Measure & Verify
Set operational boundaries for your GHG inventory
Set operational (or activity) boundaries based on the organizational boundaries; identify relevant emission sources or activities, and categorize them within the three scopes and emissions categories
While measuring scope 3 emissions is optional according to GHG Protocol guidance, best practice is to measure these emissions for the following reasons:
Scope 3 emissions often account for the highest share of a company's GHG footprint: on average, 11x higher than Scopes 1 and 2. As a result, scope 3 represents major decarbonization opportunities
Accounting for scope 3 emissions is increasingly expected from various stakeholders including regulators, voluntary reporting standards (e.g., SBTi) and investors
1. Best practices when setting your company activity boundaries
The GHG Protocol requires companies to account for full scope 1 and 2 emissions within its defined organizational boundaries. While reporting scope 3 is currently optional, companies are increasingly becoming aware that most of the GHG footprint of their value chain is associated with scope 3 emissions, falling outside of their direct control.
In reality, for many industries with a large value chain, scope 1 and 2 emissions are significantly lower than emissions generated in the value chain (scope 3). Businesses are facing an increasing demand to account for their Scope 3 emissions by voluntary standards such as the Science Based Targets Initiative (SBTi) which requires companies to include a Scope 3 target if those emissions exceed 40% of the company's total GHG emissions. In addition, regulations like the Corporate Sustainability Reporting Directive (CSRD) by the European Union also require Scope 3 reporting. This makes them simultaneously the most important emissions and the most challenging to manage. Consequently, it is now considered best practice for activity boundaries to include all emissions scopes and relevant scope 3 categories.
1.2. Minimum recommended boundaries for scope 3 emissions categories
The GHG Protocol defines 15 categories within Scope 3 and provides extensive guidance on the different approaches to quantify each of them. For each scope 3 category, GHG protocol defines the minimum boundaries that should be considered for each category. Covering optional GHG emissions stages will give a more comprehensive picture of the total emissions occurring along the value chain to identify additional decarbonization opportunities.
Table: Upstream scope 3 emissions
Upstream scope 3 emissions | Category description | Minimum boundaries |
|---|---|---|
1. Purchased goods & services | Extraction, production, and transportation of goods and services purchased or acquired by the reporting company in the reporting year, not otherwise included in Categories 2 - 8 For example: equipment parts, construction materials for infrastructure, office supplies | All upstream (cradle-to-gate*) emissions of purchased goods and services |
2. Capital Goods | Extraction, production, and transportation of capital goods purchased or acquired by the reporting company in the reporting year For example: machinery used in plants | All upstream (cradle-to-gate*) emissions of purchased capital goods |
3. Fuel- and energy related activities | Extraction, production, and transportation of fuels and energy purchased or acquired by the reporting company in the reporting year, not already accounted for in scope 1 or scope 2 | For upstream emissions of purchased fuels and electricity: All upstream (cradle-to-gate) emissions of purchased fuels (from raw material extraction up to the point of, but excluding combustion) |
4. Upstream transportation & distribution | Transportation and distribution of products purchased by the reporting company in the reporting year between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company) Transportation and distribution services purchased by the reporting company in the reporting year, including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company). For example: parts or raw materials transported by truck, rail or ship | The scope 1 and scope 2 emissions of transportation and distribution providers that occur during use of vehicles and facilities (e.g., from energy use) |
5. Waste generated in operations | Disposal and treatment of wastage generated in the reporting company’s operations in the reporting year (in facilities not owned or controlled by the reporting company) For example: waste such as retired equipment transported to other areas for safe disposal | The scope 1 and scope 2 emissions of waste management suppliers that occur during disposal or treatment |
6. Business travel | Transportation of employees for business-related activities during the reporting year (in vehicles not owned or operated by the reporting company) For example: car rentals, air flights or train trips | The scope 1 and scope 2 emissions of transportation carriers that occur during use of vehicles (e.g., from energy use) |
7. Employee commuting | Transportation of employees between their homes and their worksites during the reporting year (in vehicles not owned or operated by the reporting company) For example: employees' personal car rides or bus rides to and from sites | The scope 1 and scope 2 emissions of employees and transportation providers that occur during use of vehicles (e.g., from energy use) |
8. Upstream leased assets | Operation of assets leased by the reporting company (lessee) in the reporting year and not included in scope 1 and scope 2 – reported by lessee | The scope 1 and scope 2 emissions of lessors that occur during the company’s operation of leased assets (e.g., from energy use) |
Source: GHG: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
*What is Cradle-to-gate?
