IFRS 18 Presentation and Disclosure in Financial Statements – Best read

07/05/2024 by 75385885

IFRS 18 Presentation and Disclosure in Financial Statements

The IASB’s newly issued standard IFRS 18 mainly deals with the presentation of the income statement, balance sheet and certain footnotes. At the same time, certain aspects of the cash flow statement are modified. IFRS 18 does not change the recognition and measurement of the components of financial statements; therefore, the amounts reported as shareholders’ equity and net income are both unchanged. However, it will have a significant impact on the presentation and disaggregation of what is reported (primarily in the income statement and footnotes), including what subtotals companies must provide and how these are defined.

There are five main areas where we think the new standard will help investors as users of IFRS Financial Statements:

Operating–Investing–Financing classification

IFRS 18 aims to establishes a structured statement of profit or loss by implementing the following measures:

It introduces three defined categories for income and expenses: operating, investing, and financing.
- Operating – income/expenses resulting from the company’s main business operations.
- Investing – income/expenses from:
  - investments in associates, joint ventures and unconsolidated subsidiaries;
  - cash and cash equivalents;
  - assets that generate a return individually and largely independently (e.g. rental income from investment properties).
- Financing – consisting of:
  - income/expenses from liabilities related to raising finance only (e.g. interest expense on borrowings); and
  - interest income/expenses and effects of changes in interest rates from other liabilities (e.g. interest expense on lease liabilities).
It mandates to present new defined totals and subtotals, including operating profit, thereby enhancing the clarity and consistency of financial reporting.

Entities primarily engaged in investing in assets or providing finance to customers are subject to specific categorisation requirements. This entails that additional income and expense items, which would typically be classified as investing or financing activities, are instead categorised under operating activities. Consequently, operating profit reflects the outcomes of an entity’s core business operations. Identifying the main business activity involves exercising judgment based on factual circumstances.

Category 9 Downstream Transportation and Distribution – The best read

26/04/202403/04/2024 by 75385885

Category 9 Downstream Transportation and Distribution

Category description – Category 9 Downstream Transportation and Distribution includes emissions that occur in the reporting year from transportation and distribution of sold products in vehicles and facilities not owned or controlled by the reporting company.

Overview – Category 9 Downstream Transportation and Distribution

Reporting on Category 9 Downstream Transportation and Distribution involves a comprehensive analysis of the logistical processes and operations involved in transporting goods from production facilities to end consumers. Here’s an executive overview:

Scope and Definition: Category 9 Downstream Transportation and Distribution encompasses the movement of goods from manufacturing plants or warehouses to various distribution centers, retailers, or directly to customers. It involves multiple modes of transportation such as road, rail, sea, and air, as well as associated warehousing and distribution activities.
Key Components:
- Transportation Modes: Assess the utilization of different transportation modes and their efficiency in terms of cost, speed, and reliability.
- Distribution Network: Evaluate the design and optimization of distribution networks to ensure timely delivery and minimize costs.
- Warehousing: Analyze the efficiency of warehousing operations in terms of inventory management, storage capacity, and order fulfillment.
- Last-Mile Delivery: Focus on the final stage of delivery to customers, addressing challenges and strategies for improving efficiency and customer satisfaction.
Performance Metrics:
- On-Time Delivery: Measure the percentage of deliveries made according to schedule to assess reliability.
- Transit Time: Evaluate the average time taken for goods to move through the transportation and distribution network.
- Cost per Unit: Analyze the cost incurred per unit of goods transported, considering transportation, warehousing, and handling expenses.
- Inventory Turnover: Assess the rate at which inventory is sold and replaced, indicating efficiency in managing stock levels.
Challenges and Opportunities:
- Infrastructure: Address challenges related to transportation infrastructure, such as road congestion, port capacity, and airport efficiency.
- Sustainability: Explore opportunities for reducing the environmental impact of transportation and distribution operations through alternative fuels, route optimization, and packaging innovations.
- Technology Integration: Highlight the role of technology in optimizing logistics processes, including the use of IoT devices, predictive analytics, and automation to improve efficiency and visibility across the supply chain.
Regulatory and Compliance:
- Compliance with Regulations: Ensure adherence to regulations governing transportation safety, labor practices, environmental standards, and customs procedures.
- Trade Policies: Monitor changes in trade policies and tariffs that may impact transportation costs, lead times, and supply chain resilience.
Strategic Recommendations:
- Network Optimization: Identify opportunities to streamline the transportation and distribution network to reduce costs and improve service levels.
- Technology Investment: Recommend investments in transportation management systems (TMS), warehouse management systems (WMS), and tracking technologies to enhance visibility and control.
- Collaboration: Encourage collaboration with transportation partners and suppliers to leverage economies of scale, share resources, and mitigate risks.
Future Outlook:
- Market Trends: Anticipate emerging trends such as e-commerce growth, omnichannel distribution, and the adoption of electric and autonomous vehicles.
- Resilience Planning: Prepare for disruptions such as natural disasters, geopolitical tensions, and pandemics by enhancing supply chain resilience and flexibility.

