An introduction to Scope 3 greenhouse gas emissions

How are Scope 3 emissions defined in the GHG Protocol?

As per the GHG Protocol, all reporting organisations must disclose GHG emissions associated with their operations and categorise them as direct or indirect. Direct emissions are emissions from sources that are owned or controlled by the company. Indirect emissions occur as a result of the reporting company’s activities but the actual emissions occur at sources owned or controlled by other entities. Emissions are further divided into three scopes. Direct emissions are included in scope 1, meanwhile indirect emissions are included in Scope 2 and Scope 3. Scope 2 consists solely of emissions arising from the generation of purchased energy, while Scope 3 encompasses all other indirect emissions that occur in a company’s value chain. While a company has control over its direct emissions, it has influence over its indirect emissions. 

The GHG Protocol divides Scope 3 emissions into 15 distinct value chain categories, which are explained in detail below. Scope 3 covers both ‘upstream’ emissions, those that occur in the supply chain before the company produces its product or service, and ‘downstream’ emissions, which occur after the product or service has been sold by the company. For instance, a clothing brand’s upstream emissions would include the farming and producing of fabric, while downstream emissions would include washing, wearing, and discarding the clothes by customers. Similarly, for an electronics company, upstream emissions come from extraction of metals and manufacturing of the product, while downstream emissions come from the use and eventual recycling or disposal of the devices.

Scope 3 emissions often represent the largest share of a company's carbon emissions, sometimes around 90%, but are simultaneously the hardest to measure and reduce because they involve external actors and complex supply chains. 

What are the requirements to be followed when reporting Scope 3 GHG emissions?

The GHG Corporate Standard provides a set of requirements that organisations must follow when calculating and reporting their Scope 3 emissions:

• Companies shall account for all Scope 3 emissions. If any Scope 3 category is excluded, the company must justify the reason for the exclusion.
• Companies shall follow the European Sustainability Reporting Standards (ESRS 1) and define the reporting boundaries as per the standard , disclosing and explaining any exclusions. To know about the different reporting boundaries, refer to our article here.
• Companies shall use emission factors that include the emissions of all greenhouse gases defined in the Kyoto Protocol. In Ducky, we use emission factors  compliant with this requirement.
• Companies shall disclose the choice of method(s) and emission factors used for calculating Scope 3 emissions. 
• Companies shall report Scope 3 emissions in tonnes of carbon dioxide equivalent (t CO₂-equivalent).

​​How does the GHG Protocol recommend calculating Scope 3 emissions?

The GHG Protocol  groups Scope 3 emissions into 15 distinct value chain categories. For each category, it provides multiple calculation methods ranked by the specificity and quality of data, balancing accuracy with effort and data availability:

1. Supplier-specific method
   • This method uses primary data from suppliers, including actual emissions related to the product or service supplied.
   • Data can be taken from life cycle assessments, product carbon footprints, or an environmental product declaration.
   • It provides the highest accuracy and reflects unique supplier-specific processes and efficiencies. However, it requires close collaboration with suppliers and significant data collection effort.
   • This method is preferred for Scope 3 categories where precision is critical such as Scope 3 Category 1 (Purchased goods and services) and Scope 3 Category 2 (Capital assets).
2. Activity-based method
   • This method uses physical activity data such as litres of fuel burnt or kilometers traveled.
   • Emission factors correspond to these physical units (e.g., kg CO₂-equivalent per km travelled).
   • It is suitable when companies have access to operational data but cannot obtain supplier-specific data.
   • It is more accurate than the spend-based method but requires collection and validation of activity data.
3. Hybrid method
   • The hybrid approach combines use of accurate activity/supplier-specific data where available and fills remaining gaps with estimates based on secondary data (spend-based, described below).
   • This method balances accuracy with practicality and manages data gaps effectively.
4. Spend-based
   • This method estimates emissions based on the financial value of goods or services purchased.
   • Emission factors expressed as kilograms or tons of CO₂-equivalent per unit of currency (e.g., per NOK or euro spent) are applied to the spend data.
   • It is a top-down approach used when physical activity data is unavailable.
   • The spend-based method is less precise because it assumes average emissions intensity across a sector or region.
   • It is primarily used for categories with limited activity data (for example: purchased services) or when conducting initial estimates.

The GHG Protocol advises companies to select calculation methods based on the significance of emissions, data availability, business objectives, cost, and effort. Methods with higher specificity and accuracy are preferred for emission categories that have a greater impact. Companies may also apply different methods within a single category for various activities. The Protocol encourages the use of detailed activity data whenever possible to enhance accuracy.

How are Scope 3 emissions calculated in Climate Reporting?

