Measuring greenhouse gas (GHG) emissions in a company’s value chain can be complex and challenging. However, the Greenhouse Gas Protocol (GHGP) provides technical guidance on how to measure Scope 3 emissions, which are the indirect emissions that occur outside of a company’s direct control. The GHGP divides Scope 3 emissions into 15 categories and suggests appropriate calculation methods for each one. The purpose of this blog is to explain what each category includes and how it can be reduced. By following the GHGP framework, companies can understand where they have the biggest impact and devise robust reduction strategies. The GHGP also ensures that the categories are mutually exclusive to avoid double counting emissions. Moreover, suppliers can benefit from this process as they can improve their own Scope 1 emissions, which are the direct emissions from their operations.
Not every company can measure each of the 15 categories of scope 3 emissions, because some of them may not be relevant or applicable to their business activities & the products, or services they offer. Therefore, a company should identify and prioritize the scope 3 categories that are most important and significant for its value chain and focus on measuring and reducing those emissions. By focusing on the low hanging fruit and ‘quick wins’ it will hopefully provide motivation to continue with a campaign to reduce emissions.
- Purchased Goods and Services
This first category incorporates emissions from the extraction, production and transportation of goods and services acquired or purchased by the reporting company inside that reporting year. For example, the tire manufacturer for a motor vehicle company, who have sourced and produced parts and raw materials. Companies can tackle these emissions by working with suppliers to reduce their emissions, creating agreements whereby the most sustainable product should be chosen wherever possible as well as reducing areas of over consumption to prevent an obsolete volume of tyres being manufactured.
- Capital Goods
This second category incorporates emissions from the production of capital goods bought or obtained by the reporting company in the reporting year. Capital goods are tangible assets that a business uses to produce products or services, such as the necessary equipment, machinery, buildings, and vehicles for running their operations. These emissions can be reduced by choosing capital goods with a lower carbon footprint and create efficiencies, so the consumption of capital goods is lowered without effecting output.
- Fuel and Energy Related Activities
The third category includes emissions from the production of fuels and energy purchased by the reporting company that are not included in Scope 1 or Scope 2. This can include upstream emissions of purchased fuels and electricity (i.e., extraction, production, transportation of fuels) as well as transmission & distribution losses in the generation of electricity as well as the purchased electricity that is sold to users. A reasonable method of facing these emissions is by choosing more sustainable energy sources and reducing energy consumption where possible.
- Upstream Transportation and Distribution:
The fourth category includes emissions from the transportation and distribution of products purchased by the reporting company from vehicles and facilities not owned or operated by the reporting company.
It also includes transportation/distribution services bought by the reporting company including inbound and outbound logistics of sold product as well as the transportation between a company’s own facilities in vehicles they don’t own. Companies can reduce emissions in this area by opting for more sustainable transportation options and reducing transportation distances or optimising travel routes were possible.
- Waste Generated in Operations
The fifth category includes disposal and treatment emissions from waste generated by the reporting company in its operations.; in facilities not owed by the reporting year. Emissions from this category can be reduced by decreasing waste generation, increasing recycling, and selecting more sustainable waste management options I.e. less frequent collections if possible.
- Business Travel
The sixth category includes emissions from the transportation of employees for business-related activities in vehicles not owned or operated by the reporting company. Companies can tackle these emissions by reducing unnecessary business travel, choosing more sustainable travel options, and encouraging virtual meetings. If travel is necessary, public transport and rail is favoured over flying and multiple meetings are scheduled to make the most of the business trip. Businesses could put a cap on the number of miles travelled within a reporting year to make employees aware of how much their travel is costing. the company in carbon.
- Employee Commuting
This seventh category involves emissions from the transportation of employees between their homes and their worksites via vehicles not owned or operated by the company. Emissions can be reduced by offering a remote or hybrid working schedule, although this needs to be counterbalanced with the emissions associated with working from home as well as creating workplace schemes to encourage carpooling, public transport, cycling or walking to work.
- Upstream Leased Assets:
This eighth category includes emissions from leased assets that are not included in Scope 1 or Scope 2. For example, office space and vehicles that are operated and leased but not owned by the reporting organization. Emissions could be reduced by ensuring the assets leased are the most sustainable available or initiate discussion with the company you are leasing off about driving sustainable changes in their scope 1 and 2.