In summary, reporting on Category 9 Downstream Transportation and Distribution involves assessing the efficiency, reliability, and sustainability of logistics operations while identifying opportunities for improvement and strategic investment to meet evolving market demands and challenges.

A worked example – EcoFoods Inc.

For this example, let’s consider a fictional company, “EcoFoods Inc.,” which produces organic food products and distributes them to retailers and customers across the country.

1. Scope and Definition:

EcoFoods Inc. operates a complex downstream transportation and distribution network, involving the movement of perishable organic food products from its manufacturing plants to various distribution centers and ultimately to retail outlets and consumers.

2. Key Components:

a. Transportation Modes:

EcoFoods utilizes a combination of refrigerated trucks for land transportation, as well as partnerships with shipping companies for sea transportation of bulk goods. Additionally, it employs air freight for urgent deliveries of high-value or time-sensitive products.

b. Distribution Network:

The company operates multiple distribution centers strategically located across the country to ensure efficient coverage and timely delivery. These distribution centers are equipped with temperature-controlled storage facilities to maintain the freshness and quality of the organic products.

c. Warehousing:

EcoFoods’ warehousing operations focus on efficient inventory management to minimize storage costs and ensure optimal stock levels. It employs barcode scanning and RFID technology for accurate tracking of inventory movement within its warehouses.

d. Last-Mile Delivery:

The company collaborates with local courier services and offers direct-to-customer delivery options, especially for online orders. It leverages route optimization software to ensure cost-effective and timely last-mile deliveries.

3. Performance Metrics:

a. On-Time Delivery:

EcoFoods consistently achieves an on-time delivery rate of over 95%, ensuring reliability for its retail partners and customers.

b. Transit Time:

The average transit time for products from manufacturing to retail shelves is maintained within industry standards, with continuous efforts to optimize routes and minimize lead times.

c. Cost per Unit:

The company closely monitors the cost per unit transported, including transportation, warehousing, and handling expenses, to ensure competitiveness while maintaining profitability.

d. Inventory Turnover:

EcoFoods maintains a healthy inventory turnover ratio by closely managing stock levels and implementing just-in-time inventory practices to minimize carrying costs.

4. Challenges and Opportunities:

a. Infrastructure:

EcoFoods faces challenges related to infrastructure constraints, particularly road congestion during peak hours and limited capacity at certain ports. The company explores alternative transportation routes and invests in infrastructure improvements where feasible.

b. Sustainability:

Recognizing the importance of sustainability, EcoFoods invests in hybrid and electric vehicles for its transportation fleet and implements packaging innovations to reduce environmental impact.

c. Technology Integration:

The company continuously invests in transportation management systems (TMS) and warehouse management systems (WMS) to optimize logistics operations and enhance visibility across the supply chain.

5. Regulatory and Compliance:

EcoFoods ensures compliance with food safety regulations, transportation safety standards, and environmental regulations governing its operations. It maintains robust procedures for quality control and traceability throughout the supply chain.

6. Strategic Recommendations:

a. Network Optimization:

Continuously assess and optimize the distribution network to minimize transportation costs and improve delivery efficiency, considering factors such as customer demand patterns and geographic distribution.

b. Technology Investment:

Further invest in advanced tracking and monitoring technologies to enhance real-time visibility into the supply chain, enabling proactive management of logistics operations and quicker response to disruptions.

c. Collaboration:

Strengthen partnerships with transportation providers, suppliers, and retailers to foster collaboration and streamline end-to-end supply chain processes.

7. Future Outlook:

a. Market Trends:

Anticipate and adapt to emerging market trends such as increasing demand for organic products, growth in e-commerce sales, and advancements in sustainable transportation technologies.

b. Resilience Planning:

Develop robust contingency plans to mitigate risks posed by potential disruptions, including natural disasters, geopolitical tensions, and supply chain disruptions.

