Have you wondered why the climate crisis only seems to be getting worse despite all thoseenvironmental initiatives and government regulations we keep hearing about? The answer may lie in something called Scope 3 emissions. 

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According to the latest report on climate change from the Intergovernmental Panel on Climate Change (IPCC), global temperatures have risen by 1.1 degrees Celsius from pre-industrial levels. This increase has spurred unprecedented changes, such as extreme weather patterns, rising sea levels, and global warming. 

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Scope 3 emissions, also called value chain emissions, are key to combating climate change. These emissions encompass the often unchecked and underreported carbon footprint across industries. However, targeting Scope 3 emissions isn’t straightforward.

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In this article, we’ll explore Scope 3 emissions and find solutions to ensure you’re getting an accurate representation of your property's emissions. 

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Understanding Scope 3 emissions

The ubiquitous Greenhouse Gas (GHG) Protocol categorises emissions from businesses and their activities into three categories: Scope 1, 2, and 3 emissions. 

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Scope 1 refers to the direct emissions a company produces through its owned and controlled assets and operations. Scope 2 emissions are those associated with energy purchase, such as electricity from the grid. Scope 3 emissions cover everything else. Scope 3 emissions definition is indirect emissions that occur along the organisation's upstream and downstream value chain. These emissions represent a company’s impact beyond its own walls. 

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These value chain emissions may actually be produced by another entity that the organisation does not directly control. However, because that entity is working or collaborating with the organisation, the onus of the emissions is shared. 

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Scope 3 emissions categories

The GHG Protocol divides Scope 3 emissions into 15 categories, including upstream and downstream value chain emissions. Here they are: 

1. Purchased goods and services
2. Capital goods
3. Fuel- and energy-related activities (not included in Scope 1 or 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution 
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments

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Scope 3 scenarios

Here are a few scope 3 examples from various industries:

• Retail clothing store (small business): Emissions from cotton production for clothing (purchased goods and services), transportation of clothes from factories overseas (upstream transportation and distribution), and the energy used by customers to wash and dry their garments (use of sold products)
• University (large institution): Emissions associated with faculty travel for conferences and research (business travel), the manufacturing of paper and electronics used on campus (purchased goods and services), and the commuting habits of its vast staff and student body (employee commuting)
• Cloud computing company (service industry): Emissions from manufacturing the servers and data centres it relies on (capital goods)

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The importance of Scope 3 emissions accounting

It’s well-known that value chain emissions make up most of a company's carbon footprint (over 70%, according to the UN Global Compact Network). Naturally, they are integral to accurate carbon accounting, which measures an entity’s greenhouse gas emissions. 

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To target and reduce their overall carbon footprint, companies need to measure the impact of their value chain upstream and downstream. Without it, a significant portion of the emissions will be unaccounted for; consequently, their targets won’t have the much-needed impact. 

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Put simply, decarbonisation is virtually impossible without accounting for and targeting Scope 3 emissions. Only when these emissions are identified and quantified can leadership make decisions that have a bigger impact and reduce overall emissions. 

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How are Scope 3 emissions measured?

The GHG Protocol’s Scope 3 standard for corporations provides three main methodologies outlined by the GHG Protocol:

1. Spend-based method: This relatively simple approach estimates emissions by multiplying the monetary value of purchased goods and services by an emission factor (average emissions per unit of spend). It offers a quick overview but might lack accuracy for specific categories. Many databases of emission factors exist from governments, non-profits, and academic institutions 
2. Activity-based method: This method focuses on physical activities within each category (e.g. employee commute distance or amount of waste generated) and applies emission factors to those metrics. This offers a more precise calculation than the spend-based method but requires more data collection
3. Supplier-specific method: This is the most accurate and data-intensive approach. It involves collecting actual emissions data directly from suppliers throughout the value chain

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In practice, many companies use a hybrid approach that combines elements of these methods. They might use spend-based methods for less significant categories and supplier-specific data where suppliers can and are willing to provide the data. 

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The GHG Protocol also offers various resources to help companies choose the most appropriate methods and emission factors for their specific circumstances. That said, the protocol’s methodologies, especially spend-based ones, heavily rely on estimates, which some experts have criticised. 

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Challenges with Scope 3 emissions

You're not wrong if you think calculating Scope 3 emissions is challenging. Today’s globalised business landscape has made supply chains incredibly complex. That makes data collection extremely difficult or virtually impossible in some scenarios where supply chains extend beyond borders. 

