Reporting boundary mismatch and a restated intensity target under CDSB guidance
Harbour Cement prepares its climate-related disclosures using CDSB Framework guidance. The group financial statements consolidate 12 wholly-owned plants and equity-account a 45% joint venture grinding mill in Taiwan and a 30% associate. The climate team compiles emissions on an operational control basis: it includes 100% of the joint venture's emissions because Harbour operates the mill under an operations and maintenance agreement, and excludes the associate entirely. Group Scope 1 is reported as 3.8 million tonnes; a calculation on the financial reporting boundary gives 3.1 million tonnes. The group also reports a 2027 target of 0.62 tonnes of CO2 per tonne of cement, and the joint venture's output is included in the denominator. A newly appointed chief sustainability officer proposes switching to a financial control boundary and restating the base year so that the reported reduction is not distorted.
1. What does CDSB guidance expect of the reporting boundary, and how should the mismatch between 3.8 and 3.1 million tonnes be handled?
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Framework test. CDSB guidance expects environmental information to be prepared on a basis consistent with the financial information, so that users can read the climate disclosures and the financial statements as a connected whole, and it expects the organisational boundary and any differences to be explained rather than left implicit.
Diagnosis. Harbour's emissions are compiled under the GHG Protocol on operational control, while the financial statements use consolidation and equity accounting. Both are legitimate conventions, but they measure different populations: 100% of a 45%-owned venture in one case, a 45% share in the other, and nothing at all for the associate. The 3.8 versus 3.1 million tonne gap is the visible symptom of that difference.
Handling. State the boundary convention explicitly at the point where the emissions figure appears, reconcile the reported total to the financial reporting boundary, and disclose the treatment of the joint venture and the associate with the amounts involved. If the entity prefers operational control because that is how it manages abatement, keep it and explain why, showing the reconciliation. What is not acceptable is a figure that silently includes emissions from an entity in which the group holds less than half the equity.
2. The intensity target of 0.62 tonnes of CO2 per tonne of cement includes joint venture output in the denominator. What is the problem, and how should the target be disclosed?
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Reasoning. An intensity ratio is only interpretable if numerator and denominator cover the same population. Including the joint venture's output while the emissions treatment differs, or leaving the associate's output out while its emissions are also out, produces a number that moves when the portfolio changes rather than when decarbonisation occurs. Acquisitions, disposals and boundary conventions would then masquerade as performance.
Framework test. CDSB guidance emphasises comparability and consistency and faithful representation, together with disclosure of the methodology and assumptions behind targets and performance measures. A target is forward-looking information whose credibility depends on the stated basis.
Disclosure. Define the target precisely: the emissions scopes included, the boundary, the denominator (cementitious product, clinker ratio treatment), the base year and its value, and whether the target is absolute or intensity-based. Align numerator and denominator, or if the business rationale requires otherwise, state the misalignment and quantify its effect. Show progress against the target on the same basis each year, and where the basis changes, restate the target and the base year rather than presenting the change as a gain.
3. How should the proposed switch to a financial control boundary and base-year restatement be executed so the disclosure remains credible?
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Reasoning. The switch is a change in the basis of preparation, not an abatement achievement. Executed silently, it would remove roughly 0.7 million tonnes from the reported total and, on a falling-total narrative, would read as progress. Executed transparently, it improves consistency with the financial statements, which is exactly what CDSB guidance is trying to achieve.
Steps. Approve the change as a policy decision with a stated rationale, referencing the financial reporting boundary. Restate the base year and all intervening years on the new basis so the trend is like-for-like. Publish a reconciliation from the previously reported figures to the restated ones, showing the joint venture and associate effects separately. Recalculate the intensity target denominator on the same basis and restate the target trajectory if the ratio is affected. Disclose the change in the methodology note.
Discipline. Present the restated history as the record and describe the change as a rebasing, never as a reduction. Note that the operational control view may still be useful for abatement management, and if retained as a supplementary measure, label it so the two bases are never confused.