By conducting comprehensive reporting and analysis across these key components, EcoFoods Inc. can effectively manage its downstream transportation and distribution operations, ensuring reliable and sustainable delivery of organic food products to its customers nationwide.

This category also includes emissions from retail and storage. Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 includes only emissions from transportation and distribution of products after the point of sale. See table 5.7 in the Scope 3 Standard for guidance in accounting for emissions from transportation and distribution in the value chain.

Emissions from downstream transportation and distribution can arise from transportation/storage of sold products in vehicles/facilities not owned by the reporting company. For example:

Warehouses and distribution centers
Retail facilities
Air transport
Rail transport
Road transport
Marine transport.

In this category, companies may include emissions from customers traveling to and from retail stores, which can be significant for companies that own or operate retail facilities. See chapter 5.6 of the Scope 3 Standard for guidance on the applicability of category 9 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from downstream transportation and distribution include the scope 1 and scope 2 emissions of transportation companies, distribution companies, retailers, and (optionally) customers.

If the reporting company sells an intermediate product, the company should report emissions from transportation and distribution of this intermediate product between the point of sale by the reporting company and either (1) the end consumer (if the eventual end use of the intermediate product is known) or (2) business customers (if the eventual end use of the intermediate product is unknown).

Category 8 Upstream Leased Assets – The best calculation guidance

23/04/202426/03/2024 by 75385885

Category 8 Upstream Leased Assets

Category description – Category 8 Upstream Leased Assets includes emissions from the operation of assets that are leased by the reporting company in the reporting year and not already included in the reporting company’s scope 1 or scope 2 inventories. This category is applicable only to companies that operate leased assets (i.e., lessees). For companies that own and lease assets to others (i.e., lessors), see category 13 (Downstream leased assets).

Overview – Category 8 Upstream Leased Assets

Reporting on emissions for Category 8 Upstream Leased Assets involves documenting and disclosing the greenhouse gas (GHG) emissions associated with activities related to upstream oil and gas operations that are conducted through leased assets. This category typically includes activities such as exploration, extraction, and production of oil and gas resources.

Here’s an overview of reporting on emissions for Category 8 Upstream Leased Assets:

Purpose of Reporting:

The purpose of reporting emissions in Category 8 Upstream Leased Assets serves several important functions:

Transparency and Accountability: Reporting on emissions provides transparency into the environmental impact of upstream oil and gas operations conducted through leased assets. This transparency fosters accountability by allowing stakeholders, including investors, regulators, and communities, to understand the emissions profile of companies and hold them accountable for their environmental performance.
Risk Management: Emissions reporting helps companies identify and manage climate-related risks associated with upstream leased assets. By quantifying emissions and assessing associated risks, companies can better understand potential regulatory changes, physical impacts of climate change (such as extreme weather events), and shifts in market demand for fossil fuels. This enables proactive risk mitigation strategies and enhances long-term resilience.
Performance Tracking: Reporting enables companies to track trends in emissions over time and assess the effectiveness of emission reduction measures. Performance metrics such as emissions intensity (emissions per unit of production) and reduction targets allow companies to benchmark their performance against industry peers and evaluate progress toward sustainability goals.
Investor and Stakeholder Confidence: Comprehensive reporting builds investor and stakeholder confidence by demonstrating a company’s commitment to environmental stewardship and sustainability. Transparent disclosure of emissions data, methodologies, and performance metrics helps investors make informed decisions about the environmental risks and opportunities associated with their investments.
Regulatory Compliance: Reporting on emissions helps companies comply with regulatory requirements related to greenhouse gas emissions. Many jurisdictions have reporting obligations or emission reduction targets that companies must meet, and accurate emissions reporting is essential for demonstrating compliance with these regulations.
Market Differentiation: Companies that proactively report on emissions and demonstrate a commitment to reducing their carbon footprint may gain a competitive advantage in the market. Increasingly, investors, customers, and other stakeholders are placing value on companies with strong environmental performance and may preferentially support businesses that prioritize sustainability.
Driving Innovation and Efficiency: Emissions reporting can drive innovation and efficiency by identifying opportunities for emission reduction and operational optimization. By quantifying emissions and analyzing emission sources, companies can identify areas for improvement, invest in cleaner technologies, and implement best practices to minimize environmental impact and enhance operational efficiency.

