Summary: This is an extract from Chapter 5.
Category 8: Upstream leased assets
This category 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 only applicable 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).
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).
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 for more information on accounting for emissions from leased assets.
Appendix A:
Introduction
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 lease.2
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.
Table [A.1] Leasing agreements and boundaries (lessee’s perspective)
| Boundary | Finance/Capital Lease | Operating Lease |
|---|---|---|
| Equity Share or Financial Control | Lessee has ownership and financial control; therefore, emissions associated with fuel combustion are scope 1, and use of purchased electricity is scope 2. | Lessee does not have ownership or financial control; therefore, emissions associated with fuel combustion and use of purchased electricity are scope 3 (Upstream leased assets). |
| Operational Control | Lessee has operational control; therefore, emissions associated with fuel combustion are scope 1, and use of purchased electricity is scope 2. | Lessee has operational control; therefore, emissions associated with fuel combustion at sources in the leased space are scope 1, and use of purchased electricity is scope 2. |
Table [A.2] Leasing agreements and boundaries (lessor’s perspective)
| Boundary | Finance/Capital Lease | Operating Lease |
|---|---|---|
| Equity Share or Financial Control | Lessor does not have ownership or financial control; therefore, emissions associated with fuel combustion and use of purchased electricity are scope 3 (Downstream leased assets). | Lessor has ownership and financial control; therefore, emissions associated with fuel combustion are scope 1, and use of purchased electricity is scope 2. |
| Operational Control | Lessor does not have operational control; therefore, emissions associated with fuel combustion and use of purchased electricity are scope 3 (Downstream leased assets). | Lessor does not have operational control; therefore, emissions associated with fuel combustion and use of purchased electricity are scope 3 (Downstream 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.
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.