Scope 3 in practice: the 15 categories
Intuition
Scope 3 covers all the emissions in a company's value chain that are not its own direct emissions (Scope 1) or the emissions from the energy it buys (Scope 2). It includes what suppliers emit to make the things the company buys, and what customers emit when they use and throw away what the company sells.
For many businesses, Scope 3 is by far the largest part of the footprint. A car maker's factories emit far less than the cars it sells will burn over their lives. A bank's offices emit little, but the companies it lends to may emit a great deal. A consumer goods company's biggest emissions often sit in farms, packaging and logistics.
Scope 3 is also the hardest part to measure, because the company does not control the activity and often depends on estimates. That is why analysts need to know which categories matter for a given sector, and how much to trust the figure.
Mechanics
The 15 categories (GHG Protocol Scope 3 Standard)
| No. | Category | Sectors where it is often large |
|---|---|---|
| 1 | Purchased goods and services | Consumer goods, retail, IT services, pharma |
| 2 | Capital goods | Real estate, telecom, power |
| 3 | Fuel and energy-related activities (not in Scope 1 or 2) | Power, heavy industry |
| 4 | Upstream transportation and distribution | Retail, consumer goods, e-commerce |
| 5 | Waste generated in operations | Manufacturing, hospitals |
| 6 | Business travel | IT services, consulting |
| 7 | Employee commuting | IT services, large offices |
| 8 | Upstream leased assets | Companies that lease offices or equipment |
| 9 | Downstream transportation and distribution | Consumer goods, chemicals |
| 10 | Processing of sold products | Chemicals, steel, intermediate goods |
| 11 | Use of sold products | Autos, oil and gas, appliances, electronics |
| 12 | End-of-life treatment of sold products | Packaged goods, electronics |
| 13 | Downstream leased assets | Real estate owners who lease out buildings |
| 14 | Franchises | Restaurant and hotel chains |
| 15 | Investments | Banks, insurers, asset managers (financed emissions) |
Categories 1 to 8 are upstream; 9 to 15 are downstream.
Estimation methods for Scope 3
- Supplier-specific method: emissions data reported by suppliers for the actual goods bought. The most accurate, and the hardest to get.
- Average-data method: quantities bought (tonnes of steel, kilometres shipped) multiplied by average emission factors.
- Spend-based method: money spent in each category multiplied by an emission factor per rupee or dollar. Quick but rough, and it rises with prices even if nothing physical changes.
- Hybrid method: a mix, using supplier data where available and averages elsewhere.
Screening first
The GHG Protocol asks companies to screen all 15 categories, then measure the ones that are large, risky, or important to stakeholders. A company may report only some categories, but it should explain why the others are left out.
Sources
From the research
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