operational control approach

The operational control approach is a method for consolidating GHG emissions defined in the GHG Protocol Corporate Standard and ISO 14064-1:2018. Under this approach, a company accounts for 100% of the Scope 1 and Scope 2 emissions from operations over which it has operational control, regardless of its equity stake. Operational control is defined as having the full authority to introduce and implement an operation's operating policies. This method contrasts with the 'equity share approach,' which is based on ownership percentage, and the 'financial control approach,' which is based on the ability to direct an entity's financial and operating policies. In enterprise risk management, this approach directly links emissions accountability with managerial capability, enabling more effective reduction strategies for operations under the company's direct influence.

Practical application involves three key steps. First, **Boundary Setting**: The company identifies all its operations and assesses for each whether it holds operational control, meaning the full authority to direct its operating policies. For example, a company with a minority stake in a joint venture factory but with contractual rights to manage its environmental policies would claim operational control. Second, **Data Collection and Calculation**: For all operations within the set boundary, the company collects activity data and calculates 100% of their Scope 1 and 2 emissions. This requires a robust, standardized data collection system across all controlled entities. Third, **Reporting and Strategy**: The consolidated emissions are disclosed in sustainability reports, clearly stating the use of the operational control approach. This alignment of reporting with management control allows for targeted risk mitigation and emission reduction initiatives, often leading to improved scores in ESG ratings like CDP.

Taiwanese enterprises often face three main challenges. First, **Complex Joint Venture (JV) Structures**: Determining 'full authority' in JVs with shared operational decision-making can be ambiguous, making boundary setting difficult. A solution is to establish a clear internal assessment protocol based on GHG Protocol guidance, involving legal and operational teams. Second, **Data Acquisition from Overseas Sites**: Collecting accurate and timely data from subsidiaries in regions with lower digitalization can be a significant hurdle. Implementing a centralized, cloud-based carbon management platform can standardize and streamline this process. Third, **Inconsistency with Financial Reporting**: The organizational boundary under the operational control approach may differ from the boundary used for financial consolidation (typically based on financial control), potentially confusing stakeholders. The best practice is to transparently disclose and explain the differences in the sustainability report, aligning with TCFD and GRI recommendations.

Winners Consulting specializes in operational control approach for Taiwan enterprises, delivering compliant management systems within 90 days. Free consultation: https://winners.com.tw/contact