Key Takeaways:
- Scope 3 emissions often account for 70% to 90% of a company's total carbon footprint.
- Spend based, supplier specific and hybrid methods each offer different approaches to emissions measurement.
- Scope 3 reporting is becoming increasingly important for frameworks including CSRD, CDP and the SBTi.
- Better Scope 3 data enables more credible net zero targets and sustainability reporting.
- Scope 3 emissions span 15 categories across both upstream and downstream activities.
- Measuring Scope 3 emissions helps businesses identify emissions hotspots, prioritise reduction opportunities and build a more accurate picture of their overall carbon footprint.
Scope 3 emissions account for the largest share of a company’s greenhouse gas emissions, covering activities that occur outside assets directly owned or controlled by the business. This includes manufacturing, transportation, supplier activities, customer use, end of life treatment and much more.
While Scope 1 and 2 emissions can largely be tracked and measured within the business, Scope 3 requires a far more structured, data driven approach involving suppliers, partners and customers. Our latest article breaks down what Scope 3 emissions are, why they're so crucial, and the most effective methods for measuring, reporting and reducing emissions to support credible net zero targets in 2026.
What Are Scope 3 Emissions?
Companies categorise emissions into 3 scopes to gain an overall view of their total greenhouse gas (GHG) emissions across all areas of operation. It’s not a flat figure, but continuous data collection across continuous operations. Emissions are released across all parts of the company, largely requiring a robust carbon software to facilitate granular measurement throughout widespread operations.
The three emissions scopes are defined by the GHG Protocol: the most widely used framework for managing GHG gas emissions.
Scope 1 is direct emissions, Scope 2 is indirect emissions, and then Scope 3 covers everything else in the corporate value chain. Businesses have even less control over these than Scope 2. Importantly, Scope 3 can be split into upstream and downstream.
Why Scope 3 Emissions Matter
While Scope 3 typically accounts for 70-90% of a company’s carbon footprint, most companies are far behind on measuring it.
Scopes 1 and 2 are more straightforward to record, whereas Scope 3 involves delving into areas of the supply chain much harder to quantify.
As a result of this, majorities of company emissions go unnoticed and unpunished.
The 15 Scope 3 Categories Explained
Scope 3 emissions cover such a broad area that a split into over a dozen categories is necessary.
Not all 15 are equal in breadth, and categories that matter to different businesses depend on their sector.
For instance, a company could have next to zero emissions within 10 categories, then a significant total from the remaining few.
Upstream Categories (1–8)
- Purchased Goods and Services, to aid understanding of emissions from the products and materials purchased. Companies can change to more sustainable suppliers if needed.
- Capital Goods cover emissions from long-term company assets (like machinery, equipment, or buildings) involving their manufacturing or delivery.
- Fuel and Energy-Related Activities (that aren’t included in Scope 1 or 2) are important to track in order to measure indirect energy impacts. This includes emissions from the transportation or production of fuels and electricity.
- Upstream Transportation and Distribution accounts for emissions from transporting goods to company facilities, encouraging logistics efficiency and sustainable transport choices.
- Waste Generated in Operations focuses on emissions from waste disposal, promoting waste reduction, operational efficiency, and circular economy practices.
- Business Travel captures emissions from work-related travel, motivating companies to reduce travel frequency and costs through sustainable travel practices.
- Employee Commuting involves emissions from the daily travel to and from work of employees. This covers a range of transport types.
- Upstream Leased Assets refers to leases for offices or vehicles, which a company may not directly use but will rent. This is to ensure comprehensive coverage of emission tracking.
Downstream Categories (9–15)
- Downstream Transportation and Distribution encompasses the emissions released by the distribution and transportation of company's products. This is downstream, so after they leave the company.
- Processing of Sold Products covers emissions from downstream customers who further process products, guiding companies toward product designs with lower energy requirements.
- Use of Sold Products is emissions from product usage for energy-consuming goods. This is to encourage energy-efficient design to benefit customers and meet regulatory standards.
- End-of-Life Treatment of Sold Products assesses which methods are used to destroy products, from disposing and recycling to incineration. This supports a circular economy and encourages lower-impact options.
- Franchises are another category, covering the emissions from operations at locations which are franchised. This means emissions in locations that operate under the brand, but may be managed independently.
- Investments are a category that must be considered in Scope 3 emissions. This is a consideration of the emissions impact of financial decisions to ensure the best green practices.
