Appendix A. Accounting for Emissions from Leased Assets

This appendix provides additional guidance on accounting for emissions from leased assets.

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Introduction

This text is adapted from GHG Protocol, “Categorizing GHG Emissions from Leased Assets,” GHG Protocol Corporate Accounting and Reporting Standard (Revised Edition), Appendix F, June 2006, Version 1.0, provided at www.ghgprotocol.org.

Many companies either lease assets (e.g., buildings, vehicles) to other entities or lease assets from other entities. This appendix explains whether to account for emissions from leased assets as scope 1 emissions, scope 2 emissions, scope 3 emissions in category 8 (Upstream leased assets), or scope 3 emissions in category 13 (Downstream leased assets).

How emissions from leased assets are accounted for in a company’s GHG inventory depends on the company’s selected organizational boundary approach (i.e., equity share, financial control, or operational control), and the type of lease.

Differentiating types of leased assets

The first step in determining how to categorize emissions from leased assets is to understand the two different types of leases: finance or capital leases, and operating leases. One way to determine the type of lease is to check the company’s audited financial statements.

• Finance or capital lease: This type of lease enables the lessee to operate an asset and also gives the lessee all the risks and rewards of owning the asset. Assets leased under a capital or finance lease are considered wholly owned assets in financial accounting and are recorded as such on the balance sheet.
• Operating lease: This type of lease enables the lessee to operate an asset, like a building or vehicle, but does not give the lessee any of the risks or rewards of owning the asset. Any lease that is not a finance or capital lease is an operating lease².

The next step is to determine whether the emissions associated with the leased assets are categorized as scope 1, scope 2, or scope 3 by the reporting company.

Proper categorization of emissions from leased assets by lessors and lessees ensures that emissions in scopes 1 and 2 are not double-counted. For example, if a lessee categorizes emissions from the use of purchased electricity as scope 2, the lessor categorizes the same emissions as scope 3, and vice versa.

Accounting for Emissions from Leased Assets – Lessee’s perspective:
Categorizing emissions from leased assets

Many companies lease assets from other companies (e.g., companies that lease office or retail space from real estate companies). Whether emissions from these assets are categorized by the lessee as scope 1, scope 2, or scope 3 depends on the organizational boundary approach and the type of leasing arrangement. See table A.1.

Note 3 – Some companies may be able to demonstrate that they do not have operational control over a leased asset held under an operating lease. In this case, the company may report emissions from the leased asset as scope 3 as long as the decision is disclosed and justified in the public report.

Accounting for Emissions from Leased Assets – Lessor’s perspective:
Categorizing emissions from leased assets

Some companies act as lessors and lease assets to other companies (e.g., real estate companies that lease office or retail space or vehicle companies that lease vehicle fleets).

Whether emissions from these assets are categorized by the lessor as scope 1, scope 2, or scope 3 depends on the organizational boundary approach and the type of leasing arrangement. See table A.2.

Note 4 – Some companies may be able to demonstrate that they do have operational control over an asset leased to another company under an operating lease, especially when operational control is not perceived by the lessee. In this case, the lessor may report emissions from fuel combustion as scope 1 and emissions from the use of purchased electricity as scope 2 as long as the decision is disclosed and justified in the public report.

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