Scope 1, 2 and 3 emissions explained
Under the widely-recognized GHG Protocol corporate standard, a company's greenhouse gas emissions are categorized into three groups, known as Scopes 1, 2, and 3. Scopes 1 and 2 emissions reporting is often compulsory, covering direct emissions from owned or controlled sources and indirect emissions from purchased electricity, respectively. In contrast, Scope 3 – which captures all other indirect emissions across a company’s value chain – is not mandated and presents greater challenges for tracking and reporting. Nonetheless, organizations that effectively report across all three scopes may secure a lasting competitive edge by demonstrating their commitment to comprehensive sustainability practices.
Scope 1: Direct and owned emissions
Emissions from company owned and controlled sources, which counts 4 categories:
stationary combustion, such as using fuel in heating;
mobile combustion, e.g. fuel burned by vehicles;
fugitive emissions, such as equipment leaks;
process emissions, in industrial processes & manufacturing;
Scope 2: : Indirect and owned emissions
Emissions from the consumption of purchased energy for own use such as electricity, steam, heat & cooling.
Scope 3: Indirect and not owned emissions
Emissions from sources that are not under a company’s control and occurring in its value chain, both upstream and downstream. In other words, emissions linked to the company’s operations and business processes. This is where the bulk of a company’s business activity takes place and where often 80 to 90% of overall emissions are generated. CarbonLeap therefore encourages firms to address the scope 3 carbon footprint to achieve real GHG Impact.
Transportation and distribution occur in upstream and downstream parts of the value chain. It includes emissions from transportation by land, sea and air, as well as emissions from using 3rd party warehousing.
Business Travel, a significant emission component including business air travel, rail, taxis, buses and mileage using private vehicles, as well as employee commuting.
Purchased goods and services, including upstream “cradle to gate” emissions from the production of goods and services purchased in a reporting period.
Waste from operations, relating to waste sent to landfills and wastewater treatments, leading to various emissions.
Use of sold products, which measures the emission resulting from product usage, e.g. after it is sold to consumers.
End of life of sold products, which is measured similarly to waste from operations, where disposal of product is assessed, encouraging recyclable products.
Investments, largely for financiers which are to report on emissions created from 4 investment categories, equity & debt investments, project finance and managed investments
Within Scope 3 there are 15 addressable categories, with the following highlighted.
Scope 3 under the loop
Reporting of Scope 1, 2 and 3 emissions
Reporting of Scope 1 and Scope 2 emissions is mandatory according to the GHG Protocol, which businesses and organizations use to report their greenhouse gas emissions. These categories of emissions are easier to measure as they come from sources directly owned or controlled by the reporting entity, such as emissions from fuel combustion in company vehicles or from the generation of purchased electricity.
Scope 3 emissions reporting, which includes all other indirect emissions that occur in a company’s value chain, is not currently mandatory but is strongly encouraged. It's seen as a critical step for organizations to gain a complete understanding of their carbon footprint and support their efforts to achieve net zero targets. Scope 3 emissions typically represent the majority of an organization's carbon footprint but are more challenging to calculate due to their indirect nature. Despite being voluntary, there is a growing trend and push towards making Scope 3 emissions reporting more standardized and in some cases mandatory.
In some regions, like the UK, reporting on all three scopes has become a basis for mandatory GHG reporting. However, it is worth noting that the requirements can vary by region. For instance, in the United States and Canada, proposals are in place that could make Scope 3 emissions reporting mandatory if those emissions are material or if the company has set reduction targets for them. These rules are not yet finalized and could face legal challenges.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) that went into effect in January 2023 includes Scope 3 emissions reporting as part of a phased introduction based on company size. Also, under a proposed directive, companies may need to include Scope 3 emissions in their transition plans aligned with climate neutrality goals.
It's clear that the trend is moving toward more comprehensive reporting requirements that include Scope 3 emissions, reflecting the growing importance of corporate transparency in addressing climate change. Companies are thus increasingly advised to prepare for and start reporting on their Scope 3 emissions, even where it is not yet a legal requirement, as this could become a standard expectation in the near future.
