The lease type and your consolidation approach decide where a leased asset goes. Who pays the energy bill or buys the fuel does not decide it. Rent is never an emission.
Where does an asset you lease in go?
Lease type | Financial control or equity share | Operational control |
Finance lease | Scope 1 and 2 | Scope 1 and 2 |
Operating lease | Scope 3, Category 8 (upstream leased assets) | Scope 1 and 2 |
How do you tell a finance lease from an operating lease?
A finance lease transfers substantially all the risks and rewards of ownership to you. Under financial control or equity share, the GHG Protocol Corporate Standard (chapter 4) puts a leased asset in your Scope 1 and 2 only if it is "treated as wholly owned" in financial accounting.
Since AASB 16 (2019), almost every lease is on the lessee's balance sheet as a right-of-use asset. Being on the balance sheet is not the test. Use the risks-and-rewards test, which lessors still apply under AASB 16 and which your finance team applied before 2019.
Signs of a finance lease:
Ownership passes to you at the end of the lease.
You can buy the asset at a price well below its expected value.
The lease covers most of the asset's economic life.
The payments add up to substantially all of the asset's value.
The asset is so specialised that only you can use it.
A standard property lease meets none of these. Check long vehicle and equipment leases one by one. A short-term or low-value lease kept off the balance sheet still needs this decision.
Record each decision in a lease classification memo, for each lease or each group of similar leases. Include the classification, the indicators you checked and who in finance reviewed it. For leases signed since 2019 this is a new assessment, made outside your financial statements. Agree its method with your finance team and keep the memo with your lease register.
This is a judgement. Record it in your boundary document and discuss it with your auditor. If it has a significant effect on your figures, disclose it as a significant judgement (AASB S2 Appendix D paragraph 74).
How does Bluegum count a head office floor that is not sub-metered?
Bluegum leases 800 m2 in a 6,000 m2 Melbourne building on an operating lease. Under financial control it is Category 8. The landlord reports 300,000 kWh of building electricity for FY26 and 80% occupancy.
Use the Scope 3 Technical Guidance (Category 8) formula:
energy for your space = your area / (building area × occupancy rate) × building energy
6,000 × 0.8 = 4,800 m2 occupied
800 / 4,800 = 1/6
300,000 kWh × 1/6 = 50,000 kWh
50,000 kWh × 0.8 kg CO2e/kWh = 40,000 kg = 40 tCO2e in Category 8
The occupancy rate spreads the energy over the occupied area only. In the Technical Guidance example, 200 m2 of a 2,000 m2 building at 75% occupancy gets 200 / 1,500 of the energy. Apply the same share to the landlord's gas and refrigerant figures.
Under operational control, Bluegum's own tenancy energy is Scope 2 and the base building share stays in Category 8. That split needs the landlord's figures for each part.
Which Category 8 method do you use?
Use the best one you can:
Asset-specific: energy and fuel data for the asset. A meter of your own, or the floor-share formula above.
Lessor-specific: the landlord's emissions, allocated to your space.
Average data: emissions per m2 for the building type, or per asset.
Category 8 has no spend-based method. Energy included in your rent is still in your boundary: estimate it with average data. Emissions from constructing the leased asset are optional; leave them out unless they are material.
If the landlord's figures cover a different 12-month period from yours, you can use them if they are the most recent figures you can get without undue cost or effort. Disclose any significant event between the two period ends that changes the emissions (AASB S2 B19).
Where do Bluegum's stores go?
Bluegum's six stores are on operating leases and each has its own meter.
Financial control: Category 8, asset-specific. 225,000 kWh × 0.8 = 180,000 kg = 180 tCO2e.
Operational control: Bluegum runs the stores and holds the energy accounts. Scope 2, 180 tCO2e. Centre common areas and centre-run air conditioning stay in Category 8.
Can GreenPower for a leased store reduce your Scope 2?
Not under financial control. The store's electricity is in Category 8, not Scope 2. AASB S2 asks for information about contractual instruments that informs users about your Scope 2 (29(a)(v) and B30). Do not present GreenPower or certificates bought for Category 8 electricity as Scope 2 instruments. Describe them separately, with your Category 8 figure.
Under operational control, the store's electricity is Scope 2, so its contractual instruments relate to Scope 2.
Who reports the landlord's air conditioning and base building?
The landlord owns them and reports them in its own Scope 1 and 2. For a tenant:
Financial control, operating lease: Category 8, as part of your share of the building.
Operational control: equipment the landlord controls is Category 8, not your Scope 1.
The landlord's Scope 1 and your Category 8 are two different inventories, so this is not double counting. Never report the same refrigerant in both your Scope 1 and your Category 8.
Why is the fuel for Bluegum's leased utes in Category 8?
Bluegum's 12 utes are on 4-year leases. They go back to the lessor at the end, with no option to buy, and 4 years is a fraction of their life. These are operating leases, so under financial control the utes are not Bluegum's assets. Their fuel is Category 8, even though Bluegum buys it.
12 utes × 3,400 L = 40,800 L × 2.7 kg CO2e/L = 110,160 kg = 110 tCO2e in Category 8.
Under operational control, the same 110 tCO2e is Scope 1.
Servicing, insurance and registration billed separately from the lease are purchased services: Category 1.
Is hired equipment a lease?
Hire type | Financial control | Operational control |
Dry hire (a lease): you operate the plant | Category 8 | Scope 1 |
Wet hire (a service): the hire company supplies an operator | Category 1 | Category 1 |
Suppose Bluegum dry-hired an LPG forklift for April to June 2026. Count only the months you hold a lease: 450 L × 1.6 kg CO2e/L = 720 kg = 0.72 tCO2e in Category 8.
Is rent an emission?
No. The emissions come from the energy, fuel and refrigerant that run the leased asset, already in your Category 8 or your Scope 1 and 2. A spend-based factor on rent counts the same asset twice.
Exclude the rent and lease components from every spend-based category: rent, lease payments, right-of-use depreciation, lease interest and lease liability. Do not put rent in Category 1.
If an account mixes rent with outgoings or recharged services, split it with a classification rule. Services such as cleaning and security go to Category 1. Measure recharged energy in Category 8, or in Scope 1 and 2, from the energy data, not from spend.
For a lease you classify as a finance lease, treat the asset as an owned capital good. Include its cost at commencement in Category 2, or record why not.
What this means in Avarni
Record tenure and lease type on each leased facility. Record each lease classification and its evidence, including the lease classification memo, in your boundary document. See What goes in your boundary document.
Under financial control, set the GHG Category to Upstream leased assets on the Methods that load energy and fuel for operating-leased premises, utes and dry-hired plant.
In your chart of accounts, set rent, lease payment and right-of-use accounts to Excluded. Avarni suggests Upstream leased assets for right-of-use asset accounts. Change them, and write the reason in Justification.
For a finance-leased asset, classify its cost at commencement to Category 2, not to Excluded. For an account that mixes rent with outgoings, add a classification rule that sends the cleaning and security lines to Category 1.
To fix rows already loaded, select them in the Emissions Hub and use Bulk Edit to change Scope & GHG Category.