The GHG Protocol’s emission classification system
A 2021 report by Natural Capital Partners analyzed carbon neutrality commitments made by the Fortune Global 500, finding that there’s been a three-fold increase in net-zero targets, which means a 50% increase in the number of companies that have either achieved carbon neutrality, or are targeting it by 2030.
Hence the pressure mounts for companies to measure, manage and report their GHG emissions. And doing that successfully starts by understanding how GHG emissions are categorized.
The GHG Protocol introduced an emission classification system that defined corporate emissions as follows:
- Scope 1: These are emissions released from a company burning fossil fuels directly to power operations.
- Scope 2: These are indirect GHGs released due to the energy bought by an organization. This includes electricity purchased, cooling, heating, and steam.
- Scope 3: These are indirect GHGs released due to activities that go beyond an organization’s control. That includes GHGs released across an organization’s value chain (both upstream and downstream emissions).
To expand on these definitions, we’ve produced a series of articles, with each piece covering a specific corporate emissions category. This article focuses on scope 3 emissions.
What are business scope 3 GHG emissions?
Scope 3 emissions are the indirect GHGs released across an organization’s value chain, (including the upstream or downstream emissions released from a product or service). Hence, these are emissions that go beyond an organization’s control. They cannot be ring-fenced unlike scope 1 and 2 emissions, meaning they’re more difficult to track.
For instance, if you’re looking to reduce value chain emissions, there needs to be a willingness from your suppliers to support your emission reduction goals. In addition, you’d want your suppliers to own their net-zero ambitions, and your influence as a client would need to support this.
For more information on the GHG Protocol’s emission scope categories, read the following articles:
Why is reducing business scope 3 GHG emissions important?
For many businesses, scope 3 emissions are said to account for more than 70% of their carbon footprint. Hence, organization’s that are serious about reducing their carbon footprint must account for and measure scope 3 emissions. And there’s a strong business case for doing so.
Measuring and managing business scope 3 emissions can:
- Identify emission hotspots within a value chain.
- Identify resource and energy risks within a value chain.
- Identify leaders over laggers regarding the sustainability performance of your suppliers.
- Identify opportunities to engage with your suppliers. You want to build a strong commercial relationship with them to improve sustainability performance.
- Engage with employees to help them reduce emissions associated with business travel and the employee commute.
If you think about it, waste in any form is bad for a business. Reducing waste will lower resource use and the business costs associated. Tracking corporate emissions, whether that’s measuring and reporting scope 1, 2, or 3 emissions, helps identify material and energy waste plus inefficiencies.
In conclusion, lowering business emissions is simply good business. For one, an organization’s dependence on finite fossil fuel resources is removed. And as fossil fuel availability declines, costs mount, meaning it’s not hard to imagine the business benefits of this.
In addition, lowering emissions is a needed adaptation for any organization wanting to prosper in a zero-carbon future. Such a future is the goal many governments across the globe strive to achieve – 137 countries have committed to carbon neutrality as tracked by the Energy and Climate Intelligence Unit.
The 15 categories of business scope 3 GHG emissions
According to the GHG Protocol, scope 3 emissions are separated into 15 categories. These categories are explained below.
Scope 3 emissions from upstream activities
An upstream activity is an operational point that occurs early on in a given process. These activities can be further categorized, as detailed below.
- Business travel: This includes travel by air, rail (underground and light rail), taxis, and buses, plus other business mileage using private vehicles.
- Employee commuting: This includes emissions released from employees commuting to and from work. Such emissions can be reduced by encouraging public transportation, cycle to work schemes and introducing remote work.
- Waste generation: This includes waste disposal in landfills and wastewater treatments.
- Purchased goods and services: These include all the upstream emissions (cradle to gate) from the production of goods and services. Make the distinction between products and goods that are production-related (e.g. materials, equipment, and components), and products and goods that are non-production-related (e.g. furniture and IT systems).
- Transportation and distribution: This includes supplier and customer transportation, by land, sea, and air. This category also includes third-party warehousing.