Components of Reporting:

Reporting on emissions for Category 8 Upstream Leased Assets involves several key components to provide comprehensive and transparent information about the greenhouse gas (GHG) emissions associated with oil and gas operations conducted through leased assets. Here are the main components:

Emission Sources Identification:
- Identify and categorize the various sources of GHG emissions associated with upstream oil and gas operations conducted through leased assets. This includes sources such as combustion of fossil fuels in equipment, flaring and venting of associated gas, methane emissions from leaks, and other sources of emissions.
Data Collection and Measurement:
- Collect relevant data on activities and operations that contribute to GHG emissions from upstream leased assets. This may include data on fuel consumption, production volumes, equipment operation hours, and other relevant parameters.
- Utilize appropriate measurement techniques, such as direct monitoring using sensors and meters, as well as estimation methods based on engineering calculations and emission factors, to quantify emissions accurately.
Emission Factors and Calculations:
- Use established emission factors and calculation methodologies to convert activity data into CO2-equivalent emissions for each emission source. These factors may vary depending on factors such as the type of equipment, fuel type, operating conditions, and efficiency.
- Perform calculations to determine the total GHG emissions associated with upstream leased assets, broken down by emission source and emission type (e.g., CO2, methane).
Reporting Boundaries and Scopes:
- Define the reporting boundaries and scopes in alignment with internationally recognized standards such as the Greenhouse Gas Protocol. Determine which emissions fall under Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased electricity, heat, or steam).
- Consider including Scope 3 emissions (indirect emissions from sources not owned or controlled by the reporting entity but associated with its activities) if relevant and feasible.
Verification and Assurance:
- Undergo third-party verification or assurance processes to validate the accuracy and completeness of emissions data. Independent auditors may assess data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
- Disclose information about the verification or assurance process and the qualifications of the verifying entity.
Performance Metrics and Targets:
- Define performance metrics such as emissions intensity (e.g., emissions per unit of production), energy efficiency indicators, and emission reduction targets to track progress over time and benchmark performance against industry peers.
- Provide context for performance metrics by comparing current performance to historical data and explaining factors influencing emissions trends.
Disclosure and Transparency:
- Prepare a comprehensive emissions inventory report detailing the methodologies used, emission sources identified, emission calculations, and resulting emissions data.
- Disclose emissions data and related information in annual sustainability reports, financial filings, or dedicated emissions inventories published on company websites.
- Provide transparent explanations of data uncertainties, limitations, and assumptions used in emissions calculations to facilitate understanding and interpretation by stakeholders.
Risk Assessment and Mitigation Strategies:
- Conduct a risk assessment to identify climate-related risks associated with GHG emissions from upstream leased assets, such as regulatory changes, physical impacts of climate change, and market shifts.
- Develop and implement mitigation strategies to address identified risks, including investments in cleaner technologies, operational improvements, and adaptation measures to enhance resilience.

Reporting on emissions for Category 8 Upstream Leased Assets

Scope of Reporting:
- Emissions reporting for Category 8 Upstream Leased Assets typically falls under Scope 1 and Scope 2 emissions, as defined by the Greenhouse Gas Protocol.
- Scope 1 emissions refer to direct GHG emissions from sources that are owned or controlled by the reporting entity, such as emissions from combustion of fossil fuels in owned or leased equipment and vehicles.
- Scope 2 emissions involve indirect GHG emissions from the consumption of purchased electricity, heat, or steam. This can include emissions associated with electricity purchased to power equipment and facilities at leased assets.
Data Collection and Measurement:
- Gathering data on emissions involves tracking various sources of GHG emissions within the upstream leased assets, including but not limited to:
  - Combustion of fossil fuels in equipment such as drilling rigs, pumps, compressors, and generators.
  - Flaring and venting of associated gas during oil production.
  - Methane emissions from leaks in equipment and infrastructure.
- Measurement methodologies may include direct monitoring of emissions using sensors and meters, as well as estimation techniques based on engineering calculations and emission factors.
Emission Factors and Calculations:
- Emission factors are used to convert activity data (e.g., fuel consumption, production volumes) into CO2-equivalent emissions.
- These factors may be specific to the type of equipment or process, taking into account factors such as fuel type, operating conditions, and efficiency.
- Calculation of emissions involves multiplying activity data (e.g., fuel consumption in liters or cubic meters) by the corresponding emission factor to derive CO2-equivalent emissions.
Reporting Standards and Frameworks:
- Reporting on emissions for Category 8 Upstream Leased Assets often aligns with internationally recognized standards and frameworks, such as the Greenhouse Gas Protocol, the Carbon Disclosure Project (CDP), or jurisdiction-specific reporting requirements.
- Companies may also voluntarily disclose emissions data through initiatives like the Task Force on Climate-related Financial Disclosures (TCFD) to provide investors and stakeholders with a comprehensive view of their climate-related risks and opportunities.
Verification and Assurance:
- Many companies undergo third-party verification or assurance processes to validate the accuracy and completeness of their emissions data.
- Verification may involve independent auditors assessing data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
Trends and Performance Analysis:
- Reporting on emissions allows companies to track trends in their emissions over time and assess the effectiveness of emission reduction measures.
- Performance metrics such as emissions intensity (e.g., emissions per unit of production) and reduction targets help companies set goals and benchmark their performance against industry peers.
Disclosure and Transparency:
- Transparent disclosure of emissions data, methodologies, and performance metrics is essential for building trust with stakeholders, including investors, regulators, communities, and civil society organizations.
- Comprehensive reporting may include detailed disclosures in annual sustainability reports, financial filings, and dedicated emissions inventories published on company websites.
Risk Management and Mitigation:
- Understanding and reporting on emissions from upstream leased assets enables companies to identify climate-related risks, such as regulatory changes, physical impacts of climate change, and shifts in market demand for fossil fuels.
- By quantifying emissions and assessing associated risks, companies can develop mitigation strategies, invest in cleaner technologies, and transition towards low-carbon energy sources to reduce their carbon footprint and enhance long-term resilience.

