Scope 3 emissions: A guide to carbon accounting’s biggest challenge.

Most companies measure the emissions they can see: the boiler, the electricity bill, the company cars. The biggest share usually sits somewhere else – in everything they buy, lease out, and sell. That's Scope 3.

The Intergovernmental Panel on Climate Change (IPCC) put global warming at 1.1°C above pre-industrial levels for 2011–2020 in its latest synthesis report – and it has kept climbing since. That's already enough to drive more extreme weather and rising sea levels.

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.

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.

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.

Scope 1 refers to the direct emissions a company produces through its owned and controlled assets and operations. Scope 2 covers the electricity, heat, steam, and cooling a company buys – the district heating bill as much as the electricity bill. Scope 3 emissions cover everything else. In the GHG Protocol's words, Scope 3 is all indirect emissions not already counted in Scope 2 that occur in a company's value chain, upstream and downstream. These emissions represent a company's impact beyond its own walls.

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.

Scope 3 emissions categories

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

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 customers use to wash and dry their garments (use of sold products – an optional one, since the energy is used indirectly)
• ‍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 its staff's daily commute (employee commuting). Students aren't employees, so their travel is optional and reported separately‍
• Cloud computing company (service industry): Emissions from manufacturing the servers and data centre equipment it buys (capital goods)

The importance of Scope 3 emissions accounting

For most companies, value chain emissions are the biggest part of the footprint. The UN Global Compact Network UK puts it at more than 70% for a typical business, and CDP found that supply-chain emissions alone averaged 26 times companies' operational emissions in their 2023 disclosures.

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.

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.

How are Scope 3 emissions measured?

The GHG Protocol's Scope 3 calculation guidance sets out four methods for measuring what you buy, from least to most specific:

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. Average-data method: This method focuses on physical quantities 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. Hybrid method: This combines supplier-specific data where you can get it with average data to fill the gaps. It's what most companies end up doing in practice‍
4. 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

Most companies also mix methods across categories – spend-based for the small stuff, supplier data where suppliers can and will provide it.

The GHG Protocol also offers various resources to help companies choose the most appropriate methods and emission factors for their specific circumstances. Keep in mind what spend-based figures are: estimates of what you spent, not measurements of what was emitted. Negotiate a better price on the same product and your "emissions" fall.

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.

Deloitte groups the challenges into five:

• Lack of data and poor quality: Good-quality primary data is often missing, especially from smaller businesses. 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
• Stakeholder engagement: Encouraging stakeholder cooperation across the value chain is crucial for gathering emissions data. But suppliers are often reluctant to share, for reasons ranging from confidentiality to reputation. And the further a supply chain stretches, the harder it gets to reach whoever actually holds the data‍
• 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

Scope 3 emissions and compliance

Companies' ESG (environmental, social, and governance) reporting is vital for carbon accounting, target-setting and decarbonisation efforts. But where regulation has required emissions reporting, it has mostly stopped at Scope 1 and 2 – the UK's Streamlined Energy and Carbon Reporting rules and Australia's national reporting scheme are two long-running examples. Scope 3 has been left voluntary, and the companies that do report it often lean on estimates.

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, where those emissions are material. The CSRD was originally expected to bring nearly 50,000 European and international companies into scope. The EU's 2026 Omnibus package has since narrowed it to companies with more than 1,000 employees and more than €450 million in net turnover – both, not either. If you're still in scope, Scope 3 hasn't gone anywhere: the revised reporting standards keep it, and the cap on what you can ask smaller suppliers for doesn't cover greenhouse gas emissions.

California has gone the same way. Its SB 253 law requires companies with more than $1 billion in revenue that do business in the state to report Scope 3 from 2027 – though the law is being challenged in court.

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.

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.

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.

Tenant energy data is where Scope 3 gets personal for property owners.If you're a landlord, the energy your tenants control usually lands in your Scope 3, as downstream leased assets – even in a building you own outright. Whether it moves into your Scope 1 and 2 instead depends on how you draw your reporting boundary and what kind of lease it is, not on how much of the building you own. And if you're a lender or a fund investor, it shows up under investments.

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.

Data accuracy is the crux of the Scope 3 problem, and it's the bit we care about most. Our property energy data comes from the meter, not from averages, and it's split by Scope – so it drops straight into your ESRS or VSME report.

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. And for some companies it's required: under the CSRD, companies in scope report Scope 3 where it's material. Many property companies now fall outside the CSRD – but the banks they borrow from and the tenants they lease to may still ask.

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). Leased assets show up on both sides of a lease: a tenant reports its landlord's emissions as upstream leased assets, and the landlord reports its tenants' as downstream leased assets. Franchises and investments are downstream too.

Is Scope 3 reporting mandatory?

In some places, yes. It depends on where you operate and how big you are.In the EU, the CSRD requires it from companies in scope, where Scope 3 is material. California's SB 253 requires it from 2027 for companies with more than $1 billion in revenue, though the law is being challenged in court. Australia's mandatory climate reporting began in 2025, with Scope 3 from each company's second reporting year.

The UK published its own reporting standards in February 2026. They're voluntary for now, and the financial regulator is consulting on making them mandatory for listed companies from 2027, with Scope 3 on a comply-or-explain basis at first. Canada's securities regulators paused their climate rule in April 2025.

Everywhere else, Scope 3 is still mostly voluntary – but that doesn't stop your lender, investors, or tenants from asking for it.