The methodology used for calculating Scope 3 emissions varies across the 15 different Scope 3 categories. Each category employs specific calculation methods, which are chosen based on factors such as data availability and significance. Below, you will find brief explanations of all 15 Scope 3 categories, along with an overview of how each is calculated within Climate Reporting.

Category 3.1: Purchased goods and services

What is included in this category?

Includes all upstream (i.e., cradle-to-gate) emissions from the production of goods and services purchased or acquired by the reporting company. 

How is this category calculated in Climate Reporting?

This category is included in Climate Reporting and is calculated using the spend-based method by extracting the monetary value of purchased goods and services from a company’s financial accounts and multiplying it with relevant spend-based emission factors to calculate CO₂-equivalents.

What grounds are there to skip this category?

This category accounts for the majority of emissions for most companies. Therefore, it is not recommended to skip this category.

Category 3.2: Capital assets

What is included in this category?

Includes all upstream (i.e., cradle-to-gate) emissions from the production of capital assets purchased or acquired by the reporting company. 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 is this category calculated in Climate Reporting?

This category is currently not included in Climate Reporting.

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).

What grounds are there to skip this category?

A company only needs to report emissions under this category during the years it has purchased an asset.  For all other years, this category may be omitted.

Category 3.3: Fuel and energy related activities not included in Scope 1 or Scope 2

What is included in this category?

Includes emissions related to the extraction and production of fuels and energy purchased by the reporting company. Category 3.3 does not include emissions from the combustion of fuels or purchased energy consumed by the reporting company because they are already included in Scope 1 and Scope 2. Emissions in this category are broken down into four activities:

How is this category calculated in Climate Reporting?

This category is included in Climate Reporting and calculated using the activity-based method. The type of activity data used is dependent on whether the user manually inputs fuel/energy consumption data.

What grounds are there to skip this category?

This category may be omitted if the company has no Scope 1 or Scope 2 emissions. However, this situation is very rare, so the category should typically be included. Since its contribution is typically low, it may be irrelevant for some companies.

Category 3.4: Upstream transport

What is included in this category?

Includes emissions from transportation and distribution services purchased by the reporting company from third-party providers, using vehicles not owned or operated by the reporting company.

This is in contrast to emissions from transportation in vehicles owned or controlled by the reporting company, which are reported under Scope 1 or Scope 2 (the latter is the case if the vehicles are electric). For leased vehicles, emissions are classified under category 3.8 (Upstream leased assets). Employee commuting emissions are captured in category 3.7 (Employee commuting). Additionally, emissions from business travel, specifically transportation of employees in vehicles owned or operated by third parties, are reported in category 3.6 (Business travel).

How is this category calculated in Climate Reporting?

This category is included in Climate Reporting and the emissions are calculated using the spend-based method, which involves extracting the economic value of purchased transportation and distribution services from the company’s ERP system and multiplying it by relevant emission factors. 

What grounds are there to skip this category?

This category may be omitted if the reporting company does not purchase any transportation or distribution services. Since its contribution is typically low, it may be irrelevant for some companies.

Category 3.5: Waste disposal and treatment from operations

What is included in this category?

Includes emissions from the disposal and treatment of waste generated by the company’s own activities and operations, but handled by third-party service providers.

This includes the  disposal and treatment of purchased goods and materials that are discarded as waste. Emissions from the production of purchased goods are included in category 3.1 (Purchased goods and services), and emissions from the use of purchased goods are included in Scope 1 or 2. As a result, the whole lifecycle emissions (cradle-to-grave) of all purchased goods and services are covered.

How is this category calculated in Climate Reporting?

This category is currently not included in Climate Reporting. If required, one may use the following methods to calculate emissions from the waste generated in their operations:

• Supplier-specific method which involves collecting waste-specific emissions data directly from waste treatment companies (e.g., incineration, recovery for recycling).
• Waste-type-specific method which involves using emission factors for specific waste types and waste treatment methods.
• Average data method which involves estimating emissions based on total waste going to each disposal method (e.g., landfill) and average emission factors for each disposal method.

What grounds are there to skip this category?

This category may be omitted if the company generates no waste. However, this situation is very rare, so the category should typically be included.

Category 3.6: Business travel

What is included in this category?

Includes emissions from employee business travel for work purposes. It typically encompasses travel by air, rail, bus, hotel stays, and other forms of transportation or travel-related services  provided by third parties.

How is this category calculated in Climate Reporting?

This category is included in Climate Reporting and is calculated using either the hybrid or spend-based method, selected based on the data availability. When integrated with an expense management system, detailed activity data is extracted and combined with activity-based emission factors to calculate CO₂-equivalents.  If such system integration is unavailable, travel-related expenses are instead extracted from the company’s financial accounts and multiplied with appropriate spend-based emission factors to calculate CO₂-equivalents.