How to Measure Scope 3 Emissions
Step 1: Define Your Value Chain Boundaries
You can’t measure what you haven’t defined, and Scope 3 covers so much that a line must be drawn somewhere.
For instance, does a company selling coffee beans take responsibility for the energy customers use to brew it daily?
The GHG Protocol advises encompassing everything they have ‘significant influence’ over, leaving it largely up to the company's judgment to decide the scope of their accountability.
Step 2: Identify Relevant Categories
If companies don’t identify relevant categories, they could spend months measuring the completely wrong things. Most companies only need a few, making the entire process much more manageable.
A quick way to find out these is a spend-based analysis: following the money to find the most prolific emission sources.
Step 3: Collect Activity Data
After scopes are defined and categories are aptly chosen, data collection must begin. With Scope 3, it’s tricky - you could be asking people outside your business for data they aren’t even tracking.
A carbon accounting software like Gaia’s transforms the process from sporadic and resource-exhaustive to streamlined and efficient. More data will exist inside your business than you anticipated, and these platforms direct you to uncover it precisely.
Step 4: Apply Emission Factors
Penultimately, the raw activity data must be converted into emission figures. Most carbon software will automate this for you with updated, built-in databases pulling from DEFRA (UK) or EPA (US).
As the factors are regularly updated, ensure that your software is on top of this.
Step 5: Calculate and Aggregate
The final step in capturing Scope 3 emissions is aggregating all categories into one clear picture.
It’s where hotspots become clear, target areas can be swiftly outlined, and reduction strategies laid in place.
Moreover, it calculates the total Scope 3 emissions figure. Expressed as CO₂e, this is what gets reported to the CDP, CSRD and/or SBTi.
Scope 3 Measurement Methods
Spend-Based Method
Spend-based methods assess the financial records of a company to estimate emissions based on spending, such as travel expenses, bills paid, or supplies purchased.
This is especially important for industries lacking physical activity data (like service providers or software/tech companies).
To use spend-based company methods, carbon accounting software collects a business’s financial data across a broad range of categories, from services to energy.
Then spend is multiplied by emission factors to generate the amount of emissions per category, which can all be summed to gauge an overall carbon footprint.
Average-Data Method
The Average-Data method is more specific than spend (estimating emissions based on spending) and less demanding than supplier (requesting data from all supplier partners).
It falls neatly in the middle, using industry-average data per unit of activity.
Averages are published by databases like DEFRA. Works best for industries with activity data readily available, but supplier data is not quite there yet.
Supplier-Specific Method
The supplier-specific method is useful for industries with strong supplier relationships, such as manufacturing, tech and retail.
Businesses request emission data directly from suppliers, which should be readily available in their carbon disclosures or reports.
Supplier-specific methods are for businesses with transparent, reliable suppliers that can provide regularly updated emissions figures.
This can be more accurate than broader spend-based or average factors, reflecting supplier performance, not estimates.
Hybrid Method
The hybrid approach is the most common way that companies tackle Scope 3 measuring.
A combination of either spend-based averages or supplier-specific can actually offer the most accurate inventory. Carbon accounting software will automatically manage methods across categories at once.
You fluctuate between methods depending on which offers the best available data, officially endorsed by the Greenhouse Gas Protocol.
Common Challenges in Measuring Scope 3
Data Availability and Quality
Quality and data availability are one of the biggest struggles of Scope 3 reporting, as it can’t just be pulled from inside the business.
It can instead rely on averages that cause inconsistencies, suppliers reporting back that they don’t even capture this, or international third parties are much harder to chase.
Supplier Engagement
Scope 3 emissions tend to fall outside the immediate business, across an extensive supply chain.
Supplier-incentivising might include preferred supplier statuses, boosting their visibility, or joint sustainability targets, where resources and costs are shared between both parties.
It's also not unusual that they won't even capture this data. In that instance, average or spend methods operate as a fall-back.
Avoiding Double Counting
As supply chains are multifaceted and nuanced, allocating accountability is less straightforward. Because of this, double counting can occur.
That’s when the same emission is counted by two different companies in one value chain.
If you don’t avoid it, it inflates your total, therefore your carbon footprint.
How to Reduce Scope 3 Emissions
Supply Chain Engagement
Rather than ignoring the supply chain actively working in the background, proactively engage with the businesses making your products.
