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Scope 3.2: Capital assets

Learn how the Greenhouse Gas (GHG) Protocol defines Scope 3.2 emissions, how the protocol recommends calculating them and how they are actually calculated in Climate Reporting

How are Scope 3.2 emissions defined in the GHG Protocol?

Scope 3.2 covers all upstream (i.e., cradle-to-gate) emissions from the production of capital assets purchased or acquired by the reporting company.

Capital assets are products that have an extended life and are used by the company to manufacture a product; provide a service; or sell, store, and deliver merchandise. In financial accounting, capital assets are treated as fixed assets or as plant, property, and equipment (PP&E). Examples of capital assets include vehicles, buildings, and heavy-duty machinery.

Emissions from the use of capital assets by the reporting company are accounted for in either Scope 1 (e.g., for fuel use) or Scope 2 (e.g., for electricity use), rather than in Scope 3.

In certain cases (typically when dealing with expensive products), there may be ambiguity over whether a particular purchased product is a capital asset (to be reported in category 3.2) or a purchased good (to be reported in category 3.1). Companies should follow their own financial accounting procedures to determine whether a specific product should be categorised as a purchased product as a capital asset or as a purchased good.

It is important to note that if a reporting company has a leased asset under a financial lease, the asset is recorded on the company's balance sheet, and the emissions from its production fall under Category 3.2. Conversely, if the asset is under an operating lease, the asset is not recorded on the balance sheet and the emissions from its production should be reported by the actual owner of the asset, as an operating lease confers operational control but not ownership.

​​How does the GHG Protocol recommend calculating Scope 3.2 emissions?

In financial accounting, capital assets are typically depreciated or amortized over the life of the asset. For purposes of accounting for Scope 3 emissions, companies should not depreciate, discount, or amortize the emissions from the production of capital assets over time. Instead companies should account for the total cradle-to-gate emissions of purchased capital assets in the year of acquisition, the same way the company accounts for emissions from other purchased products in category 3.1 (Purchased goods and services).

Companies may use any of the methods listed below to calculate Scope 3.2 emissions. The first two methods (supplier-specific and hybrid), require the reporting company to collect data from the suppliers, whereas the second two methods (average-data and spend-based), use industry average data. The methods are listed in order of how specific the calculation is to the individual supplier of a good or service. However, companies need not always use the most specific method as a first preference.

  1. Supplier-specific method
    • This method involves collecting product-specific GHG inventory data from suppliers.
    • Possible activity data includes:
      1. Number and type of of capital assets purchased
    • Possible data sources can include:
      1. Questionnaire sent to relevant supplier
    • Emission factors:
      1. Cradle-to-gate emission factor for the capital asset purchased, obtained directly from the supplier
  2. Hybrid method
    • This method involves using supplier-specific data, and supplementing it with secondary data where supplier data is unavailable.
    • Possible activity data includes:
      1. Allocated Scope 1 and Scope 2 data for the purchased capital asset OR
      2. Mass or volume of inputs (material, fuel) needed for the production of the asset, and the distance from the origin of the raw material inputs to the supplier, and the quantities of waste emitted
    • Possible data sources can include:
      1. Internal data systems (bill of materials, freight distance of raw materials) of suppliers
      2. Questionnaire sent to relevant supplier
      3. Public GHG inventory reports
    • Emission factors needed:
      1. Cradle-to-gate emission factors for materials used by the supplier to manufacture the capital asset
      2. Life cycle emission factors for fuels used in the inbound transportation of input materials to the supplier
      3. Emission factors associated with waste generated by the supplier during the production of the capital asset
  3. Average-data method
    • This method involves multiplying physical activity data (mass in kilograms, or other relevant units) by relevant industry-average emission factors
    • Possible activity data includes:
      1. Mass or number of capital assets purchased for a given year (e.g., kg, hours spent)
    • Possible data sources can include:
      1. Internal data systems (e.g. bill of materials)
      2. Purchasing records
    • Emission factors needed:
      1. Cradle-to-gate emission factors for the capital asset, expressed per unit of mass or per unit of asset (e.g., kg CO2e/kg or kg CO2e/hour of use).
  4. Spend-based method
    • This method involves multiplying the amount spent on capital assets by the relevant spend-based emission factor (expressed as grams or kilograms of CO2-equivalent per unit of currency).
    • Possible activity data includes:
      1. Amount spent on capital assets, by product type, in local currency
    • Possible data sources can include:
      1. Accounting systems, enterprise resource planning systems (ERP)
      2. Bills of materials
      3. Purchasing records
    • Emission factors needed:
      1. Cradle-to-gate emission factors of the capital asset per unit of economic value (e.g. kg CO2e/NOK)

How are Scope 3.2 emissions calculated in Climate Reporting?

In Climate Reporting, Scope 3.2 emissions are currently calculated using the spend-based method. Transactions in ledger account series 1000–1999 (capital assets) together represent all capital asset transactions. Relevant transactions from these account series are identified and extracted, then multiplied by appropriate spend-based emission factors to determine the resulting CO₂-equivalent emissions.

Calculation logic

  • The customer’s financial data is made available to Climate Reporting, where relevant information for calculating greenhouse gas emissions is extracted. This includes transactions from relevant accounts, together with the following data fields for each transaction
    • Account ID (as defined in the ERP)
    • SAF-T Account ID and version
    • Amount (in a defined currency)
    • The date the purchase was made
  • Climate Reporting maintains a mapping between SAF-T accounts and GHG Scope categories. All financial accounts mapped to Scope 3.2 are identified, and the transactions mapped to these accounts are extracted.
  • For each SAF-T account, the net monthly amount is calculated by summing all relevant transactions. Each account is also linked to a specific emission factor based on the type of purchases recorded in that account. For example, SAF-T account 1500 (“Cars, etc.”) is associated with an emission factor for manufacturing of automobiles.
  • The aggregated transaction values are then multiplied by the relevant emission factors to calculate greenhouse gas emissions. Finally, the calculated emissions are aggregated into custom-defined subcategories.

How are Scope 3.2 emissions displayed in Climate Reporting ?

App

In the app, total Scope 3.2 emissions are displayed in the dashboard under the “Emissions by category” card and reported in tonnes CO2e per year. More detailed Scope 3.2 emissions breakdowns are planned for future releases.

Report

In the report, Scope 3.2 emissions are presented as a monthly breakdown in the “Emissions by Scope” tab and reported in tonnes CO2e. Additional detailed Scope 3.2 reporting is currently under development and will be available in an upcoming release.