To get certified on the CO2 Performance Ladder, the first step is defining which entities are included in your certification. This process, known as setting organisational boundaries, is essential for determining your carbon footprint and setting reduction targets. There are several methods to define these boundaries, each tailored to different organisational structures and needs. In this article, we guide you through the available options and explain how to choose and apply the right method for your organisation.

Organisational boundaries definine your organisation’s scope and determine the greenhouse gas emissions you’re responsible for. These boundaries also determine the carbon footprint you use when setting your targets and ambitions for CO2 reduction and subsequent certification on the CO2 Performance Ladder. Determining organisational boundaries is therefore the most important step after you have decided to start working with the Ladder.

How to determine your organisational boundaries

As an organisation, there are several ways you can determine your organisational boundaries. Important to know beforehand: 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 attention. This also applies when your organisation has to comply with legislation such as the (CSRD).

To determine your organisational boundaries, you can choose from two different methods and three consolidation approaches.

Step 1. Choose the right method

The first step is to choose between the Greenhouse Gas Protocol (GHG Protocol) method (called the top-down method in version 4.0) and the lateral method.

The GHG method is relatively simple, usually leads to broad limits and is in line with the GHG-protocol and the CSRD. Essentially, as an organisation you look down from 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 that remain. If there is too much financial dependence on other entities in the same group or if these entities are too dependent on the remaining entities, you cannot exclude them and must include them in the organisational boundaries.

Step 2. Select a consolidation approach

The second step is to choose from three different consolidation approaches from the GHG Protocol: operational control, financial control or equity share. Only if there are shared ownership entities (in governments, these are usually called ‘related parties’) can the approaches lead to a different outcome. Therefore, once again, this choice is less important when you are a less complex smaller organisation.

The operational control approach focuses on who 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 who has the most financial risks and rewards. If you choose this, you always include participations in full if you have 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. If you choose this, you always include participations for the share you own. So if you own 35% of the shares, you report on 35% of emissions.

When to contact a Certifying Body

When in doubt about your organisational boundaries, it is best to contact a Certification Body (CB). You can check with your CB whether you have made the right choices in determining your limits. This can save you a lot of unnecessary work afterwards. If, for example, you wrongly include or exclude an entity within your organisational boundaries, you may draw up an incorrect carbon footprint.

Indicate 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.

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. We therefore recommend using the same method for determining your organisational boundaries, otherwise you will have to duplicate your reporting. Using the GHG method (top-down method in 4.0) and the consolidation approach ‘operational control’ best fits what the CSRD calls for.

Next steps

Determining your organisational boundaries is thus essential to get started with the Ladder. Do you still have questions or need help? If so, contact us.