By making sustainability performance a requirement, it can cause suppliers to take action. Purchasing power can also hold significant leverage.
Procurement Policies
Procurement policies outline what a company buys and who it buys from, with sustainability built in.
Without this, businesses are quick to source the most convenient or cheap option, usually leading to dire emission consequences.
Instead of applying to every single buy, this can be first implemented in the highest-spend and/or emission categories first.
Product Design and Lifecycle Thinking
The concept stage decides the future of your product’s Scope 3 downstream emissions.
Is it recyclable? Is it one-use? Is it energy-exhaustive?
The design stage determines just how energy-efficient your product will be when used by every single one of your customers, over and over again.
And if every single one of your customers will dispose of it after use, or return it for reuse.
That’s why Category 11, or use of product, is one of the most drastic emissions areas there are.
Business Travel and Commuting
Unavoidable travel will ultimately need to be offset, but before this, there is a wide range of travel swaps that reduce vast amounts of emissions.
For instance, swap non-essential in-person meetings for video meetings, and swap all flights under 4 hours for trains.
It’s one of the quickest methods for achieving drastic results because the company controls it directly.
Customer Use and End-of-Life
Companies can dictate exactly how their products are used and disposed of through smart decisions early-on.
You can't measure exactly what emissions are being used in people's homes, but you can lower your product's average emission usage. This figure is multiplied by the number of customers to record the total downstream emissions.
Offering take-back schemes, repair programmes and other post-sale initiatives incentivise customers to return and reuse rather than dispose.
Scope 3 and Regulatory Reporting
CSRD
CSRD is a broad EU framework that encompasses full ESG (environmental, social, governance) and delves into Scope 3 supply chain emissions.
It makes value chain emissions disclosure a legal requirement for many large companies, meaning organisations must report material Scope 3 emissions and explain how they identify, measure and manage them across their supply chains.
CDP
The Carbon Disclosure Project (CDP) allows cities, states, regions, and companies to manage and report environmental impacts. The global non-profit organisation focuses mainly on deforestation, climate change, and water security.
CDP's climate disclosures require companies to report Scope 3 emissions where relevant, making accurate value chain data an important part of achieving stronger disclosure scores and demonstrating environmental transparency.
Science-Based Targets (SBTi)
The Science-Based Targets initiative is a partnership between WRI (World Resources Institute), UN Global Compact, CDP (Carbon Disclosure Project) and WWF.
Based in London with a global team, the non-profit organisation was founded in 2015 to mobilise corporate climate action on a major scale with standards backed by climate science.
Where Scope 3 emissions account for a significant share of a company's total footprint, the SBTi requires them to be included within science-based emissions reduction targets. This ensures businesses address emissions across their entire value chain, instead of just direct operations.
More Information
https://sciencebasedtargets.org/
https://www.cdp.net/en/disclose/question-bank
https://www.gov.uk/government/collections/government-conversion-factors-for-company-reporting
https://ghgprotocol.org/corporate-value-chain-scope-3-standard
FAQs
What are Scope 3 emissions?
Scope 3 emissions are all indirect greenhouse gas emissions that occur across a company's value chain, outside assets directly owned or controlled by the business. They include emissions from manufacturing, transportation, customer use, product disposal and supplier activities.
Why are Scope 3 emissions important?
Scope 3 emissions typically account for 70% to 90% of a company's total carbon footprint. Without measuring them, the majority of business emissions can go unnoticed, making it much harder to achieve meaningful emissions reductions.
What are the 15 Scope 3 categories?
The GHG Protocol divides Scope 3 emissions into 15 categories across upstream and downstream activities. These include purchased goods, business travel, employee commuting, transportation, product use, end of life treatment, franchises and investments.
Which Scope 3 categories are most relevant to my business?
Not every business needs to focus equally on all 15 categories. The most relevant categories depend on your industry, operations and value chain. A spend based analysis is often the quickest way to identify where the largest sources of emissions occur and where measurement efforts should begin.
Can Scope 3 emissions be reduced without changing core business operations?
Yes. Many businesses begin reducing Scope 3 emissions by engaging suppliers, introducing sustainable procurement policies, replacing unnecessary business travel with virtual meetings, improving product design and encouraging repair, reuse and take back schemes. These changes can significantly reduce emissions without fundamentally changing the business itself.
