Scope 3 categories: what are they?

Navigating greenhouse gas (GHG) emissions throughout the entirety of a company's value chain poses a multifaceted challenge. For enterprises initiating the evaluation of their Scope 3 emissions, the initial steps can be particularly daunting. To alleviate these entry barriers, the GHG Protocol created categories to help organizations understand the factors that need to be accounted for when analysing and ultimately producing a strategy for reducing their scope 3 emissions. Here we review each category in detail: 

Understanding scoped emissions

Carbon emissions are fast becoming a key focus foroperations for organizations across the globe as businesses look to reduce their climate impact. The concept of Scope 3 categories, along with the broader framework of Scope 1, 2, and 3 emissions , was developed by the Greenhouse Gas Protocol (GHG Protocol). The GHG Protocol is a set of accounting and reporting standards for greenhouse gas emissions, designed to help organizations measure and manage their greenhouse gas (GHG) emissions. 

The GHG Protocol was initiated by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) in the late 1990s. The goal was to create a standardized methodology for organizations to measure and report their GHG emissions, providing a common language and framework for understanding and addressing climate change impacts. The three scopes within the GHG Protocol help organizations categorize their emissions:

Learn more about the difference between scopes 1, 2 and 3

What makes scope 3 so hard to track?

Measuring scope 3 emissions can pose challenges due to the complexity and time-intensive nature of accounting, given the potential existence of numerous sources that need to be catalogued and estimated. The Scope 3 categories were created to capture the full extent of indirect emissions associated with the production and consumption of goods and services throughout an organization's value chain and capture these hard to track emissions sources. 

This comprehensive approach allows organizations to better understand their environmental impact beyond their operational boundaries and identify opportunities for emissions reduction across the entire lifecycle of their products and services.

The development of Scope 3 categories aligns with the growing recognition that a significant portion of an organization's environmental footprint is often embedded in its supply chain, distribution channels, and product life cycle. 

How many categories are there?

The Greenhouse Gas Protocol (GHG Protocol) identifies 15 Scope 3 categories. These categories provide a comprehensive framework for organizations to assess and address the full range of indirect emissions associated with their value chain.

What are the scope 3 categories?

The 15 scope 3 categories vary in significance, and present their own challenges and opportunities. The comprehensive nature of Scope 3 emissions makes them a crucial aspect of corporate sustainability, as they provide insights into the full environmental impact of a company's activities.

The 15 Scope 3 categories cover various aspects of a company's value chain, and each category plays a unique role in shaping the overall carbon footprint. Let’s look into each of the categories:

Category 1: Purchased goods and services

Emissions from the production of purchased goods and services. Category 1 encompasses emissions from all procured goods and services not covered by the other categories within upstream Scope 3 emissions, namely from Category 2 to Category 8. Specific categories of upstream emissions are individually disclosed in Category 2 through Category 8 to promote transparency and consistency in Scope 3 reporting.

Category 2: Capital goods

This category comprises all upstream emissions, covering the entire production process (from cradle to gate), associated with the manufacturing of capital goods that the reporting company procured or acquired in the reporting year. Emissions arising from the utilization of these capital goods by the reporting company are incorporated into either scope 1 (e.g., for fuel consumption) or scope 2 (e.g., for electricity consumption), rather than falling under scope 3.

Category 3: Fuel- and energy-related activities

Category 3 encompasses emissions associated with the production of fuels and energy that the reporting company procured and used during the reporting year. The key distinction lies in the fact that the emissions considered in this category are not already accounted for in either scope 1 or scope 2, emphasizing the need for a more exhaustive evaluation of the organization's carbon footprint. The key components of category 3 are:

• Extraction and production emissions - This includes emissions associated with extracting raw materials and manufacturing the fuels and energy procured by the reporting company. 
• Transportation emissions - The transportation of fuels and energy from production facilities to the point of use contributes to the carbon footprint. 

Category 4: Upstream transportation and distribution

Category 4 encompasses emissions associated with the transportation and distribution of products acquired by the reporting company during the reporting year. These emissions specifically arise from the movement of products between the company's tier 1 suppliers and its operational facilities, utilizing vehicles not owned or operated by the reporting company. This includes various modes of transportation, such as air, rail, road, and marine transport. 

Additionally, emissions within this category account for third-party transportation and distribution services procured by the reporting company, either directly or through intermediaries. This covers a broad spectrum, including:

• Inbound logistics
• Outbound logistics (pertaining to sold products)
• Third-party transportation and distribution activities

It's important to note that fuel and energy products are excluded from this category. The emissions associated with these transportation and distribution activities contribute to the overall assessment of indirect emissions throughout the company's value chain.

Category 5: Waste generated in operations

Category 5 comprises emissions resulting from the third-party disposal and treatment of waste generated within the reporting company's owned or controlled operations throughout the reporting year. This category encompasses emissions associated with the disposal of both solid waste and wastewater. 

