Calculating an organization’s carbon footprint is now timely for all organizations. The calculation often starts with mapping the greenhouse gas emissions from the organization’s own operations, i.e. Scope 1 and Scope 2 emissions. However, a very important part of calculating the organization’s carbon footprint is also the calculation of greenhouse gas emissions from the value chain — in other words, Scope 3 emissions.
What are Scope 3 emissions?
The GHG Protocol divides emissions from an organization’s activities into three categories, or scopes.
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Scope 1 emissions are direct emissions from the company’s own operations, such as fuel use in energy production and company-owned vehicles.
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Scope 2 emissions result from the consumption of purchased energy, such as electricity and district heating.
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Scope 3 emissions cover the other emissions in the value chain. They include all greenhouse gases your organization indirectly causes throughout its value chain. Unlike Scope 1 and Scope 2, these emissions are not directly under the organization’s control.
An organization’s value chain can be very long and include many different actors and stages. Emissions occur at every stage of the chain, for example, from the production of raw materials and components, transportation and distribution, waste generated by operations, the use of the organization’s products and services, and the treatment of products at end of life.
For clarity, the GHG Protocol has categorized value chain emission sources into 15 categories:
Upstream categories (from the beginning of the value chain):
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Purchased goods and services
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Capital goods
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Fuel- and energy-related activities (not included in Scope 1 or 2)
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Upstream transportation and distribution
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Waste generated in operations
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Business travel
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Employee commuting
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Upstream leased assets
Downstream categories (from the end of the value chain):
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Downstream transportation and distribution
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Use of sold products
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End-of-life treatment of sold products
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Processing of sold products
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Investments
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Franchises
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Downstream leased assets
Source: GHG Protocol
Why is calculating Scope 3 emissions so important now?
Depending on the organization’s sector, competitive environment, customer base, and, for example, financing needs, there are different reasons why mapping and calculating Scope 3 emission sources is more relevant than ever. Below are the key justifications:
1. Scope 3 emissions usually represent the largest share of total emissions
For most organizations, about 70–90% of total emissions occur in the value chain. The chain includes upstream partners and suppliers, as well as the use and end-of-life of products and services sold downstream. Ignoring Scope 3 would mean ignoring the majority of the climate impact.
2. Investor expectations
Investors assess the profitability and value creation potential of a company over the long term. To do this, they require comprehensive climate risk reporting to evaluate business resilience. If a company seeks financing, its emissions baseline and credible reduction targets often come up in financing discussions and may even be linked to loan conditions.
Furthermore, the Sustainable Finance Disclosure Regulation (SFDR) requires systematic sustainability reporting from financial sector firms, which in turn passes down to companies seeking financing.
3. Evolving legislation
Developing regulations either require or strongly recommend Scope 3 reporting if it is material for the organization. Scope 3 disclosure is mandated or encouraged by:
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the EU’s CSRD directive (Corporate Sustainability Reporting Directive)
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the U.S. SEC climate disclosure rule
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the ISSB climate standard published by the International Sustainability Standards Board (under IFRS Foundation).
Additionally, the new voluntary VSME standard (Voluntary Sustainability Reporting Standard for SMEs), created especially for SMEs, also includes Scope 3 reporting. Approved in recommendations by the European Commission, the VSME standard aims to reduce the administrative burden on SMEs by making it easier to respond to sustainability information requests from large companies and financial institutions.
4. Supply chain management and risk reduction
Companies already face, or will face, climate-related business risks in the longer term. Transition risks can be linked to, for example, carbon pricing and changing regulation. Physical risks include climate impacts on raw material availability, price, and quality, as well as supplier operating conditions and reliability.
Measuring, analyzing, and monitoring Scope 3 emissions helps identify hotspots in the supply chain and reduce exposure.
5. Customer and partner expectations
Customers — especially large corporations — increasingly require emissions data from their suppliers. In some cases, up-to-date Scope 1, 2, and 3 data is a prerequisite for participating in tenders.
There are many reasons behind this. Customers may be developing sustainable business strategies and new models, selecting partners based on strict ESG criteria. They may also have set ambitious reduction targets that require collaboration with key value chain partners. As customers improve their own Scope 3 calculations, they also demand higher-quality supplier-specific data.
Smaller companies that can provide comprehensive emissions data, including Scope 3, are better positioned to meet growing requirements and gain a competitive edge.
6. Business opportunities
Mapping Scope 3 emissions helps companies identify stages where efficiency, innovation, and circular economy models can lower costs, increase demand, or open new markets. For example, designing products to reduce emissions during the use phase can attract environmentally conscious customers.
7. Credibility of reduction and net-zero targets
Without Scope 3, an organization’s publicized reduction and net-zero targets risk being seen as greenwashing. For example, the Science Based Targets initiative (SBTi) requires Scope 3 to be included if more than 40% of a company’s emissions come from its value chain.
Thus, one can ask whether targets that exclude Scope 3 are truly credible and supportive of real reductions — and stakeholders are asking the same question.
Step by step towards Scope 3 calculations
Calculating Scope 3 emissions begins with identifying the relevant emission sources. The entire process requires research and extensive data collection. The most important thing is to get started and proceed step by step.
The Tofuture team can help at this stage. We have carried out emission source identification and carbon footprint calculations for organizations across many industries. Contact us, and we will define the right steps for your organization to calculate Scope 3 emissions.
Banner photo: Pixabay, Wolke8