In summary, reporting on emissions for Category 8 Upstream Leased Assets involves comprehensive data collection, measurement, and disclosure of GHG emissions associated with oil and gas operations conducted through leased assets. This reporting supports transparency, risk management, and the transition to a low-carbon economy in alignment with global climate goals.

Leased assets may be included in a company’s scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries (see section 5.2 of the Scope 3 Standard).

If the reporting company leases an asset for only part of the reporting year, it should account for emissions for the portion of the year that the asset was leased. A reporting company’s scope 3 emissions from upstream leased assets include the scope 1 and scope 2 emissions of lessors (depending on the lessor’s consolidation approach).

See Appendix A of the Scope 3 Standard for more information on accounting for emissions from leased assets.

Category 8 Upstream Leased Assets – Calculating emissions from leased assets

Figure 8.1 (below) shows a decision tree for selecting a calculation method for emissions from upstream leased assets.

Category 4 Upstream Transportation and Distribution – The best calculation guidance

20/04/202413/03/2024 by 75385885

Category 4 Upstream Transportation and Distribution

Category description – Category 4 Upstream Transportation and Distribution includes emissions from:

Transportation and distribution of products purchased in the reporting year, between a company’s tier 1 suppliers¹ and its own operations in vehicles not owned or operated by the reporting company (including multi-modal shipping where multiple carriers are involved in the delivery of a product, but excluding fuel and energy products) – link to figure 7.3 in the Scope 3 Standard
Third-party transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and third-party transportation and distribution between a company’s own facilities.

This guidance page for Category 4 Upstream Transportation and Distribution serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Overview – Category 4 Upstream Transportation and Distribution

Category 4 Upstream Transportation and Distribution refer to a specific classification within greenhouse gas (GHG) emissions accounting, focusing on indirect emissions associated with the transportation and distribution of products and materials upstream in the supply chain. These emissions occur outside of a company’s operational boundaries but are essential to the production and delivery of goods and services. Here’s a comprehensive overview:

Definition and Classification:

Scope 1, 2, and 3 Emissions: Greenhouse gas emissions are categorized into three scopes by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources owned or controlled by the company, while Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions, including upstream and downstream activities not directly controlled by the company.
Category 4 Emissions: Within Scope 3 emissions, Category 4 specifically focuses on upstream transportation and distribution. These emissions result from the transportation of raw materials, components, and products from suppliers to the company’s facilities or from one stage of production to another.

Characteristics:

Indirect Nature: Category 4 emissions are considered indirect emissions because they occur outside of the company’s direct operational control but are associated with its supply chain activities.
Supply Chain Impact: Transportation and distribution activities are crucial components of the supply chain, influencing the efficiency, cost, and environmental impact of sourcing materials and delivering products to customers.
Global Reach: Upstream transportation and distribution activities often involve complex logistics networks, including road, rail, sea, and air transport, which can span multiple regions and countries.

