You’ve been tasked with measuring your organisation’s emissions but are unsure whether to use the operational control, financial control, or equity share approach; or even what they mean. Don’t worry—you’re not alone.
Financial Control, Operational Control, and Equity Share are ways to determine who has the authority to make decisions, manage day-to-day operations, and own a share of profits or losses in a business or organisation.
Choosing the right approach is crucial in determining how greenhouse gas (GHG) emissions are attributed to an organisation’s emissions measurement and management. According to international standards, organisations can select from the equity share, financial control, or operational control approach to decide which emissions to include in their inventory. Each method has a different impact on the outcome of your emissions reporting.
Financial Control
An organisation is considered to have financial control if it has the ability to influence or manage financial policies decisions, usually through ownership or contracts. This typically includes budget management and decision-making authority over financial activities. Financial control is often aligned with who has fiscal responsibility for a budget.
Operational Control
On the other hand, operational control refers to an organisation’s authority to manage operational processes. This involves day-to-day decision-making and implementation of strategies, making decisions about how resources are used, how tasks are executed at an operational level. Operational control is often exercised by managers and operational teams with direct influence over processes, systems, and sustainability initiatives.
Equity Share
The equity share approach allocates a proportion of emissions based on the proportion of equity or ownership an organisation holds in an entity. This means emissions are reported in proportion to the percentage of the entity owned, regardless of operational or financial control. For example, if an organisation owns 40% of a joint venture, it will report 40% of that venture's emissions under the equity share approach. This method is often used when an organisation participates in partnerships or joint ventures where ownership is shared, and it provides a balanced way to account for emissions in proportion to investments.
When to choose which
When assessing carbon emissions, choose financial control if you account for emissions from activities you control financially, operational control if you include emissions from operations where you make day-to-day decisions (even if you don’t own the assets), and equity share if you need to allocate emissions based on your ownership percentage in the entity.
These approaches provide flexibility but require consideration to avoid double-counting or misallocation of emissions.
An example
Imagine you’re a child and you want to measure the greenhouse gas emissions of the lemonade stand you run. You are trying to figure out which parts of the business you’re responsible for when it comes to measuring the emissions.
Financial Control
Let’s assume your parents gave you money to run the lemonade stand. They own the stand and decide how the money is spent, so they’re financially responsible for it.
If the business uses the financial control method, your parents will report the emission from the lemonade stand and the child won’t have to report anything.
As per the GHG Protocol, if an organisation has financial control over a subsidiary, it reports 100% of the emissions from that subsidiary.
Operational Control
Operational control is more about who’s in charge of the day-to-day operations. If the child is running the lemonade stand—deciding when to open, how much lemonade to make, how to clean up- they are the one controlling its operations, even if the parents technically own it.
If your business uses the operational control method, the child will report the emission from the lemonade stand because the child is operationally responsible for the emissions of things it directly manages, like changing the stand to an orange juice stand, even if someone else technically owns them.
Equity Share
If the lemonade stand is co-owned—say your parents own 60%, and you own 40%—each party reports emissions proportional to their ownership share.
For instance, if the stand produces 10 kg of CO₂e annually, your parents would report 6 kg, and you would report 4 kg.
Why It Matters
Determining the approach is a way to figure out who’s responsible for what, so everyone knows their role in reducing emissions.
Choosing between approaches depends on the organisation’s structure and goals. Financial control may be more appropriate for entities focused on financial performance and investment analysis, while operational control suits organisations that prioritise direct influence over processes and sustainability initiatives.
For many SMEs, both operational and financial control may be appropriate. You may be 100% responsible for both the finances and the operations and that you are accounting for 100% of the emissions. No matter which approach you choose, you need to clearly document which one you have chosen and why for transparency and compliance with ISO or GHG Protocol guidelines.
Flowchart
Conclusion
If you have any questions about which approach is the right one for your company, contact us via the button below.
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