Cradle-to-gate emissions include all emissions that occur in the life cycle of your purchased products, up to the point of receipt by your company. Therefore, cradle-to-gate goes beyond your suppliers' scope 1 and 2 emissions, and may include:
Extraction of raw materials
Agricultural activities
Manufacturing, production, and processing
Generation of electricity consumed by upstream activities
Disposal/treatment of waste generated by upstream activities
Land use and land-use change
Transportation of materials and products between suppliers
Any other activities prior to the acquisition
Table: Downstream scope 3 emissions
Downstream scope 3 emissions | Category description | Minimum Boundaries |
|---|---|---|
9. Downstream transportation & distribution | Transportation and distribution of products sold by the reporting company in the reporting year between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company) For example: products (finished or intermediates) transported by truck, rail, ship | The scope 1 and scope 2 emissions of transportation providers, distributors, and retailers that occur during use of vehicles and facilities (e.g., from energy use) |
10. Processing of sold products | Processing of intermediate products sold in the reporting year by downstream companies (e.g., manufacturers) For example: processing of concentrate by an external third party | The scope 1 and scope 2 emissions of downstream companies that occur during processing (e.g., from energy use) |
11. Use of sold products | End use of goods and services sold by the reporting company in the reporting year For example: use of tech appliances sold by your company | The emissions arising from the use of sold products over their expected lifetime (i.e., the scope 1 and scope 2 emissions of end users that occur from the use of: products that directly consume energy (fuels or electricity) during use; fuels and feedstocks; and GHGs and products that contain or form GHGs that are emitted during use) |
12. End-of-life treatment | Waste disposal and treatment of products sold by the reporting company (in the reporting year) at the end of their life For example: disposal, recycling or incineration of end products | The scope 1 and scope 2 emissions of waste management companies that occur during disposal or treatment of sold products |
13. Downstream leased assets | Operation of assets owned by the reporting company (lessor) and leased to other entities in the reporting year, not included in scope 1 and scope 2 –reported by lessor | The scope 1 and scope 2 emissions of lessees that occur during operation of leased assets (e.g., from energy use) |
14. Franchises | Operation of franchises in the reporting year, not included in scope 1 and scope 2 – reported by franchisor. | The scope 1 and scope 2 emissions of franchisees that occur during operation of franchises (e.g., from energy use). |
15. Investments | Operation of investments (including equity and debt investments and project finance) in the reporting year, not included in scope 1 or scope 2 Example: your company has a stake in a processing plant operated by a third party | Depending on the organization boundaries - More details required in the GHG Protocol report in the category 15 chapter |
Source: GHG: Corporate Value Chain (Scope 3) Accounting and Reporting Standard
2. Your company’s GHG emissions sources
Companies can consider running a high-level assessment to identify scope 3 categories hot spots. This mechanism is not a reason to exclude other data (i.e., only reporting on large categories or focusing on easy-to-quantify emissions sources) and all relevant emission categories should be included. However, identifying the most significant scope 3 categories is relevant to prioritize your efforts to collect high-quality, granular data and improve your company accounting maturity over time.
2.1. Identify and categorize your company’s GHG emissions sources
Approaches to identify relevant GHG emissions sources
It is highly recommended to perform an exhaustive review of your company activities following the GHG Protocol guidance. To support this exercise and help you to identify the relevant GHG emissions sources for your company (especially for scope 3), there are several approaches that can be taken and combined, which are described below. Note that independently from the level of materiality of the GHG emissions sources identified, all relevant categories should be calculated in the GHG inventory.
A. Follow the GHG Protocol's 7 criteria for identifying relevant categories to include in a scope 3 inventory
Size:
They contribute significantly to the company’s total anticipated Scope 3 emissions.
Influence:
There are potential emissions reductions that could be undertaken or influenced by the company.
Risk:
They contribute to the company’s risk exposure (e.g., climate-change-related risks such as financial, regulatory, supply chain, product and customer, litigation, and reputational risks).
Stakeholders:
They are deemed important by key stakeholders (e.g., customers, suppliers, investors, or civil society).
Outsourcing:
They are outsourced activities previously performed in-house or activities outsourced by the reporting company that are typically performed in-house by other companies in the reporting company’s sector.
Sector guidance:
They have been identified as significant by sector-specific guidance or reports. When not available, looking at CDP disclosures or peers’ sustainability reports can help identify the most significant categories.
Spend / revenue analysis:
They are areas that require a high level of spending or generate a high level of revenue (and are sometimes correlated with high GHG emissions).
B. Leverage carbon evaluator tools to perform high-level screening
The SME Climate Hub has developed a tool that can be used for an initial evaluation of your emissions. In addition, the GHG Protocol has more specific resources, its Scope 3 website includes links to their Scope 3 calculation guidance, a list of third-party life cycle databases, calculation tools, and a Scope 3 online course.
C. Conduct an outside-in analysis of peer reporting (e.g., looking at CDP or sustainability reports of your peers) to identify the most significant ones
Scope 3 categories likely to be important (in terms of emissions magnitude) for companies in specific sectors include:
Automotive: use of sold products
Chemicals: use and end of life treatment of sold products
Consumer Packaged Goods: purchased goods and services
Electronics: use of sold products
Food Processing: purchased goods and services
Gas Distribution and Retail: use of sold products
Logistics: upstream transportation and distribution
Oil & Gas: use of sold products
D. Leverage industry specific guidance
For some industries, specific GHG accounting guidance is available to support scope 3 accounting:
Chemical industry:
Sector-specific guidance on GHG emissions accounting
Construction industry:
Sector-specific guidance on GHG emissions accounting
2.2. How the share of scope 3 emissions varies along industries
The distribution of GHG emissions along the value chain varies significantly according to the sectors companies operate in
In most sectors, scope 3 emissions accounts for highest share of the value chain emissions.
Figure: Split of emissions from CDP self-reported data
Source: https://www.wbcsd.org/contentwbc/download/13299/194600/1
Example 1: emission profile of food & beverage players
Figure: GHG emissions by source, % of total
Source: GreenGauge, CDP
Example 2: emission profile of cement/concrete players
Figure: GHG emissions by source, % of total
Source: GreenGauge, CDP
Example 3: emission profile of a software player
Figure: GHG emissions by source, % of total
Source: GreenGauge, CDP
Once accounting boundaries are set, your company should be able to map each source of GHG emissions to be measured within its scopes and categories. The next step is to move towards data collection.