What are Scope 3 greenhouse gas emissions?

“Understanding Scope 3 emissions is vital for any company that’s serious about reducing its environmental impact.” 

For many European companies, accurately measuring greenhouse gas (GHG) emissions will soon be a legal requirement under the EU’s Corporate Sustainability Reporting Directive (CSRD).

In addition, effective emissions reduction strategies are becoming increasingly important to maintain competitiveness in a market where customers and value chain partners expect transparent and environmentally responsible practices. 

However, to support corporate sustainability efforts, it’s important to understand the sources of your organisation’s greenhouse gas emissions.

In the previous article in this series, we explored Scope 1 and Scope 2 emissions as defined by the GHG Protocol.

In this article, we discuss the challenges and benefits of measuring and reporting Scope 3 emissions, and the best practices for calculating them. 

What’s the difference between Scope 1, 2 and 3 emissions? 

Scopes 1 and 2 relate to emissions generated by sources owned or controlled by your company. Scope 3, on the other hand, covers all indirect emissions that occur throughout a company’s value chain but are not under its direct control.

This can include, for example, supplier operations, product use by customers and employee commuting. These types of emissions are often the largest contributors to a company’s carbon footprint, accounting for around three-quarters of corporate emissions.¹ 

Do you need to report on your Scope 3 emissions? 

Under the CRSD, companies that are required to report on Scope 1 and Scope 2 emissions by 2026 will not have to report on Scope 3 emissions until 2027. However, they will be allowed to provide limited assurance only until 2029.

After this point, reports must provide reasonable assurance for all Scopes. This extended deadline reflects the complexity associated with measuring Scope 3 emissions. While measuring them takes considerable effort, understanding your Scope 3 emissions is essential for any company that’s serious about reducing its environmental impact. 

Mapping your Scope 3 emissions: Where to start? 

Creating a carbon inventory that provides a detailed account of the emissions generated by your business is an essential step in effectively managing Scope 3 emissions. This starts with establishing a baseline year – a reference year against which future emissions reductions will be measured.

This baseline year should be chosen carefully to reflect typical business operations. The data from this year must be reliable, and in cases where significant operational changes occur, such as mergers, it may be necessary to recalculate the baseline. 

Once the baseline is set, emission factors are used to calculate the amount of GHG emissions generated. An emission factor is a rate that indicates the amount of GHGs emitted per unit of activity, such as fuel consumption or product manufacture. Choosing the right way to apply emission factors is critical to the accuracy of your carbon inventory. 

Check out our previous blog to learn more about emission factors. 

Using emission factors to calculate your carbon footprint 

When it comes to calculating your organisation’s Scope 3 emissions, there are several calculation methods to choose from, each with its own strengths and challenges.

Spend-based method

One option is the spend-based method, which involves multiplying the amount spent on goods or services by an average emission factor for that type of expenditure. This method is simple and easy to apply, but it lacks precision and is not ideal for companies looking to provide highly accurate data. It is best used in categories where more detailed information is not available, or for companies in the early stages of reporting. 

Average-based method

The average-based method is a more accurate approach because it uses physical quantities of goods or services multiplied by a relevant emission factor. The more detailed your data, the more accurate this method becomes. For example, instead of using a generic emission factor for a furniture product, you could break down the average emissions linked to its materials – wood, metal, plastic – to improve accuracy. 

Supplier-specific method

The most accurate approach is the supplier-specific method, where businesses use data provided by their suppliers for both the quantities and emissions associated with their products. While this method yields the best results, it relies on suppliers providing the necessary data, requiring close stakeholder collaboration. Given the difficulties of collecting accurate data across the value chain, businesses can also use a hybrid method. This combines supplier-specific data with other methods to fill in any gaps. 

What tools are available to simplify Scope 3 emissions reporting? 

Given the complexity of measuring and monitoring Scope 3 emissions, many companies are turning to carbon management accounting platforms to streamline the process.

An integrated platform can provide a consolidated view of your GHG emissions from multiple sources across Scopes 1, 2 and 3 – incorporating GHG emissions calculated using a variety of methodologies. Such platforms can also be used to simplify reporting and effectively track your organisation’s impact over time. 

Key considerations when selecting a platform include scalability and ease of use, particularly in terms of data integration, as well as the support and training available to help employees and other stakeholders get up to speed. Some platforms can even provide compliance support, ensuring that data meets the requirements of regulations and standards such as the CSRD, the GHG Protocol and the SFDR. 

Unlocking the benefits of comprehensive emissions reporting 

At its core, reporting your Scope 3 emissions is about more than just meeting regulatory requirements. It’s also about building a more sustainable and resilient business for the future.

By creating a comprehensive overview of your company’s environmental impacts, you can provide transparency to stakeholders, identify emissions hotspots, prioritise areas for improvement and set actionable reduction targets.

By calculating your Scope 3 emissions as accurately as possible, you can contribute to improved value chain collaboration and long-term sustainability gains. 

Want to find out more about getting support with your corporate emissions inventory? Check out our Net zero and decarbonisation page for more information. 

¹ Hadziosmanovic, M., Rahimi, K. and Bhatia, P. (2022) Trends show companies are ready for Scope 3 reporting with US Climate Disclosure Rule, World Resources Institute. Available at: https://www.wri.org/update/trends-show-companies-are-ready-scope-3-reporting-us-climate-disclosure-rule (Accessed: 07 October 2024).