Examples:

Raw Material Sourcing: Emissions associated with the transportation of raw materials, such as minerals, metals, agricultural products, and lumber, from extraction sites or farms to manufacturing facilities.
Component Transport: Emissions from the transportation of components, parts, and sub-assemblies between suppliers, subcontractors, and assembly plants in the production process.
Product Distribution: Emissions related to the distribution of finished products from manufacturing facilities to warehouses, distribution centers, retailers, or directly to consumers via various modes of transportation.
Reverse Logistics: Emissions from the transportation of returned goods, recycling materials, or waste products back through the supply chain for disposal, recycling, or refurbishment.

Importance:

Supply Chain Efficiency: Managing Category 4 emissions is essential for optimizing supply chain efficiency, reducing transportation costs, and minimizing environmental impact through more sustainable transportation and distribution practices.
Risk Management: Addressing upstream transportation and distribution emissions helps companies mitigate risks associated with volatile fuel prices, regulatory changes, geopolitical instability, and supply chain disruptions.
Carbon Footprint Reduction: By identifying opportunities to reduce emissions in upstream transportation and distribution activities, companies can lower their overall carbon footprint and contribute to climate change mitigation efforts.

Considerations:

Mode Selection: Choosing the most appropriate transportation modes, such as rail, sea, or inland waterways, can help minimize emissions and reduce environmental impact compared to road or air transport.
Route Optimization: Optimizing transportation routes, consolidating shipments, and improving logistics efficiency can reduce fuel consumption, emissions, and transportation costs.
Collaboration with Suppliers: Collaborating with suppliers to implement sustainable transportation and distribution practices, such as using eco-friendly packaging, optimizing load sizes, and leveraging alternative fuels, can help mitigate Category 4 emissions.

Conclusion:

Category 4 Upstream Transportation and Distribution emissions represent a significant aspect of a company’s indirect emissions profile, reflecting the environmental impact associated with the movement of products and materials throughout the supply chain. By addressing these emissions and implementing sustainable transportation and distribution practices, companies can enhance supply chain efficiency, reduce costs, and minimize their environmental footprint, contributing to both environmental stewardship and long-term business sustainability.

Category 2 Capital Goods Scope 3 emissions – The best calculation guidance

20/04/202412/03/2024 by 75385885

Calculating Scope 3 Emissions GHG Category 2 Capital Goods

Category description – Category 2 Capital Goods includes all upstream (i.e., cradle-to-gate) emissions from the production of capital goods purchased or acquired by the reporting company in the reporting year. Emissions from the use of capital goods by the reporting company are accounted for in either scope 1 (e.g., for fuel use) or scope 2 (e.g., for electricity use), rather than in scope 3.

This guidance page for Category 2 Capital Goods serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Overview – Category 2 Capital Goods

Category 2 Capital Goods refer to a specific classification within capital goods, a broad category encompassing durable assets used by businesses to produce goods or services. These goods are essential for the operation and expansion of a business, serving as long-term investments rather than short-term expenses. Category 2 Capital Goods typically include machinery, equipment, vehicles, and other tangible assets that facilitate production processes but have a shorter lifespan compared to Category 1 Capital Goods.

Here’s an overview of Category 2 Capital Goods:

Definition and Classification:

Capital Goods: Capital goods are tangible assets used by businesses to produce goods or services. They are distinguished from consumable goods by their longevity and role in the production process.
Category 2 Classification: Capital goods are often categorized based on their lifespan, with Category 2 referring to assets that have a medium-term lifespan compared to Category 1, which includes long-term assets like buildings and land.

Characteristics:

Durability: Category 2 Capital Goods are durable assets designed to withstand regular use over an extended period but typically have a shorter lifespan compared to Category 1 assets.
Utility in Production: These goods are essential for the production process, directly contributing to the creation of goods or services by a business.
Depreciation: Like all capital assets, Category 2 Capital Goods undergo depreciation, losing value over time due to wear and tear, technological obsolescence, or market fluctuations.
Investment: They represent significant investments for businesses, requiring substantial financial outlay upfront but offering long-term returns through increased productivity and efficiency.

Examples:

Machinery and Equipment: This includes manufacturing machinery, assembly line equipment, packaging machines, and other industrial tools necessary for production processes.
Vehicles: Trucks, vans, forklifts, and other vehicles used for transporting raw materials, finished goods, or employees within the production facility or to external locations.
Tools and Instruments: Hand tools, power tools, precision instruments, and other equipment used by workers to perform tasks related to production, maintenance, or quality control.
Technology and Software: Computer systems, software applications, and technological infrastructure used to automate processes, manage operations, or analyze data for decision-making purposes.