What grounds are there to skip this category?

This category accounts for the majority of emissions for most companies. Therefore, it is not recommended to skip this category.

Category 3.7: Employee commuting

What is included in this category?

Includes emissions from employee commuting between their homes and workplaces.  Companies may also choose to include emissions from teleworking (remote work) in this category. 

How is this category calculated in Climate Reporting?

This category is currently excluded from Climate Reporting. One may use one of the following methods to calculate emissions from employee commuting:

• Fuel-based method, which involves determining the amount of fuel consumed during office commute and applying the appropriate emission factor for that fuel.
• Distance-based method, which involves collecting data from employees on commuting patterns (e.g., distance travelled and mode used for commuting) and applying appropriate emission factors for the modes used.
• Average-data method, which involves estimating emissions from employee commuting based on average (e.g., national) data on commuting patterns.

What grounds are there to skip this category?

For smaller companies, this category may be omitted because emissions are typically insignificant, given the limited number of employees. This category is often excluded, since collecting the necessary data can be challenging.

Category 3.8: Upstream leased assets

General note on leased assets

When companies lease assets to other companies or end users, such as buildings, equipment, or vehicles, they must determine how to account for and report the associated GHG emissions. Whether these emissions fall under Scope 1, Scope 2, or Scope 3 depends on both the lease type (financial or operating) and the organisational boundary approach chosen (equity share, financial control, or operational control).

What is included in this category?

Includes emissions from the operation of assets that are leased by the reporting company and not already included in the reporting company’s Scope 1 or Scope 2 inventories. 

If the reporting company leases an asset for only part of the reporting year, it should account for emissions for the portion of the year that the asset was leased. 

How is this category calculated in Climate Reporting?

To calculate emissions from upstream leased assets, one may use one of the following methods methods:

• Asset-specific method, which involves collecting asset-specific (e.g., site-specific) fuel consumption or  emissions data.
• Lessor-specific method, which involves collecting the Scope 1 and Scope 2 emissions from lessor(s) and allocating emissions to the relevant leased asset(s).
• Average data method, which involves estimating emissions for each leased asset, or groups of leased assets, based on average data, such as average emissions per asset type or floor space.

Since Climate Reporting applies the operational control approach, the emissions from upstream leased assets are categorised under Scope 1 and 2. The calculation method depends on the approach used for Scope 1 and Scope 2 emissions. If user-provided activity data for fuel and energy consumption is available, the activity-based method is applied. If the user input is lacking, the spend-based method is used instead.

What grounds are there to skip this category?

This category may be omitted if the company does not lease any assets, or if emissions from leased assets are already reported under Scope 1 and Scope 2.

Category 3.9: Downstream transport and distribution

What is included in this category?

Includes emissions resulting from the transportation and distribution of sold products using vehicles and facilities that are not owned or controlled by the reporting company. Specifically, category 3.9 includes emissions from transportation and distribution activities occurring after the product has been sold, as well as those from product retail and storage.

The reporting company’s Scope 3 emissions from downstream transportation and distribution will in turn be reflected in  the Scope 1 and Scope 2 emissions of third-party transportation and distribution providers, retailers, and, optionally, customers. Companies may also choose to include emissions from customers traveling to and from retail stores, which can be significant for businesses with retail operations

How is this category calculated in Climate Reporting?

This category is not included in Climate Reporting. Emissions are calculated using the same approaches as mentioned in category 3.4 (Upstream transport).

What grounds are there to skip this category?

Emissions from downstream categories are often difficult to quantify and may be omitted unless they make up a significant contribution to the company’s overall emissions.

Category 3.10: Processing of sold products

What is included in this category?

Includes emissions that occur when an intermediate product sold by the company undergoes further processing or transformation by a third-party before it reaches the end user. This applies to industries where products are not sold as final goods (e.g., steel, textiles, chemicals), but as inputs for other manufacturers. For example, a company selling steel coils to an automotive manufacturer would report emissions arising from the energy used to process those coils into car parts under category 3.10.

How is this category calculated in Climate Reporting?

This category is currently not included in Climate Reporting. To calculate emissions from processing of sold products, one may use either of two methods: 

• Site-specific method, which involves determining the energy consumption and the waste generated from processing of sold intermediate products by the third party and applying the appropriate emission factors.
• Average-data method, which involves estimating emissions for processing of sold intermediate products based on average secondary data, such as average emissions per process or per product. 

In many cases, collecting primary data from downstream value chain partners may be difficult. In such cases, it is preferred to use the average-data method.

What grounds are there to skip this category?

This category is only relevant for companies that manufacture intermediate products. Emissions from downstream categories are hard to quantify and may be skipped unless they make a significant contribution to the company’s total emissions.

