Scope 3 Emissions

Definition

Scope 3 emissions are a category of greenhouse gas emissions (GHG) that occur during operational activities from sources that a company does not directly own or control. They are also referred to as value chain emissions and encompass all indirect emissions that occur outside a company's direct physical footprint.

Distinction from Scope 1 and 2

The Greenhouse Gas Protocol (GHGP) categorizes greenhouse gas emissions into three scopes:

• Scope 1: Direct emissions from company-owned sources (company vehicles, manufacturing processes, on-site fuel combustion)
• Scope 2: Indirect emissions from purchased electricity, heat, or steam
• Scope 3: All other indirect emissions in the value chain

A distinctive characteristic of Scope 3 emissions: They are often the Scope 1 and Scope 2 emissions of other companies within one's own value chain.

The 15 Categories of Scope 3 Emissions

Upstream Emissions (8 Categories):

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

Downstream Emissions (7 Categories):

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

Relevance and Scale

According to a Carbon Disclosure Project study from 2022, Scope 3 emissions from reporting companies cause on average 11.4 times more emissions than operational emissions (Scope 1 and 2 combined). This illustrates their paramount importance for companies' total emission profiles.

Industry-Specific Differences

The most relevant Scope 3 categories vary significantly between and within different industries:

• Automotive manufacturers: Main share from Category 11 (use of sold products)
• FMCG companies: Focus on Category 1 (purchased goods and services)
• Commercial real estate: Different profiles depending on business model (new construction vs. existing property management)

Challenges in Data Collection

Complexity of Data Gathering

• Limited control over data sources
• Dependency on third-party vendors and suppliers
• Often unstructured data in isolated systems
• Need for proxy data when data availability is insufficient

Calculation Methodology

The GHGP defines 13 different calculation methods for Scope 3 emissions, where the choice of method depends on data availability and category specifics.

Importance for Reporting

Regulatory Relevance

Scope 3 reporting is crucial for:

• CDP reporting
• Global Reporting Initiative (GRI)
• Task Force on Climate-related Financial Disclosures (TCFD)
• Science Based Targets Initiative (SBTi)
• Corporate Sustainability Reporting Directive (CSRD)

Stakeholder Expectations

Investors, employees, and the public increasingly expect transparent emission monitoring and reduction, with Scope 3 emissions receiving particular attention due to their scope.

Strategic Approach to Scope 3 Optimization

The World Economic Forum and Boston Consulting Group recommend a five-stage framework:

1. Create transparency: Establish baseline emission inventory
2. CO2 optimization: Design products and value chain more sustainably
3. Supplier engagement: Integrate emission metrics into procurement standards
4. Ecosystem promotion: Strengthen industry initiatives and purchasing groups
5. Internal strengthening: Establish CO2 reduction rules as incentive systems

Technological Support

Modern SaaS solutions can significantly reduce the complexity of Scope 3 reporting. Specialized platforms offer pre-built templates for key reporting frameworks and use analytical tools to identify emission reduction potential. These solutions enable companies to systematically analyze their value chain and make data-driven decisions for emission reduction.

Conclusion‍

Scope 3 emissions represent both the greatest challenge and the greatest potential for companies on their path to climate neutrality. Their systematic collection and reduction requires a holistic approach that combines technology, supplier management, and strategic planning.

FAQ

What are Scope 3 Emissions?

Scope-3 emissions are all indirect greenhouse gas emissions that occur in a company's value chain but are not directly controlled by that company. They include both upstream activities (such as purchased products and services) as well as downstream processes (such as the use of sold products). These emissions occur outside the company's direct operational area but are nevertheless a consequence of its business activities.

How do Scope 3 Emissions differ from Scope 1 and 2?

The Greenhouse Gas Protocol divides emissions into three areas: Scope 1 includes direct emissions from company-owned sources such as company vehicles or production facilities. Scope 2 refers to indirect emissions from purchased electricity, heat, or steam. Scope 3, however, captures all other indirect emissions along the entire value chain – from suppliers to end customers.

Why are Scope 3 Emissions so significant?

Scope-3 emissions often represent the largest share of a company's CO2 footprint. According to current studies, they cause on average 11.4 times more emissions than operational emissions (Scope 1 and 2 combined). This makes them crucial for a complete climate balance and simultaneously offers the greatest potential for emissions reductions.

How are Scope 3 Emissions calculated?

The Greenhouse Gas Protocol defines 13 different calculation methods for Scope-3 emissions. The choice of method depends on data availability and the specific category. Modern calculation approaches increasingly utilize AI-supported systems that can combine various data sources and automatically assign emission factors to enable precise and scalable calculations.