Introduction
Understanding and managing Scope 3 emissions is crucial for companies aiming to comprehensively address their environmental impact. Scope 3 emissions encompass the greenhouse gases generated across a company’s entire value chain—from the goods and services they purchase to the way their products are used and disposed of by consumers. These emissions often constitute the largest portion of a company’s total carbon footprint. As ESG regulations increasingly require detailed reporting on these emissions, businesses must focus on capturing and reducing Scope 3 emissions to remain compliant, competitive, and environmentally responsible.
What is Scope 3?
Scope 3 emissions are the greenhouse gases generated by a company's value chain, including everything from suppliers to the end use of its products.
Operational control
For Scope 3 emissions, a company must consider the greenhouse gases from activities it influences but doesn't directly control. This includes emissions from suppliers and partners involved in producing and transporting goods, as well as from customers using and disposing of the company's products. Even though the company doesn't own these entities or operations, it can guide and impact their emissions through its policies, contracts, and business practices. Therefore, a company should report Scope 3 emissions from any part of its value chain where it can exert influence.
What metrics are included in Scope 3?
Scope 3 emissions can be divided into upstream and downstream categories, reflecting the stages before and after the company's direct operations within its value chain. Here's a breakdown of each category, as provided in the KEY ESG portal:
Upstream Emissions (Activities before a company's direct control)
Purchased Goods and Services: Emissions from the production of goods and services that a company buys, like raw materials and office supplies.
Capital Goods: Emissions from the creation of long-term assets a company purchases, such as machinery, buildings, and equipment.
Fuel- and Energy-Related Activities: Emissions from producing the fuels and energy the company buys, not already counted in Scope 1 or 2 emissions.
Upstream Transportation and Distribution: Emissions from transporting and distributing goods purchased by the company, using vehicles and services not owned or controlled by the company.
Waste Generated in Operations: Emissions from the disposal and treatment of waste generated by the company’s operations.
Business Travel: Emissions from travel by employees for business purposes, using transportation not owned or operated by the company.
Employee Commuting: Emissions from employees traveling to and from work in vehicles not owned or controlled by the company.
Upstream Leased Assets: Emissions from operating assets that the company leases from others and that are not included in Scope 1 or 2.
Downstream Emissions (Activities after a company's direct control)
Downstream Transportation and Distribution: Emissions from the transportation and distribution of products sold by the company to end users, in vehicles and facilities not owned or controlled by the company.
Processing of Sold Products: Emissions from the processing of intermediate products sold by the company, typically occurring at a later stage in the value chain.
Use of Sold Products: Emissions from the end use of goods and services sold by the company, such as the energy consumers use to operate a company's product.
End-of-Life Treatment of Sold Products: Emissions from the disposal and treatment of products sold by the company once they are no longer in use.
Downstream Leased Assets: Emissions from assets leased to other entities by the company, where the company retains operational control.
Franchises: Emissions from operations of franchises that are not directly owned by the company but operate under the company’s brand.
Investments: Emissions associated with the company’s investments in other businesses and projects, not included in other categories.
Prioritise collecting data on upstream categories
For many companies, upstream emissions typically represent a larger portion of their total Scope 3 emissions because they encompass the entire supply chain and production processes of goods and services they purchase. By focusing on capturing upstream emissions, companies can identify significant opportunities for reducing their overall environmental impact through sustainable sourcing, improved supplier practices, and efficient production methods. Additionally, managing upstream emissions can lead to cost savings and operational efficiencies, providing a competitive advantage and helping to meet regulatory and stakeholder demands for comprehensive environmental responsibility.
Conclusion
Effectively managing Scope 3 emissions is essential for companies to comply with ESG regulations and reduce their environmental impact. Prioritizing upstream emissions, which often represent the largest share of Scope 3 emissions, can lead to significant environmental and operational benefits. For any questions on reporting your Scope 3 emissions, the KEY ESG team is available through the in-app chat or at support@keyesg.com.