Category 3.11: Use of sold products

What is included in this category?

Includes emissions resulting from the use of goods and services sold by the reporting company. Emissions from category 3.11 occur when end users make use of these products, and correspond to the end user’s Scope 1 and 2 emissions related to the product’s use. For example, if an oil and gas company produces oil and sells it to another company, the emissions from burning that oil are reported as Scope 1 emissions by the buying company. However, for the oil and gas producer, these same emissions are accounted for under category 3.11.

In category 3.11, companies are required to include both direct and indirect use-phase emissions of sold products, and may also choose to report emissions associated with the maintenance of these products during use.

How is this category calculated in Climate Reporting?

This category is currently excluded from Climate Reporting. Calculating emissions from category 3.11 typically requires product design specifications and assumptions about consumer usage (e.g., use profiles, assumed product lifetimes). 

What grounds are there to skip this category?

This category accounts for a major part of the emissions for companies that manufacture products which release emissions during their use phase; such as cars, electrical appliances, or oil and gas products. Therefore, it is not recommended to skip this category if this applies to your company. Companies that provide services or manufacture products which do not release emissions may omit this category.

Category 3.12: Waste disposal and treatment from sold products

What is included in this category?

Includes emissions from the disposal and treatment of products sold by the reporting company, once these products reach the end of their useful life. This includes emissions from waste processing activities such as landfill operations, incineration, composting, and recycling.

This category differs from category 3.5 (Waste disposal and treatment from operations), which includes emissions from waste the company itself generates during its operations and sends outside for treatment. Category 3.5 is classified as an “upstream” category since it consists of emissions from activities such as the treatment and disposal of waste generated by company operations, that occur before the company manufacture products, whereas category 3.12 is categorised as a “downstream” category since it consists of emissions that result from the disposal and treatment of products sold, which takes place after the product has been manufactured.

How is this category calculated in Climate Reporting?

This category is currently excluded from Climate Reporting, since calculating these emissions involves estimating how much of the sold product becomes waste, how it is treated, and using appropriate emission factors for each treatment method; information which is hard to find.

The emissions from downstream end-of-life treatment of sold products should follow the calculation methods of category 3.5 (Waste disposal and treatment from operations). The major difference between calculating upstream and downstream emissions of waste treatment is likely to be the availability and quality of waste activity data. While it is likely that the reporting company has specific waste type and waste treatment data from its own operations, this information is often more difficult to obtain for sold products. 

What grounds are there to skip this category?

This category is relevant only for companies that manufacture products which release emissions during their waste management phase.

Category 3.13: Downstream leased assets

What is included in this category?

Includes emissions from the operation of assets that are owned by the reporting company (acting as lessor) and leased to other entities, provided these emissions are not already included in Scope 1 or Scope 2. This category is applicable to lessors (i.e., companies that receive payments from lessees).

How is this category calculated in Climate Reporting?

This category is currently excluded from Climate Reporting. Emissions are calculated using the same methods as in category 3.8 (Upstream leased assets).

What grounds are there to skip this category?

This category is only relevant for companies that lease assets to other companies.

Category 3.14: Franchises

What is included in this category?

Includes emissions from the operation of franchises that the reporting company owns but does not operate. 

A franchise is a business operating under a license to sell or distribute another company’s goods or services within a certain location. Franchisors 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.

How is this category calculated in Climate Reporting?

This category is currently not included in Climate Reporting. One may use either of two methods to calculate emissions from franchises:

• Franchise-specific method, which involves collecting site-specific activity data or Scope 1 and Scope 2 emissions data from franchisees.
• Average-data method, which involves estimating emissions for each franchise, or groups of franchises, based on average statistics, such as average emissions per franchise type or floor space.

What grounds are there to skip this category?

This category is applicable only to companies that own franchises.

Category 3.15: Investments

What is included in this category?

Includes emissions associated with the reporting company’s financial investments, not already included in Scope 1 or Scope 2.  It is primarily applicable to private financial institutions, such as commercial banks, but is also relevant for public financial institutions, including multilateral development banks and export credit agencies, as well as other entities with investments.

The GHG Protocol divides financial investments into four types:

How is this category calculated in Climate Reporting?

This category is not included in Climate Reporting. To calculate emissions from investments, one may use the following methods:

• Investment-specific method, which involves collecting Scope 1 and Scope 2 emissions from the investee company and allocating the emissions based upon the share of investment.
• Average-data method, which involves using revenue data combined with spend-based emission factors data to estimate the Scope 1 and Scope 2 emissions from the investee company and allocating emissions based upon share of investment.

What grounds are there to skip this category?

This category primarily applies to private and public financial institutions and can generally be omitted by companies in other sectors.