UK SRS S2 Reporting Entity and GHG Boundary: Groups, JVs, Leases and Value Chains

Educational practitioner guidance. Not legal or assurance advice. Verify the current UK SRS text, applicable reporting rules and entity-specific facts before acting.

The sustainability-related financial disclosures are for the same reporting entity as the related financial statements. For consolidated financial statements, that means the parent and consolidated subsidiaries as one reporting entity. This rule anchors the entity whose prospects, cash flows, access to finance and cost of capital are being discussed.

The GHG inventory is a metric within that report, but its organisational and value-chain perimeters depend on the measurement method. UK SRS S2 requires use of the GHG Protocol Corporate Standard unless a relevant jurisdictional authority or exchange requires a different method. The entity explains its measurement approach, inputs, assumptions, reasons and changes.

The financial reporting entity anchors UK SRS, while organisational, investee, lease, Scope 3 and target boundaries are layered and reconciled.

The GHG Protocol Corporate Standard provides approaches based on equity share or control. A control approach can be based on financial control or operational control. The selected approach affects which operations are included in Scope 1 and Scope 2 and which appear elsewhere in the value chain. The entity should apply the approach consistently and explain changes.

Consolidated subsidiaries

Consolidated subsidiaries form part of the UK SRS reporting entity. Their operational emissions treatment still follows the GHG method. Scope 1 and Scope 2 for the consolidated accounting group are disclosed as a disaggregated amount.

Associates and joint ventures

Associates and joint ventures are commonly outside the consolidated accounting group but may be included in Scope 1 or Scope 2 under the selected GHG measurement approach. UK SRS S2 requires Scope 1 and Scope 2 emissions to be disaggregated between the consolidated accounting group and other investees excluded from that group, including associates, joint ventures and unconsolidated subsidiaries.

If an investee is not included in Scope 1 or Scope 2 under the selected approach, its emissions may still be relevant in Scope 3, including Category 15 investments for appropriate activities. The classification must follow the method and facts rather than a blanket “all JVs are Scope 3” rule.

Minority interests and managed operations

Minority ownership does not, by itself, determine the GHG scope. Management contracts, operating rights, joint arrangements and actual authority can affect the control assessment. Keep the legal and operational fact record with the boundary conclusion.

For GHG reporting, the treatment of a leased asset depends on the selected organisational-boundary approach and the contractual and operating facts. A lessee may include energy or fuel emissions from a leased asset in Scope 1 and Scope 2 when the asset falls within its organisational boundary. If it does not, relevant emissions can fall within Scope 3 Category 8, upstream leased assets. For a lessor, emissions outside its Scope 1 and Scope 2 may fall within Category 13, downstream leased assets.

UK SRS S2 requires the entity to consider its entire upstream and downstream value chain and all 15 GHG Protocol Scope 3 categories, and to disclose which categories are included. “Consider” is not permission to ignore difficult categories. The entity should perform a documented screening and explain measurement scope, exclusions, estimates and category boundaries.

1. Map the reporting entity’s purchases, capital goods, fuels and energy, logistics, waste, travel, commuting, leased assets, product use, end-of-life, franchises and investments.

2. Consider each of the 15 categories and document relevance, expected magnitude, influence, risk concentration, data availability and overlap.

3. Define the entities, counterparties, products, assets and periods included in each measured category.

4. Prevent double counting within the entity’s inventory while recognising that value-chain inventories of different entities can legitimately overlap.

5. Use reasonable and supportable information available without undue cost or effort when determining value-chain scope, as required by UK SRS.

6. Disclose included categories and sufficient method information to understand the sources of Scope 3 emissions.

7. Reassess after a significant event or change in circumstances, including material changes in value chain, business model, corporate structure or climate exposure.

Group changes can affect the financial reporting entity, the GHG organisational boundary, Scope 3 categories, target boundary and comparatives in different ways. The reporting team should not use a single “M&A adjustment” without identifying which record is changing.

A boundary reconciliation separates the effects of consolidation, GHG method, investees, leases, Scope 3 and target recalculation when the group changes.

The group includes stores and the distribution subsidiary in the consolidated accounting group amount. It concludes that it does not have operational control over the logistics JV, so the JV is not included in group Scope 1 and Scope 2 under that approach; relevant emissions are assessed in the value chain. Two warehouses operated and energy-controlled by the group are included in Scope 1 and Scope 2, while a serviced warehouse controlled by the landlord is assessed in Category 8 using landlord data and estimates. The memo records the contracts, control analysis, data sources and disaggregation.

The wording is only credible if the entity has a complete group structure, method decision, lease analysis, Scope 3 screening, M&A change log and reconciliation to the disclosed amounts.

The reporting entity cannot be reconciled to the related financial statements.

The GHG organisational-boundary approach is not identified or is changed without explanation.

Scope 1 and Scope 2 are not disaggregated between the consolidated accounting group and other investees.

Associates and joint ventures are classified by ownership percentage alone.

Lease treatment follows IFRS lease accounting labels without reviewing GHG control and operating facts.

Landlord or tenant emissions are omitted because utility invoices are held by the other party.

Scope 3 screening does not cover all 15 categories or the entire value chain.

Acquisitions and disposals are not reflected consistently across the inventory, value chain and targets.

Target and inventory boundaries differ without a reconciliation.

Comparative restatement, estimate updates and target rebaselining are mixed together.