- Fuel and energy-related activities: This includes energy related to the production of fuel, and the energy purchased and consumed by the reporting organization that’s not already accounted for in scopes 1 and 2.
- Capital goods: Purchased goods that are used to manufacture a product, provide a service, or are used for storing, selling, and delivering merchandise need to have their emissions accounted for. This means accounting for emissions from cradle-to-grave of purchased goods in the year of acquisition.
- Upstream leased assets: This includes emissions from the operation of assets that are leased by the reporting company, in the reporting year, and not already included in the reporting company’s scope 1 or 2 inventories. These are leased assets involved in upstream activities.
Scope 3 emissions from downstream activities
Downstream emissions are those that occur in the final steps of a given process. Downstream emissions are categorized further as follows:
- Investments: According to GHG accounting, investments will fall under four categories: Equity investments, debt investments, project finance, managed investment, and client services. This category is mainly relevant to larger financial institutions, but other organizations involved in investment opportunities should report on this.
- Downstream distribution and transportation: This category includes emissions that occur in the reporting year from the transportation and the distribution of sold products in vehicles and facilities not owned or controlled by the reporting company.
- Processing of sold products: This includes emissions from the processing of sold intermediate products by third parties. Intermediate products are those that require further processing, transformation, and inclusion in another product before use.
- Franchises: Companies that operate under a franchise (paying a fee to the franchisor) should consider reporting emissions associated with the franchisor’s operations (i.e. scope 1 and 2 emissions of the franchisor).
- Downstream leased assets: This takes into account the emissions from the operation of assets that are leased by the reporting company in the reporting year, and not already included in the reporting company’s scope 1 or 2 inventories. These are leased assets involved in upstream activities.
- Use of sold products: This refers to the products that are sold to the consumer, and measures emissions that result from product usage. These emissions may vary considerably.
- End of life retirement: This is reported similarly as waste generated from operations. To report emissions from end-of-life retirement, companies must assess how products are disposed of. You can see how such reporting can be difficult, as the disposal of a product is usually dependent on the consumer. Yet, this category will encourage firms to design recyclable products to limit landfill disposal.
How do you address and report scope 3 GHG emissions?
To help businesses report their scope 3 emissions, the GHG Protocol has devised the following resources:
- Guidance for Calculating Scope 3 Emissions: This includes guidance on the required data, data collection methods, and quantification methods.
- The Scope 3 Evaluator Tool: This helps organizations screen scope 3 emission categories to identify the focus area.
In addition, the Environmental Protection Agency has worked to develop the following scope 3 resources:
- Guidance for Calculating Scope 3 Emissions Resulting From Events (E.g., Sporting Events, Concerts) And Conferences (E.g., Business Meetings, Exhibits, Conventions): The emission sources covered in this guide include – travel to and from an event, emissions from hotel stays by attendees and emissions from the event or conference venue.
- ENERGY STAR Scope 3 Use of Sold Products Analysis Tool: This tool allows retailers to benchmark and project corporate scope 3 greenhouse gas emissions associated with the use of sold ENERGY STAR products. The tool also forecasts the emissions saved by adopting more ENERGY STAR products.
- Renewable Electricity Procurement on Behalf of Others: A Corporate Reporting Guide: As you work towards your GHG reduction targets, you might consider procuring renewable energy on behalf of your value chain partners. This resource provides guiding principles to do just that, including several types of procurement scenarios that work to supplement the GHG Protocol’s Scope 2 Guide.
Estimate your value chain emissions
Bear in mind that calculating the carbon footprint of your business for emission reports will not be an exact science. Yet, it’s better to make a rough estimate which you can work from to lower these emissions than to not take any steps at all.
When estimating your scope 3 emissions, you’ll refer to industry averages, your data, and emission factors reported in the GHG Emission Factor Hub. This resource covers 5 of the scope 3 categories, including:
- Upstream Transportation and Distribution (table 8)
- Downstream Transportation and Distribution (table 8)
- Waste Generated in Operations (table 9)
- End-Of-Life Treatment of Sold Products (table 9)
- Business Travel (table 10)
- Employee Commuting (table 10)
For more information on how to use these emission factors to calculate total GHG emissions, read the following article: How To Calculate Your Carbon Footprint.