- Downstream Transportation and Distribution
The ninth category includes emissions from the transportation and distribution of finished products sold by the reporting company in vehicles not owned or operated by the reporting company. This category also includes emissions that occur in the reporting year from transportation and distribution of sold products in vehicles and facilities not owned or controlled by the reporting company. This category also includes emissions from retail and storage. Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 includes only emissions from transportation and distribution of products after the point of sale. Companies can tackle these emissions by choosing more sustainable transportation options and reducing transportation distances.
- Processing of Sold Products:
The tenth category includes emissions from the processing of intermediate products sold by the reporting company. These products are not finished and need more work or to be part of something else before they can be used. To cut these emissions, companies can work with processors to tackle emission hot spots within processing.
- Use of Sold Products:
The eleventh category includes emissions from the use of products sold by the reporting company in their intended application, for example a pair of wireless headphones and the emissions associated with charging them. These emission can be reduced by ensuring at the design stage, the sustainability side of things is considered so the end product produces fewer emissions during use.
- End-of-Life Treatment of Sold Products
The twelfth category incorporates emissions from the disposal of products sold by the reporting company at the end of their life. End of life treatment methods would include landfilling, incineration and recycling. As fewer emissions and the ability to regain value from disposed of products come from recycling, companies should try to reduce this emission by designing products that are easier to recycle or dispose of sustainably. Companies who deal with phone and headphones could offer money off the newer model if the old one is dropped off at a recycling point.
- Downstream Leased Assets
The thirteenth category includes emissions from the operation of assets that are owned by the reporting company (acting as lessor) and leased to other entities in the reporting year that are not already included in scope 1 or scope 2. This category is applicable to lessors (i.e., companies that receive payments from lessees). Companies that operate leased assets (i.e., lessees) should refer to category 8 (Upstream leased assets). An example of downstream leased asset would be vehicles leased by a car manufacturer or a car rental company to customers or employees. The lessor can offer incentives for lessees to choose more fuel-efficient or electric vehicles, or to reduce their mileage. They can also provide information and guidance on eco-driving practices, such as avoiding idling, accelerating smoothly, and maintaining optimal tire pressure.
The fourteenth category includes emissions from franchises not included in Scope 1 or Scope 2. Franchisors (i.e., companies that grant licenses to other entities to sell or distribute its goods or services in return for payments, such as royalties for the use of trademarks and other services) should account for emissions that occur from the operation of franchises (i.e., the scope 1 and scope 2 emissions of franchisees) in this category. Franchisees (i.e., companies that operate franchises and pay fees to a franchisor) should include emissions from operations under their control in this category if they have not included those emissions in scope 1.
The fifteenth and last category includes emissions from investments related to the company’s other entities, such as equity, debt, project finance, and managed investments. Investments are a downstream scope 3 emission, because they are a service that the company provides to others. So, an investment firm’s scope 3 emissions include the direct and indirect emissions of its portfolio companies or investments. The company should report its scope 3 emissions from investments based on its share of investment in the entity and is mainly the prerogative of private financial institutions. If a company is looking to improve upon their investment emission they should invest in companies or projects that have low-carbon or net-zero goals, or that provide solutions for reducing emissions in other sectors.
By understanding the 15 categories of scope 3 emissions, companies can identify the most significant sources of emissions in their value chain and take the appropriate actions to reduce them. Reducing scope 3 emissions can bring multiple benefits for companies, such as improving their environmental performance, enhancing their reputation, strengthening their relationships with stakeholders, and saving costs. Therefore, it is important for companies to report and disclose their scope 3 emissions, and to set ambitious targets and strategies to achieve them. companies can contribute to the global efforts to mitigate climate change and create a more sustainable future.
A review of the Corporate value chain (scope 3) standard: GHG protocol (no date) Corporate Value Chain (Scope 3) Standard | GHG Protocol. Available at: https://ghgprotocol.org/corporate-value-chain-scope-3-standard (Accessed: 11 September 2023).
Written By Charlie Dawson