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 organisation’s greenhouse gas (GHG) emissions. To reduce their carbon footprint significantly, enterprises must understand the role of Scope 3 emissions.

The GHG Protocol has categorised carbon emissions into three main types - Scope 1, 2, and 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

Emission Type Definition Examples
Scope 1 Direct emissions from sources that are owned or controlled by the organisation Fuel combustion in boilers or vehicles owned by the company
Scope 2 Indirect emissions from the generation of purchased electricity, steam, heating, and cooling Emissions from power plants supplying electricity to the company
Scope 3 Other indirect emissions from across an organisation’s value chain, including those by suppliers, partners, and employees Emissions from the production of purchased materials, transportation of goods in vehicles not owned by the organisation, waste disposal, and commuting by employees

 

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(Reference: GHG Protocol)

Scope 3 emission categories

Scope 3 emissions account for the bulk of many company’s GHG emissions – 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:

  1. Transportation and distribution: Emissions from distribution and transportation of products sold by the company
  2. Processing of sold products: Emissions from processing of products by downstream parties before eventual sale to customers
  3. Use of sold products: Emissions from the use of products sold by the company
  4. End-of-life treatment of sold products: Emissions from waste disposal and end-of-life treatment of products sold by a company
  5. Leased assets: Emission from operation of assets owned by a company but leased out to other parties
  6. Franchises: Emissions from the operations of franchises of a reporting company
  7. 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.

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  • 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 in measuring and reducing 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 a company’s sustainability metrics when evaluating investments.
  • Optimise future costs: Organisations 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. (Source: https://www2.deloitte.com)
  •  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: Decarbonisation 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.

(Source: https://www.bloomberg.com)

How can Terrascope help?

Terrascope enables organisations 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

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