It captures the environmental impact of waste management activities undertaken by external entities, reflecting the indirect emissions linked to the treatment and disposal processes employed for the company's waste.

Category 6: Business travel

Category 6 involves emissions stemming from the transport of employees engaged in business-related activities, utilizing vehicles owned or operated by third parties, which may include aircraft, trains, buses, and passenger cars. 

Emissions arising from the transportation of employees in vehicles owned or controlled by the reporting company are, however, considered separately and are accounted for either in scope 1, specifically for fuel use, or in the case of electric vehicles, scope 2, accounting for electricity use.

Category 7: Employee commuting

This category encompasses emissions arising from the transportation of employees between their residences and workplaces. Emissions related to employee commuting may result from various modes of transportation, including: 

• Car
• Bus
• Rail
• Air travel
• Alternatives like subway, bicycling, or walking

It is noteworthy that companies have the option to include emissions attributed to “teleworking” (where employees work remotely) within this category. 

The calculation of a reporting company's Scope 3 emissions from employee commuting involves considering both scope 1 and scope 2 emissions associated with employees and third-party transportation providers.

Category 8: Upstream leased assets

Category 8 comprises emissions stemming from the operational activities of assets that the reporting company leases within the reporting year, provided these emissions are not already accounted for in the company's scope 1 or scope 2 inventories. It's important to note that this category specifically pertains to companies acting as lessees, operating assets that are not owned but leased. 

For companies engaged in both ownership and leasing of assets to others (lessors), reference should be made to category 13, which addresses emissions associated with downstream leased assets.

Category 9: Downstream transportation and distribution

Category 9 encompasses emissions arising in the reporting year from the transportation and distribution of sold products, utilizing vehicles and facilities that are neither owned nor controlled by the reporting company. Additionally, emissions related to retail and storage activities fall under this category. 

It's worth noting that outbound transportation and distribution services, when procured by the reporting company, are not considered in category 9 but rather included in category 4 (Upstream transportation and distribution). This distinction is made because, in such instances, the reporting company is the purchaser of the service.

Category 10: Processing of sold products

Category 10 comprises emissions stemming from the processing of intermediate products, previously sold by the reporting company, and subsequently handled by third parties such as manufacturers. Intermediate products refer to products necessitating additional processing, transformation, or incorporation into another product before reaching end consumers. 

Therefore, emissions arising from processing activities after the sale by the reporting company and before utilization by the end consumer are attributed to the specific intermediate product and should be appropriately allocated.

Category 11: Use of sold products

Category 11 covers emissions resulting from the utilization of goods and services sold by the reporting company within the reporting year. In the calculation of a reporting company's scope 3 emissions from the use of sold products, both scope 1 and scope 2 emissions of end users are considered. End users encompass both individual consumers and business customers who employ the final products in their respective activities.

Category 12: End-of-life treatment of sold products

Category 12 encompasses emissions originating from the disposal and treatment of products sold by the reporting company at the conclusion of their life cycle within the reporting year. This category encapsulates the aggregate anticipated emissions associated with the end-of-life phase for all products sold during the reporting year.

Category 13: Downstream leased assets

Category 13 comprises emissions arising from the operation of assets owned by the reporting company, where the company functions as a lessor and leases these assets to other entities during the reporting year. 

These emissions are considered if they are not already accounted for in the reporting company's scope 1 or scope 2 inventories. This category is specifically relevant to lessors, denoting companies that receive payments from lessees. For companies operating leased assets (i.e., lessees), reference should be made to category 8 (Upstream leased assets).

Category 14: Franchises

Category 14 comprises emissions emanating from the operation of franchises that are not encompassed within scope 1 or scope 2. A franchise, in this context, refers to a business authorized to sell or distribute the goods or services of another company within a designated location under a licensing agreement. 

This category is pertinent to franchisors, denoting companies that grant licenses to other entities for the sale or distribution of their goods or services, receiving compensations such as royalties for the utilization of trademarks and other services in return.

Category 15: Investments

Category 15 incorporates scope 3 emissions linked to the reporting company's investments within the reporting year, excluding those already accounted for in scope 1 or scope 2. This category is relevant to investors, representing companies that invest with the aim of generating profits, as well as businesses offering financial services. 

It extends to investors with non-profit motives, such as multilateral development banks, and utilizes the same calculation methods. Investments are categorized as a downstream scope 3 category because the provision of capital or financing is considered a service rendered by the reporting company.

How Minimum can help

Minimum can help organizations to understand their existing carbon output, and create plans to mitigate climate related risks in the future.  Our Emissions Data Platform seamlessly collects and processes emissions data from every corner of your organization and supply chain - no matter the format. Making it the ideal platform for emissions audits and all-round business intelligence. 

Learn more about how Minimum's Emission Data Platform can help to power you all the way to Net Zero today.