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Here are the key Scope 3 challenges uncovered by Deloitte research:

• Lack of data and poor quality: The biggest hurdle in quantifying value chain emissions is the lack of data. Even where data is available, it’s not necessarily accurate. The lack of a standardised framework across industries and countries only worsens the situation. This is often the case with small businesses, which lack mechanisms for recording and verifying data
• Lack of standardisation and consistency: Scope 3 emissions disclosure standards are currently evolving and inconsistent. This makes comparisons between companies and interpretations of reported data challenging. On top of that, Scope 3 reporting remains voluntary in most parts of the world (although that’s gradually changing)
• Stakeholder engagement: Encouraging stakeholder cooperation across the value chain is crucial for gathering emissions data. However, suppliers often lack transparency and don’t understand the importance of sustainability. This is all the more visible in supply chains that extend into developing countries, where keeping costs down comes at the expense of high emissions 
• Resource constraints: Calculating and reporting Scope 3 emissions can be resource-intensive, especially for smaller companies with limited financial and human resources. The time and expertise required to manage this process can be a significant barrier
• Limited integration: Scope 3 emissions are often not fully integrated into a company's overall operations and decision-making. While companies worldwide, especially big corporations, have taken significant measures to reduce direct emissions, those efforts aren’t replicated for supply chain emissions

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Scope 3 emissions and compliance

Companies' ESG (environmental, social, and governance) reporting is vital for carbon accounting, target-setting and decarbonisation efforts. Regulations typically mandate such reporting. But there’s a problem – environmental regulations have so far required the reporting of direct emissions only. Companies have had the chance to report Scope 3 data voluntarily (those that do, tend to heavily rely on estimates). 

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The trend is changing, with regulations targeting Scope 3 emissions as well. The European Union’s Corporate Sustainability Reporting Directive (CSRD) has dramatically changed ESG reporting requirements by expanding coverage and including Scope 3 emissions. As the CSRD Scope 3 directive goes into effect in several phases, nearly 50,000 European and international companies will be required to gather data and report value chain emissions. California has also adopted similar regulations, and climate advocates want more governments to mandate Scope 3 reporting. 

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As these value chain emissions come under the radar of authorities, it’s expected that issues such as lack of transparency or underreporting may be addressed. 

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Sustained decarbonisation = reducing Scope 3 emissions

The progress eco-conscious companies have made and the steps governments have taken worldwide are commendable. But it’s clear that little difference can be made if large companies and small businesses don’t target their indirect emissions. 

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Calculating and reporting Scope 3 emissions ensures that efforts and initiatives for emission reduction can be replicated throughout the supply chain. To do that, we need to improve Scope 3 accounting, reporting, and targeting. 

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Tenant energy data is another essential component when looking at Scope 3 emissions. If you, as an investor or commercial real estate company, don't wholly own or directly control the property, the energy consumption falls under Scope 3 emissions.

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Fortunately, with comundo's solution, you can access tenant energy data dating back as far as three years. This historical data is valuable for assessing progress in improving the energy efficiency of your property. It plays a crucial role in accurately reporting Scope 3 emissions and ensuring compliance with ESG reporting regulations such as the CSRD. 

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At comundo, we’re big believers in data accuracy and the data sources used across various energy providers, which is the crux of the problem with Scope 3 emissions reporting. Our solution for property energy consumption data satisfies reporting standards needed in the EU, equipping you with the best-in-class carbon accounting solution.

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FAQs 

Why measure Scope 3 emissions?

Measuring Scope 3 emissions offers a more complete picture of a company's environmental impact. More importantly, it helps identify hidden hotspots across the value chain. This enables them to create targets, improve resource efficiency and potentially discover cost-saving opportunities. It’s also required by regulations such as the EU’s CSRD. So, Scope 3 emissions must be reported yearly by companies under such regulations' threshold. 

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What is Scope 3 upstream and downstream?

Scope 3 emissions can be upstream or downstream. Upstream emissions represent those produced before the product or service is sold (e.g. purchased goods, capital goods, travel, etc.). In contrast, downstream emissions occur after (for example, product use and disposal). Downstream emissions also include leased assets and investments. 

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Is Scope 3 reporting mandatory?

Scope 3 reporting may be mandatory in some regions around the world. It depends on where your company operates and in which capacity. As of 2024, the EU and the US state of California have implemented legislation to make Scope 3 reporting mandatory. The UK, Australia, and Canada are also working on making Scope 3 mandatory in ESG reporting.

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