How to reduce business scope 3 emissions?
Reporting business scope 3 emissions sets you on a course to reduce these emissions. You can use your emission reports to highlight upstream and downstream GHG sources that contribute the most to your overall carbon footprint. You can then prioritize these high-emission activities, along with activities that require less effort to modify to lower emitted GHGs.
Below we’ve detailed four steps to help you get started and lower the carbon footprint of your business.
Step #1: Prioritize where your efforts go first
Map upstream and downstream emissions by scale and how much control you have over the emission source. You’ll want to target emission hotspots that are easy to address first.
You also need to carefully consider what suppliers you choose to work with. Ask yourself, are there suppliers out there that will better align with your carbon reduction goals? If there are, make the switch.
Next, build strong supplier relationships whereby both parties are working collaboratively to reduce overall emissions.
Step #2: Set up a green team and assign responsibilities
To achieve lasting results, your team will need to be 100% behind any sustainability developments made. You’ll need to embed sustainability into the culture of your business and set up a green team to champion your carbon reduction goals.
A green team (otherwise known as a sustainability committee) is a group of employees that either volunteer or have been designated to get together periodically. The green team aims to identify sustainability opportunities and develop actionable green solutions. Your team will focus on both operations and company culture (covering employee engagement and participation), and take control of your green goals.
Using your green team, decide who is going to be responsible for reducing scope 3 emissions. Be aware that your company’s leadership team will play a vital role here – to get your decarbonization agenda rolling internally. It’s the business leaders that will be at the forefront of the decisions made concerning your value chain.
For more information on how to create a green team to rally your sustainability agenda, read: Creating A Green Team: Executive Guide to Becoming a Sustainable Business – Step 2
Step #3: Collaborate
Working with like-minded people, from suppliers, researchers, communities, government bodies, NGOs, investors, consumers, and even competitors, will create a collaborative network with the same end goal.
Let your stakeholders know what you’re trying to achieve, and keep an eye out for new relationships that will help you achieve your goals.
Given that the majority of corporate emissions come under the scope 3 category, this last collaborative step is essential. By working with your suppliers you can support them in their sustainable development goals. This will include their use of renewable energy solutions, running their distribution network with electric vehicles, or using more eco-friendly materials and designs.
Similarly, you need to collaborate with your customers. Support them in their decision to use low-carbon products, and give sufficient information on how your customers can dispose of your products in a more environmentally friendly way.
Step #5: Offset the remaining emissions
Many scope 3 emissions will be beyond your control. For instance, the suppliers you rely on could make business decisions that go against your carbon reduction goals; consumers might decide to dispose of products to landfill rather than recycling or reusing them, and manufacturers may power operations in an energy-intensive fashion.
Rather than ignoring emission sources beyond your control, choose carbon offsetting schemes that will mitigate these emissions.
A carbon offset describes the reduction or removal of GHGs to compensate for emissions made elsewhere. For more information on carbon offset schemes, and how to purchase effective carbon offsets, read the below articles:
- Carbon Offsets vs Carbon Credits: The 5 Rules of Carbon Offsetting
- How to Buy Carbon Offsets: 6 Certified and Vetted Options
Use the Green Business Bureau to measure your carbon footprint
The Green Business Bureau (GBB) is a web-based green business certification platform helping organizations devise a sustainability program, while also measuring and tracking their progress.
By following GBB’s EcoAssessment and EcoScorecard, you’ll find green initiatives to implement that will create greener operations for your business. Included in these initiatives are actions you can take that will reduce the overall corporate emissions of your business, including scopes 1,2, and 3.
On top of this, once you’ve signed up for the Green Business Bureau, you’ll gain access to our carbon footprint calculator. This will help you keep track of your business emissions online. Much of the process is automated which reduces manual labor and time commitments on your end.
You can sign up to the Green Business Bureau here to start measuring, managing, and reducing your corporate emissions.