Scope 3 emissions

Understanding the sources and magnitude of your business' emissions can help you to develop strategies for reducing their environmental footprint and meeting sustainability goals.  Get to know how a carbon audit can help you to understand your business' scope 3 emissions and how to reduce them.

What are scope 3 emissions?

Scope 3 emissions are a category of greenhouse gas (GHG) emissions that are indirect and not owned or controlled by the reporting organization. As an example, these may be emissions that can occur in the supply chain, or from the activities of employees such as business travel or commuting. Scope 3 emissions are associated with the activities of:

• Suppliers
• Customers
• Employees
• Other stakeholders that are outside of an organization

The Greenhouse Gas Protocol, a widely used international standard for measuring and managing GHG emissions, defines Scope 3 emissions as "all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream emissions." This includes emissions from activities such as:

• Purchased goods and services 
• Transportation and distribution
• Waste disposal 
• Use of products and services

Scope 3 emissions are often the largest and most difficult category of emissions to quantify and manage, as they are influenced by a wide range of factors beyond an organization's direct control. However, they are also a significant source of potential emissions reductions - and should be considered in carbon accounting.

Examples of scope 3 emissions

Upstream activities

Upstream activities related to Scope 3 emissions refer to the emissions associated with the production and delivery of goods and services that an organization purchases from its suppliers. It can also include activities of employees too. These emissions occur outside of an organization's operational boundaries, but are linked to its business and employee  activities that can be significant in terms of their contribution to the organization's total carbon footprint.

Examples of upstream activities that can generate Scope 3 emissions include:

Purchased goods and services

These are defined as emissions generated from the production of products the reporting business bought or acquired in their reporting year. These can include both tangible and intangible products - such as goods and services. For example, production related components (such as ingredients and materials) and non-production related components (such as office supplies and PPE) all count as upstream emissions under purchased goods and services. 

Business travel

This includes emissions generated by employees traveling to and from business meetings, conferences, and events. These emissions are often significant, particularly for organizations with a global presence.

Employee commuting

This includes emissions generated by employees traveling to and from work, either by car or public transportation.

Managing upstream Scope 3 emissions can be challenging, as they are often outside of an organization's direct control. However, there are strategies that organizations can use to address these emissions - starting with carbon accounting  to gain an understanding of current output and making plans to reduce it. 

Downstream activities

Downstream activities related to Scope 3 emissions refer to the emissions generated by the use and disposal of products and services that an organization produces or sells to its customers. These emissions occur outside of an organization's direct control but are associated with its business activities and can be significant in terms of their contribution to the organization's total carbon footprint.

Examples of downstream activities that can generate Scope 3 emissions include:

Use of sold products

These emissions are generated by the use of products and services that an organization sells to its customers. For example, the emissions associated with the use of cars, appliances, and electronic devices.

End-of-life treatment of sold products

These are emissions created by the disposal, recycling, or reuse of products that are produced or sold. For example, the emissions generated by the disposal of electronic waste, or the energy consumed during recycling processes.

Transport and distribution

These emissions are generated by transportation and distribution of products purchased by the company, and can include activities such as inbound and outbound logistics, and transportation of materials and goods via air, rail, road and marine transport. They can also come from storage of purchased products in warehouses, distribution centers, and retail facilities.

Investments

Business investments can have a significant impact on downstream emissions - for example, when investing in new products, services and technologies. These also account for emissions associated with the companies or assets that businesses have invested debt or equity into - known as financed emissions. If a business invests in a more energy efficient product, this can reduce the emissions generated during the use of that product by customers, which has an impact on the investing business’ carbon output too.  

Why is reducing them important?

Reducing scope 3 carbon emissions is an important part of any comprehensive environmental strategy. Some of the benefits of reducing your scope 3 emissions include: 

• Reduced financial climate risk faced by exposure to high emitting suppliers
•  Increased transparency in supply chains
• Better relationships with suppliers, partners and customers due to transparency
• Improved brand and public image associated with sustainability efforts
• Enhanced corporate social responsibility (CSR) initiatives
• Greater access to green certification programs or favorable pricing tiers for those who exceed emission goals relative to their competitors in similar industries or sector

Minimum helps organizations measure, report and reduce their emissions across Scope 1, 2 and 3. Speak to one of our experts to learn more.

FAQs about scope 3 emissions

Are scope 3 emissions regulated?

Scope 3 is increasingly becoming a must-have rather than a good-to-have for companies through pressure from governments, customers, investors. To note: they make up >90% of footprints on average so excluding them can have a detrimental impact in understanding a business’ overall carbon output. 

There may be localized government mandates that put pressure on organizations to report on their scope 3 emissions. For example, in France, it is mandatory to report on scope 3 emissions in line with other GHG reporting, under their Energy Transition Law. It’s also worth noting that the EU CSRD regulations and SASB accounting standards will require companies to disclose Scope 3 emissions. Companies will face financial penalties under the CSRD if they fail to comply. The US SEC regulation also has mandatory Scope 3 reporting in the pipeline too, so it can help businesses to future-proof their operations if they take steps towards becoming compliant now. 

Does net zero include scope 3?

Yes, net zero includes scope 3 emissions. Carbon neutrality is often associated with scope 1 and 2 emissions only, while net zero includes all three scopes: 1, 2, and 3. This means that companies who aim for carbon neutrality may exclude their scope 3 emissions from consideration while companies aiming for net zero must take into account all sources of emissions in order to achieve their goal.