Operational or financial control in leased assets: what’s the difference?

In the 25th and last blog article of our Carbon Clarity series our colleague Rutuja Dongare covers one of the fundamental issues of emissions reporting for leased assets, a concept that quietly shapes everything but is often misunderstood: control.

Not control in a general sense, but how your organisation defines it for carbon reporting. Specifically, the difference between operational control and financial control determines whether emissions sit in Scope 1, Scope 2 or Scope 3.

And when leased assets are involved (including non-real estate assets!), that distinction becomes critical.

Why control matters in the first place

You may recall the main two categories for GHG emissions related to leased assets:

• Category 8 (“upstream” i.e. assets that your company leases and uses but does not own) – you may find more details here in our blog article n. 16 posted on 13th March 2026
• Category 13 (“downstream” i.e. assets that your company owns but leases out to others) – you may find more details here in our blog article n. 21 posted on 1st June 2026

Under GHG accounting, companies don’t automatically report emissions from everything they touch. Instead, they report based on what they control.

This is where two approaches come in:

• Operational control means you report emissions from assets or operations where you have the authority to run day to day activities.

• Financial control means you report emissions from assets where you have the financial authority, typically ownership or majority economic interest.

This choice directly affects how leased assets are treated.

Leased assets: where things get interesting

Leased assets sit in a grey area because ownership and operation are often split.

For example, a company may lease an office building but not own it, or it may own equipment and lease it to someone else. Because of this split, emissions don’t always fall neatly into Scope 1 and 2. Instead, they often move into Scope 3.

According to the GHG guidance, emissions from leased assets are reported based on whether they are already included under Scope 1 and 2 using your chosen control approach.

Operational control: focus on those who run the asset

If your company uses the operational control approach, the key question is simple: who is actually operating the asset?

• If you operate a leased asset → its emissions are included in your Scope 1 and Scope 2
• If you do not operate it → they associated emissions move to Scope 3

Example
If you lease a warehouse and manage its energy use, maintenance and operations, those emissions sit in Scope 1 and 2.
If the landlord controls operations, then those emissions shift to Scope 3 (Category 8 for upstream leased assets).

Financial control: follow the money

Under the financial control approach, the focus shifts to ownership and financial authority. This is often the safest approach in terms of allocation of GHG emissions because energy bills or procurement invoices must be addresses to a specific legal entity, which takes responsibility for them.

• If your company has financial control (typically more than 50 percent ownership or economic interest) → emissions are included in Scope 1 and 2
• If not → they fall into Scope 3

This is why, in many leasing situations, emissions end up in Scope 3. You may use the asset, but you don’t financially control it.

How this plays out in Scope 3 categories

As mentioned above and in our previous blog articles, this distinction directly links to two key categories:

• Category 8 “Upstream leased assets” – Applies when you are the lessee (you use assets owned by others)
• Category 13 “Downstream leased assets” – Applies when you are the lessor (you own assets and lease them out)

In both cases, Scope 3 captures emissions only when they are not already included in Scope 1 or 2, based on the organisation’s control approach.

A simple way to think about it

If you run it → operational control → likely Scope 1 and 2
If you own it financially → financial control → likely Scope 1 and 2
If neither applies → it usually lands in Scope 3

This distinction is more than technical!

At first glance, this might seem like an accounting detail. But in reality, it shapes how companies see their carbon footprint. Two companies using the same building could report emissions completely differently, just because they define control differently. That’s why transparency matters. Stakeholders increasingly expect companies to clearly explain which approach they use and why.

Final thought

Leased assets highlight a bigger truth in carbon accounting: emissions don’t always follow ownership, and they don’t always follow usage. They follow control.

Understanding the difference between operational and financial control is not just about getting the numbers right. It’s about telling an honest, consistent story about where your emissions sit and where your responsibility begins.