‘setting organisational boundaries’. But why is it so important, and how should you approach it? We explain it all in this blog.

Organisational boundaries define the part of your organisation for which you want to obtain certification. You determine which entities to include fully or partially in the process. All subsequent steps in certification depend on a correct definition of these boundaries – making this the most important step once you decide to work with the Ladder.

Check with a Certification Body

If you want to be sure you’ve made the right choices in defining your organisational boundaries, it’s best to contact a Certification Body (CB) at an early stage. The CB is the independent body that performs your audit at the end of the process. Checking your choices with your CB before proceeding can save you a lot of unnecessary work later on. For example, if you wrongly include or exclude an entity within your boundaries, you may end up with an incorrect carbon footprint that you will later be held accountable for.

How to determine your organisational boundaries

As an organisation, there are several ways you can determine your organisational boundaries. What’s important to know beforehand is that for most organisations, the choice of method doesn’t affect the outcome. Only in the case of complex, often larger, organisations with associates, related parties, joint ventures or foreign entities is it necessary to pay close attention. This also applies when your organisation has to comply with legislation such as the Corporate Sustainability Reporting Directive (CSRD).

To determine your organisational boundaries, you can choose from two different methods (step 1) and three consolidation approaches (step 2). The two steps together determine your organisational boundaries.

Step 1. Choose your method

In the first step, you look at all the entities you own to determine to what extent you may exclude certain entities. You can choose between the top-down method (called the Greenhouse Gas Protocol (GHG) method in version 3.1) and the lateral method.

The top-down method is relatively simple, usually leads to broad boundaries and is in line with the GHG Protocol and the CSRD. Essentially, as an organisation you start with the highest entity in the organisation chart and include all entities below it.

The lateral method was developed specifically for the CO2 Performance Ladder. This method is often more complex and can lead to narrower boundaries because you can exclude group relationships. This can be advantageous if you have a desire to have only your Dutch entities certified, for example.

Whether this is actually possible depends on the degree of (financial) independence of the entities excluded. If there is too much financial dependence on other entities in the same group or if these entities are too dependent on the entities within the boundaries, you cannot exclude them and must include them in the organisational boundaries.

Step 2. Select a consolidation approach

In the second step, you also look at entities which you do not 100% own. You can choose from three different consolidation approaches from the GHG Protocol: operational control, financial control or equity share. Each of these methods offers a different way to determine whether you need to report on the entities concerned. The approaches can only lead to a different outcome if there are shared ownership entities. Therefore, once again, this choice is less important when you are a less complex, smaller organisation.

The operational control approach focuses on which organisation has the most authority to introduce policy. This method is recommended when your organisation needs to comply with the CSRD. If you choose this, you always fully include shared ownership entities if you have the most operational control. So if you have operational control, you report on 100% of emissions.

The financial control approach focuses on which organisation has the larger financial risks and rewards. If you choose this, you always include participations in full if your organisation has the most financial control. So if you have financial control, you report on 100% of emissions.

The equity share approach focuses on who owns what share of an entity. If you choose this, you always include those entities for the share you own. So if you own 35% of the shares, you report on 35% of emissions.

Publication of organisational boundaries

Your CO2 Performance Ladder certificate lists the entities within your organisational boundaries. This information is also available on our website. Organisations seeking certification under the new version of the Ladder (version 4.0) must also indicate which method they have chosen to determine their organisational boundaries (step 1).

Aligning with CSRD

Large companies, do not only have to determine their organisational boundaries for Ladder certification, but also for sustainability reporting under the CSRD. SKAO therefore recommends using the same method for determining your organisational boundaries to avoid having to duplicate reporting. Using the GHG method (top-down method in 4.0) and the consolidation approach ‘operational control’ best fits what the CSRD calls for.

Determining your organisational boundaries

Determining your organisational boundaries is thus the first step when you get started with the Ladder. It forms the foundation for the rest of the certification process. With the right boundaries, you create an accurate CO₂ footprint, and all subsequent steps are based on the right information.

Do you still have questions or need assistance? Please contact us or create a (free trial) account in My CO₂ Performance Ladder. There you can find the full handbook texts as well as additional information and examples.

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