equity share approach

The equity share approach is one of three consolidation approaches defined in the GHG Protocol Corporate Accounting and Reporting Standard, alongside the operational and financial control approaches. Its core concept is that a company accounts for GHG emissions from operations based on its percentage of equity ownership. For instance, if a company owns a 40% equity share in a joint venture, it reports 40% of that venture's total emissions. This method reflects the company's economic interest rather than its managerial control, making it particularly useful for assessing climate-related risks and opportunities associated with a diverse investment portfolio or numerous non-controlling interests.

In enterprise risk management, the equity share approach provides a clear view of the carbon footprint associated with capital allocation. Implementation involves three key steps: 1) Identify and map all operations, including subsidiaries and joint ventures where the company holds equity. 2) Determine the precise equity percentage for each entity and establish protocols for collecting their GHG emissions data. 3) Calculate and consolidate by multiplying each entity's total emissions by the equity share percentage and summing the results. For example, a Taiwanese financial holding company can use this method to assess the carbon exposure of its loan and investment portfolios, improving its ESG rating and attracting green investors. This can lead to a measurable 5-10% improvement in scores from agencies like MSCI.

Taiwanese enterprises face three main challenges. First, data acquisition from non-controlled joint ventures can be difficult, as partners may lack robust emissions monitoring systems. Second, complex ownership structures, such as cross-shareholdings common in Taiwan, complicate the accurate determination of equity shares. Third, shifting from a management mindset based on operational control to one based on economic interest requires significant changes in internal accounting and reporting processes. To overcome these, companies should include data-sharing clauses in new joint venture agreements, conduct a professional review of their ownership structures, and establish cross-functional teams supported by integrated carbon management software. A priority action is to focus on the top five emission-contributing ventures first.

Winners Consulting specializes in the equity share approach for Taiwan enterprises, delivering compliant management systems within 90 days. We have successfully assisted over 100 local companies. Request a free consultation: https://winners.com.tw/contact