Scope 3 Emissions: A Guide to Categories, Reporting, and More

What are Scope 3 emissions? 🔥

The Greenhouse Gas Protocol (GHG Protocol) has developed widely used greenhouse gas (GHG) accounting standards to help organisations and governments understand, quantify and manage their GHG emissions. 

To achieve consistency, the GHG Protocol has divided emissions into three categories, known as 'Scopes'. 

▶️ Scope 1 refers to direct emissions from activities that are within the control of an organisation. This includes on-site fuel combustion from buildings and company vehicles, as well as manufacturing and process emissions, and direct emissions from agriculture. 

▶️ Scope 2 covers indirect emissions from the use of purchased electricity, heat or steam. By utilizing energy, organisations are indirectly responsible for the release of GHG emissions. 

▶️ Scope 3 encompasses all other indirect emissions from sources outside an organisation's direct control. The GHG Protocol's Scope 3 Standard divides emissions into 15 categories, covering various business activities common to many organisations. These include purchased goods and services, business travel, and waste in operations. Additionally, Scope 3 includes activities such as leased assets, transport and distribution, the use and disposal of sold products, and the impact of any investments.

Why Scope 3 Matters 💬

Businesses can identify emission hotspots in their value chain, assess supplier sustainability performance, and make informed decisions regarding reduction strategies. This can encourage product innovation and advance their climate strategy, engaging employees in the process. 

The benefits to businesses

• Next to meeting changing regulatory requirements, measuring Scope 3 emissions allows businesses to: 
• Assess where the emission hotspots are across their value chain to prioritise reduction strategies. 
• Identify which suppliers are leaders and which are laggards in terms of their sustainability performance. 
• Inform decision-making across procurement, product development and logistics teams regarding which interventions can deliver the most significant emission reductions. 
• Encourage product innovation to create more sustainable and energy-efficient products. 
• Advance their climate strategy to create genuine, quantifiable, and visible change. 
• Positively engage with employees to reduce emissions from business travel and employee commuting. 

Similarly, public sector organisations can prioritise decarbonisation efforts, collaborate with suppliers to reduce emissions, and leverage buying power as a catalyst for change. By encouraging employees to reduce emissions and communicating progress with stakeholders, public sector organisations can contribute towards national efforts to achieve Net Zero.

The benefits to public sector organisations

• By measuring Scope 3 emissions, in particular those across the supply chain, public sector bodies can: 
• Prioritise decarbonisation efforts where they can make the biggest difference. 
• Collaborate with suppliers to reduce emissions and demonstrate community level benefits of supply chain decarbonisation. 
• Leverage significant buying power to act as a catalyst and drive change    
• Encourage employees to reduce emissions from business travel, commuting, waste, and water. 
• Communicate a comprehensive footprint and progress with stakeholders, such as constituents and communities 
• Contribute to national efforts towards achieving Net Zero. 

Scope 3 reporting: the challenge and opportunity 🚫

Lack of transparency 

• Lack of high-quality data sharing with suppliers 
• Scope 3 estimates rely on averages
• Hard to set targets (SBTi) where pathways are not agreed upon
• Lack of clarity on Scope 3 boundaries 
• Challenges in sourcing and selecting emissions factors 

Challenge to execute 

• Knowledge gap among suppliers
•  Hard to monitor fragmented suppliers 
• Low trust in supplier certifications
• Hard to change in-series production
• Performance and cost concerns vs low-carbon design
• Procurement incentives not aligned to climate 
• Securing engagement across the supply chain
• Overwhelming breadth and depth of data required 

Limited support

• Lack of government action/ investment
• Too high costs for individual value chains 
• Concern over customers’ willingness to pay

How to calculate and report on Scope 3 emissions ✅

☘️ Step 1 Determine categories and data types. Map out all emissions categories in your value chain and identify which activities and data types to include based on materiality, size and influence. 

🌴Step 2 Establish data capture strategy. Determine the best method to source data (activity or proxy) to achieve high levels of accuracy. 

🔥Step 3 Select emission factors and calculate. Identify which emissions factor and calculation method is most appropriate given the data you have available. 

🌧️Step 4 Disclose progress and drive performance. Communicate and track progress with reporting templates and custom reporting tools.

How to reduce Scope 3 emissions

Reducing Scope 3 emissions can be a challenging task, as it often involves collaboration with suppliers and partners across the value chain. However, there are several strategies that businesses can implement to reduce their indirect emissions. Here are a few examples:

1. Set ambitious targets: Businesses can set targets to reduce their Scope 3 emissions, based on their value chain analysis. According to a report by CDP, companies that set ambitious emissions reduction targets across their value chain are more likely to achieve their goals.

2. Engage with suppliers: Companies can engage with suppliers to encourage the use of sustainable materials, reduce waste, and improve energy efficiency. For example, Walmart's Project Gigaton aims to reduce emissions by one billion metric tons by 2030 by working with suppliers.

3. Optimize logistics and transportation: Businesses can reduce emissions by optimizing logistics and transportation processes. This includes reducing the distance traveled, optimizing delivery routes, and using more fuel-efficient vehicles. According to a report by the World Economic Forum, optimizing logistics and transportation can reduce Scope 3 emissions by up to 25%.

4. Promote sustainable product design: Companies can promote sustainable product design to reduce the environmental impact of their products across their entire lifecycle. This includes using sustainable materials, designing products for recyclability, and reducing packaging waste. According to a report by the Ellen MacArthur Foundation, implementing circular economy principles in product design could reduce global emissions by 9%.

Information Sources:

“A guide to Scope 3 emissions reporting” by IBM

“An introductory guide to Scope 3 emissions” by Carbon Trust

“Technical Guidance for Calculating Scope 3 Emissions” by GHG Protocol

"Global Supply Chain Report 2019" by CDP

"Project Gigaton: Taking One Billion Tons of Emissions Out of the Supply Chain" by Walmart

"Tackling Transportation Emissions in Global Supply Chains" by World Economic Forum

"Completing the Picture: How the Circular Economy Tackles Climate Change" by Ellen MacArthur Foundation

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‍Recommended reading

If you want to learn more about ESG reporting and carbon disclosures, check out our free resources:

• Article: TCFD Transition Risk: What You Need To Know
• Article: Corporate Net Zero Standards: What They Are and Why They Matter
• Article: Comprehensive Guide to Setting up Your ESG Strategy
• Article: What is Environmental, Social, and Governance (ESG)?
• Article: What is Net Zero? What it Means and Why it Matters
• Article: Decarbonizing Businesses: A Comprehensive Guide for Global Investors
• Article: What is the GHG Protocol? 

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