Importance:

Enhanced Productivity: Category 2 Capital Goods play a crucial role in enhancing productivity and efficiency within a business, allowing for faster production cycles and higher output levels.
Competitive Advantage: Investing in modern, efficient capital goods can provide a competitive edge by reducing costs, improving quality, and enabling innovation in products or processes.
Capacity Expansion: These assets enable businesses to expand their production capacity, meet growing demand, or enter new markets by investing in additional machinery, equipment, or technology.
Risk Management: Upgrading or replacing Category 2 Capital Goods can mitigate risks associated with equipment breakdowns, technological obsolescence, or changes in market demand.

Considerations:

Cost-Benefit Analysis: Businesses must conduct thorough cost-benefit analyses before investing in Category 2 Capital Goods to ensure that the benefits in terms of increased productivity or cost savings outweigh the initial investment and ongoing operational costs.
Maintenance and Upkeep: Proper maintenance and timely upgrades are essential to prolong the lifespan and optimize the performance of Category 2 Capital Goods, reducing the risk of downtime and costly repairs.
Technological Advancements: Rapid advancements in technology may render certain capital goods obsolete sooner than expected, necessitating careful consideration of the asset’s lifespan and future market trends.
Regulatory Compliance: Businesses must comply with regulations and standards governing the use of capital goods, particularly regarding safety, environmental impact, and industry-specific requirements.

Conclusion:

Category 2 Capital Goods form a vital component of business investment, facilitating production processes, enhancing productivity, and driving economic growth. By understanding their characteristics, importance, and considerations, businesses can make informed decisions regarding the acquisition, maintenance, and utilization of these essential assets to achieve long-term success and competitiveness in the marketplace.

Category 1 Purchased Goods and Services – The best calculation guidance

20/04/202411/03/2024 by 75385885

Calculating Scope 3 Emissions GHG Category 1 Purchased Goods and Services

Category description – Category 1 Purchased Goods and Services includes all upstream (i.e., cradle-to-gate) emissions from the production of products purchased or acquired by the reporting company in the reporting year. Products include both goods (tangible products) and services (intangible products).

This guidance page for Category 1 Purchased Goods and Services serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 1 includes emissions from all purchased goods and services not otherwise included in the other categories of upstream scope 3 emissions (i.e., category 2 through category 8). Specific categories of upstream emissions are separately reported in category 2 through category 8 to enhance the transparency and consistency of scope 3 reports.

Emissions from the transportation of purchased products from a tier one (direct) supplier to the reporting company (in vehicles not owned or controlled by the reporting company) are accounted for in category 4 (Upstream transportation and distribution).

Companies may find it useful to differentiate between purchases of production-related products (e.g., materials, components, and parts) and non-production-related products (e.g., office furniture, office supplies, and IT support). This distinction may be aligned with procurement practices and therefore may be a useful way to more efficiently organize and collect data (see box 5.2 of the Scope 3 Standard).

Category 11 Use of Sold Products – Best read

20/04/2024 by 75385885

Category 11 Use of Sold Products

Category description – Category 11 Use of Sold Products includes emissions from the use of goods and services sold by the reporting company in the reporting year. A reporting company’s scope 3 emissions from use of sold products include the scope 1 and scope 2 emissions of end users. End users include both consumers and business customers that use final products.

The Scope 3 Standard divides emissions from the use of sold products into two types (see also table 11.1):

Direct use-phase emissions
Indirect use-phase emissions.

Category 11 Use of Sold Products

In category 11, companies are required to include direct use-phase emissions of sold products. Companies may also account for indirect use-phase emissions of sold products, and should do so when indirect use-phase emissions are expected to be significant. See table 11.1 for descriptions and examples of direct and indirect use-phase emissions.

Emissions over Time – The 1 Best read

27/02/2024 by 75385885

Emissions over Time

The GHG Protocol is designed to enable reporting entities to track and report consistent and comparable emissions data over time. The first step to tracking emissions over time is the establishment of a base year. A base year is a benchmark against which subsequent emissions can be compared to create meaningful comparisons over time and may be used for setting GHG reduction targets.

To comply with the GHG Protocol principles of relevance and consistency, a reporting entity is required to establish and report a base year for its Scope 1 and Scope 2 GHG emissions. A base year is only required for Scope 3 emissions when Scope 3 performance is tracked or a Scope 3 reduction target has been set. That is the case whether the entity is reporting under the Corporate Standard or the Scope 3 Standard (see below How to apply the Corporate Standard, Scope 2 Guidance and Scope 3 Standard?).

