Demystifying scope 3 emissions

Published Nov 15, 2022
Isabelle Wilhelm
Carbon Sustainability Analyst
4 minutes read

Understanding and getting control of your (likely) largest emissions source

For many organizations, Scope 3 emissions are mysterious: an ephemeral, unknowable, and undefined threat looming just outside the reach of the sustainability, finance, and marketing teams

For some, 95% of your organization’s carbon footprint may be Scope 3, and regulators and watchdog organizations are making clear that these emissions cannot long be ignored in corporate disclosure and reporting.

But what exactly are your Scope 3 emissions, and how do you get a handle on them? Demystify Scope 3 and understand how to tackle them in this nZero guide.

What are scope 3 emissions?

The Greenhouse Gas Protocol (GHGP), the most widely used international accounting standard, classifies greenhouse gas emissions into three categories. These categories or "Scopes" correspond to who 'owns' specific emissions and who has the control to impact the emissions at different stages. In this classification structure, Scope 3 emissions encompass those emissions you are responsible for, but that occur upstream or downstream of your company’s activities.

These are emissions related to your value chain, such as waste, employee commuting, business travel, and all activities related to the things you buy and sell (transportation, end of life, etc..).
  • Scope 1: Includes all “direct” emissions from an organization, which includes on-site fuel combustion (ie. burning natural gas to produce heat), company vehicles, fugitive emissions, and manufacturing process emissions.
  • Scope 2: Are all induced "indirect" emissions resulting from the use of purchased power, heat, or steam.
  • Scope 3: Scope 3 value chain emissions refer to all greenhouse gas (GHG) emissions that occur both upstream and downstream of a company's main operations. These indirect emissions are from sources that the company does not own or control, covering areas associated with procurement, fuel consumption of 3rd party vehicles, use of sold products & waste disposal, among others.

Source: WRI/WBCSD Corporate Value Chain (Scope 3) Accounting and Reporting Standard (PDF), page 5. Source Link: https://ghgprotocol.org/sites/default/files/standards/Corporate-Value-Chain-Accounting-Reporing-Standard_041613_2.pdf

There are 15 categories of Scope 3 emissions; the categories relevant to you will depend on what your company's activities are.

A company must analyze their business operations and consider if the scope 3 category
  • Contributes significantly to the company’s total anticipated scope 3 emissions
  • Has potential emissions reductions that could be undertaken or influenced by the company
  • Contributes to the company’s risk exposure (e.g., climate change related risks such as financial, regulatory, supply chain, product and customer, litigation, and reputational risks)
  • Deemed critical by key stakeholders
  • Identified as significant by sector-specific guidance

Scope 3 emissions can be calculated using either primary or secondary data. Primary data comes from specific activities inside a company's value chain, whereas secondary data may be based on industry averages, financial data, proxy data, and other generic data. Because most Scope 3 data must be obtained from sources outside of a company (for example, suppliers), data collection can be extremely challenging and time-intensive. After gathering activity data, accurate emission factors must be applied to the activities tracked. The emissions factor selection process requires the expertise of a carbon accounting specialist, as it impacts the accuracy of the output and the level of confidence in the reported emissions.

Why measure and report scope 3 emissions?

For some, 95% of your organization’s carbon footprint may be Scope 3, and regulators and watchdog organizations are making clear that these emissions cannot long be ignored in corporate disclosure and reporting.

Because Scope 1 and 2 emissions are reasonably straightforward to comprehend and data is more readily available, organizations have traditionally concentrated on monitoring and tracking these.

However, due to the vast amount of activities covered by Scope 3 for a single organization, Scope 3 emissions often account for the majority of a company's carbon footprint. This is particularly true if a Scope 3 report includes life cycle assessment. Scope 3 data collection, reporting, and overall reduction efforts are among the most critical areas for effective climate action. This urgency to account and standardize Scope 3 disclosure is being recognized by the GHGP and supported by leading carbon disclosure frameworks.

While reporting on Scope 3 emissions is not currently required, climate change legislation is moving quickly, and there is growing sentiment that Scope 3 will soon be required, following the same trajectory as Scope 1 and 2.

What challenges do organizations face when measuring scope 3 emission?
  • Difficulty capturing reliable data in a systematic and efficient manner
  • Lack of transparency into a complex supply chain
  • Lack of direct connections with various tiers of suppliers
  • Difficulty selecting emission factors to derive accurate calculations
  • Simply not knowing where to start
What advantages come with measuring  scope 3 emissions?
  • Identify GHG "hot spots", GHG-related, resource and energy risks in the supply chain
  • Implement energy efficiency and cost reduction opportunities in the supply chain
  • Improve investment and procurement decisions
  • Enhance stakeholder information and corporate reputation through public reporting
  • Reduce costs through improved supply chain efficiency and reduction of material, resource, and energy use

The difficulties in deciding which emissions to measure, who is accountable for which GHG emissions, and where data should be collected can all result in inaccurate data, wasting time and money on ineffective reduction efforts. Nonetheless, we urge everyone to begin their Scope 3 journey before it is a requirement. While Scope 3 emission measuring and reporting is inevitable, having a carbon and data partner in place early on can help simplify and streamline the process.

nZero and Scope 3

Our Scope 3 process follows the methodology contained in the GHG Protocol-Corporate Value Chain (Scope 3) Accounting and Reporting Standard. We assist customers in identifying the most material Scope 3 categories for their operations and establish data collection streams for continuous capture.

Our platform categorizes Scope 3 emissions into the 15 GHGP categories and calculates them depending on the input activity data, supporting customers to both understand and act on their Scope 3 emissions along the way. Our approach for Scope 3 automation and accuracy allows more time for companies to concentrate on reaching their goals rather than monitoring and tracking them.