What are Scope 3 Emissions and Why Must Large Enterprises Measure Them Accurately?

Scope 3 emissions are a significant contributor to the total carbon footprint of an enterprise, accounting for over 85% of an organization’s greenhouse gas (GHG) emissions. To reduce their carbon footprint significantly, enterprises must understand the role of Scope 3 emissions.

Introduction

The GHG Protocol categorizes carbon emissions into three main types: Scope 1, Scope 2, and Scope 3 emissions. This carbon accounting system, first introduced in 2001, is now the basis for mandatory GHG reporting.

Scope 1 covers a company’s direct emissions, such as those from boilers and vehicles.

Scope 2 covers indirect emissions such as purchased electricity.

Scope 3, the largest and most complex category, includes emissions caused by a company’s suppliers and customers.

Comparing Scope 1, 2, and 3 emissions

(Reference: GHG Protocol)

Scope 3 Emission Categories

Scope 3 emissions account for the bulk of GHG emissions for many companies – depending on the industry, typically over 85% of its overall emissions.

The GHG protocol specifies 15 categories of Scope 3 emissions, including upstream activities such as:

1. Purchased goods and services: Emissions caused by the production of goods or services purchased by a company
2. Capital goods: Emissions caused by the production of capital goods purchased by a company
3. Fuel and energy-related activities: Emissions from the production of fuels and energy consumed by a company
4. Transportation and distribution: Emissions caused by the transportation and distribution of products purchased by a company
5. Waste from operations: Emissions from third-party disposal and treatment of waste generated by a company’s operations
6. Business travel: Transportation of employees for business activities in third-party owned vehicles
7. Employee commuting: Emissions from employees’ transportation to and from their workplace
8. Leased assets: Emissions from the operation of assets leased by a company

The following downstream activities are also included in Scope 3 emissions:

9. Transportation and distribution: Emissions from the distribution and transportation of products sold by the company
10. Processing of sold products: Emissions from processing of products by downstream parties before eventual sale to customers
11. Use of sold products: Emissions from the use of products sold by the company
12. End-of-life treatment of sold products: Emissions from waste disposal and end-of-life treatment of products sold by a company
13. Leased assets: Emission from operation of assets owned by a company but leased out to other parties
14. Franchises: Emissions from the operations of franchises of a reporting company
15. Investments: Emissions associated with the investments of a reporting company

The GHG Protocol helps enterprises understand which emission categories are relevant for them and how to estimate emissions for each category.

Why Should Companies Measure Their Scope 3 Emissions?

Cutting emissions across all scopes, especially Scope 3, has significant benefits as regulators, investors, and consumers push towards a net zero economy.

• Comply with regulations: Many countries have set limits and targets for greenhouse gas emissions, including Scope 3 emissions. Companies can avoid penalties or fines by measuring their emissions.
• Gain consumer trust: Consumers are gravitating towards enterprises that are mindful of their carbon footprint. Companies that invest in sustainability, including measurement and reduction of scope 3 emissions, can improve their brand image among consumers, vendors they sell to, and other stakeholders.
• Build investor confidence: As consumers make more sustainable purchases, businesses that have a lower carbon footprint will gain a competitive advantage. Investors increasingly scrutinise a company’s sustainability metrics when evaluating investments.
• Optimise future costs: Organizations can potentially achieve cost savings through changes in their supply chain. A Deloitte survey has shown that 38% of CFOs cite cost reduction as their primary motivation to decarbonise.
• Manage the largest source of emissions Scope 3 often contributes ~85% of an enterprise’s overall emissions*, and offers the biggest opportunity to reduce carbon footprint.
• Future-proof supply chains: Decarbonization is a multi-year journey and reducing Scope 3 emissions is an important part of it. Enterprises that track their Scope 3 emissions will move ahead of the curve and gain an early mover advantage when businesses inevitably pivot to a low-carbon economy.
• Reduce carbon tax liability: Tax on carbon emissions may get more prevalent as countries commit to decarbonisation targets. Enterprises can lower their carbon risk by reducing their Scope 3 emissions.

Research from the Boston Consulting Group (BCG) shows that over 90% of companies cannot accurately measure their emissions. Furthermore, most companies exclude Scope 3 emissions because of the lack of confidence in available data. In fact, almost 40% of companies experience a 30-40% error rate in establishing emission baselines.

How Can Terrascope Help?

Terrascope enables organizations to track and measure emissions across their value chain and all GHG categories. The SaaS-based platform helps large enterprises make data-driven decisions, set ambitious and realistic reduction goals, and start the journey to net zero with confidence.

Book a demo with our emissions measurement expert now!

* Data is based on Terrascope's work and experience with clients

Quick Answers to Questions You May Have

1. Is scope 3 double counting?

No, Scope 3 emissions are not double counting; they cover indirect emissions that occur in the value chain outside of a company's direct control.

2. What is a scope 3 target?

A Scope 3 target is a specific goal set to reduce or mitigate a company's indirect emissions in its value chain.

3. Why is Scope 3 difficult to measure?

Scope 3 emissions are challenging to measure because they encompass a wide range of indirect sources and require data from various stakeholders.

4. How does Scope 3 work?

Scope 3 works by accounting for and addressing a company's indirect emissions from sources like suppliers, transportation, and product use.

5. Is Scope 3 included in net zero?

Yes, Scope 3 emissions are included in achieving a net-zero goal, as they represent a comprehensive approach to addressing a company's entire carbon footprint.

6. What percentage are Scope 3 emissions?

The percentage of Scope 3 emissions can vary widely depending on the industry, but they often account for a significant portion (up to 90%) of a company's overall emissions.

7. Why is it important to reduce Scope 3 emissions?

It's crucial to reduce Scope 3 emissions to address the full environmental impact of a company and contribute to broader climate goals.

8. Can you offset Scope 3 emissions?

Companies can offset Scope 3 emissions through various mechanisms like purchasing carbon credits or investing in renewable energy projects.