How to apply the Corporate Standard, Scope 2 Guidance and Scope 3 Standard?
An entity reporting under the Corporate Standard is not required to disclose Scope 3 emissions. As a result, there are three options under the GHG Protocol for reporting Scope 3 emissions, as described in the following table, which is based on Table 1.1 in the Scope 3 Standard:
Option	Description	Applicable GHG criteria
1	A reporting entity reports its Scope 1 and Scope 2 GHG emissions and either (1) no Scope 3 emissions or (2) Scope 3 emissions from activities that are not aligned with any of the prescribed Scope 3 categories (the latter is very rare).	Corporate Standard Scope 2 Guidance
2	A reporting entity reports its Scope 1 and Scope 2 GHG emissions and some, but not all, relevant and material Scope 3 GHG emissions in accordance with the Scope 3 calculation guidance but not with the Scope 3 Standard.	Corporate Standard Scope 2 Guidance Scope 3 Guidance
3	A reporting entity reports its Scope 1 and Scope 2 GHG emissions and all relevant and material categories of Scope 3 GHG emissions	Corporate Standard Scope 2 Guidance Scope 3 Standard Scope 3 Guidance

Consider this!

The GHG Protocol encourages reporting entities to begin reporting GHG emissions information and improve the completeness and precision of that information over time.

While the GHG Protocol requires a company to establish and report a base year for its Scope 1 and Scope 2 emissions, a reporting entity that recently started to report GHG emissions information and has not established an emissions reduction target may choose not to set a base year until the precision and completeness of their emissions inventory have improved.

In this situation, the reporting entity should disclose that a base year has not yet been established and the reason for not establishing a base year.

Scope 1 emissions – Best read

27/02/202427/02/2024 by 75385885

Scope 1 emissions

Scope 1 emissions are emissions from sources owned or controlled by a reporting entity. For example, emissions from equipment, a vehicle or production processes that are owned or controlled by the reporting entity are considered Scope 1 emissions. These emissions include all direct emissions within the entity’s inventory boundary.

The combination of organizational and operational boundaries make up a reporting entity’s inventory boundary, which is also called the reporting boundary. Refer to Organizational boundaries for information on organizational boundaries and Operational boundaries for information on operational boundaries.

The GHG Protocol is designed to avoid double counting GHG emissions. That is, two or more reporting entities should never account for the same emissions as Scope 1 emissions. For example, emissions from the generation of heat, electricity or stream that is sold to another entity are not subtracted from Scope 1 emissions but are reported as Scope 2 emissions by the entity that purchases the related energy.

Theoretically, if every entity and individual throughout the world reported their GHG emissions using the same organizational boundary (e.g., equity share, financial control or operational control approach), the total of all Scope 1 emissions would equal the total GHGs emitted throughout the world.

Types of Scope 1 emissions

The GHG Protocol describes four types of Scope 1 emissions: stationary combustion, mobile combustion, process emissions and fugitive emissions. The type of emissions that are included in Scope 1 will vary based on the industry and business model of the reporting entity.

IFRS 15 Real estate Revenue complete and accurate recognition

12/04/2023 by 75385885

IFRS 15 Real estate

Under IFRS 15 real estate entities recognize revenue over the construction period if certain conditions are met.

Key points

An entity must judge whether the different elements of a contract can be separated from each other based on the distinct criteria. A more complex judgment exists for real estate developers that provide services or deliver common properties or amenities in addition to the property being sold.
Contract modifications are common in the real estate development industry. Contract modifications might need to be accounted for as a new contract, or combined and accounted for together with an existing contract.
Real estate managers may structure their arrangements such that services and fees are in different contracts. These contracts may meet the requirements to be accounted for as a combined contract when applying IFRS 15.
Real estate management entities are often entitled to several different fees. IFRS 15 will require a manager to consider whether the services should be viewed as a single performance obligation, or whether some of these services are ‘distinct’ and should therefore be treated as separate performance obligations.
Variable consideration for entities in the real estate industry may come in the form of claims, awards and incentive payments, discounts, rebates, refunds, credits, price concessions, performance bonuses, penalties or other similar items.
Real estate developers will need to consider whether they meet any of the three criteria necessary for recognition of revenue over time.

IFRS 15 core principle

The core principle of IFRS 15 is that revenue reflects the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.