Scope 3 emissions are increasingly under the spotlight as investors, regulators, and customers demand greater transparency around the full carbon footprint of organisations. They relate to the indirect greenhouse gas emissions that are caused by a company’s activities and are usually responsible for the largest part of a company’s carbon footprint, with research suggesting that 80-95% of the total footprint falls under this category.
Scope 3 emissions result from both upstream and downstream sources, and they cannot be directly controlled by the company. They cover all indirect emissions which are not included in scope 1 and 2.
Examples include emissions resulting from the purchase of goods and services, business travel, employee commuting, investments, leased assets, and waste generated from business operations.
It’s crucial that businesses understand the importance of Scope 3 emissions and the Greenhouse Gas Protocol (GHG Protocol). This protocol serves as a standardised framework for classifying and reporting emissions across 15 categories, which we will outline later in this blog.
As we mentioned earlier, Scope 3 emissions are often the largest part of a company’s total carbon footprint. While there are many instances where it cannot be controlled, companies can become more mindful of it, which leads to many benefits.
Scope 3 reporting is not mandatory for all UK businesses; however, regulatory rules are becoming tighter, and greater transparency is needed in the industry. With this in mind, businesses may find it helpful to adopt this mindset now and become more aware of their Scope 3 responsibilities. If more stringent reporting is essential in the future, these businesses will be better prepared to make the changes.
Additionally, companies that choose not to report their Scope 3 emissions may face reputational damage and increased scrutiny from stakeholders, including investors, customers, and partners.
With Scope 3 accounting for approximately 80-95% of a company’s total footprint, it’s vital that businesses are aware of how this could affect their resources and pricing structures in the future. By having a thorough understanding of your Scope 3 emissions, you can identify potential pitfalls in the supply chain and plan ahead.
Managing supply chain risks effectively means getting other businesses involved in the process. By working together, you can reduce emissions and build more resilient supply chains, limiting potential risks in the future.
Prioritising lower emissions can also lead to increased energy efficiency and lower overall costs.
As sustainability becomes more important to consumers, many are choosing to partner with companies that share their values. By offering more transparency around your Scope 3 reporting, you have the potential to build your market share more effectively, boost brand loyalty and build credibility.
In addition to consumers choosing to work with you, you can also increase your chances of winning tenders and contracts. Many public sector companies now require suppliers to disclose their carbon credentials, meaning that Scope 3 reporting is essential for companies to win major clients.
Investment companies are continually seeking businesses that demonstrate positive ESG performance. Having the information readily available indicates a desire for transparency and genuine effort.
Scope 3 categories are divided into upstream and downstream activities. Upstream activities generally occur before a product is made, as a result of suppliers and manufacturing processes. Downstream activities include those when the product is being used and when it comes to its end of life.
Purchased goods and services are often an overlooked but significant source of indirect greenhouse gas (GHG) emissions. These emissions occur across the lifecycle of products and services, including their production, transportation, and disposal.
Reducing emissions in this category requires a combination of supplier engagement, sustainable purchasing decisions, and operational efficiencies.
Working closely with suppliers can help reduce GHG emissions across the supply chain. This may include setting emission-reduction targets, offering incentives for sustainable practices, and sharing best practices to support continuous improvement.
Prioritise the purchase of products with lower carbon footprints to support more sustainable sourcing. Selecting lower-impact materials and suppliers can significantly reduce upstream emissions.
Extend product lifecycles by designing goods for durability and longevity. This reduces the need for frequent replacements and lowers emissions associated with manufacturing and disposal.
Streamline logistics and transportation operations to reduce fuel consumption and emissions. This can be achieved through route optimisation, modal shifts, and the use of energy-efficient vehicles.
Machinery, equipment, and vehicles are often essential to business operations, but their associated emissions can account for a substantial portion of a company's carbon footprint.
Quantifying Scope 3 emissions from capital goods is difficult due to the complexity of supply chains and the lack of standardised emission factors. For example, secondary emission factors are often relied on but don’t accurately reflect associated emissions for assets.
Despite the challenges, the following strategies can help minimise Scope 3 emissions from capital goods investments.
Organisations can prioritise energy-efficient assets by investing in capital goods with high efficiency ratings, therefore reducing the emissions from their operations.
By maintaining capital goods effectively, organisations can prolong their lifespan and minimise the need for replacements.
Organisations should ensure that they implement responsible disposal and recycling practices for capital goods, which can help to lower their environmental impact.
Setting realistic targets with manufacturers can help businesses promote sustainable practices across the supply chain, leading to better and more efficient outcomes.
Category 3 covers emissions from fuel and energy activities that are not already addressed in scopes 1 and 2. This category includes four subcategories, namely the emissions generated in the production of purchased fuels, the emissions associated with the acquisition of electricity, the losses incurred during transmission and distribution, and the emissions produced from the generation of purchased electricity sold to end users.
The transportation of goods and materials along the supply chain, prior to a company's direct involvement, generates emissions. These emissions arise from various transportation modes, including road, rail, air, and sea freight.
Emissions from upstream transportation can be challenging to measure because of the involvement of multiple transportation providers and the lack of standardised emission factors for different transportation modes. The following strategies can mitigate these emissions.
Organisations can better understand and reduce their upstream transportation emissions by working with suppliers that optimise their transportation routes, consolidate shipments and choose more energy-efficient modes of transport.
Organisations can encourage suppliers to shift from high-emitting transportation modes, such as air freight, to lower-emitting alternatives, such as rail or sea freight.
This encouragement can come from offering incentives, such as long-term contracts or providing volume guarantees.
Organisations can partner with selected transportation providers that prioritise fuel efficiency, adopt renewable energy sources and implement emission reduction strategies.
Transparency is a key factor in energy efficiency and emissions reduction, so it’s vital that businesses encourage clear data sharing among supply chain partners. Having access to this information enables everyone to better understand the emissions directly related to transportation activities.
Category 5 refers to emissions associated with the generation, treatment, and disposal of waste materials from a company's operations. These emissions come from various sources, including:
A comprehensive waste management strategy emphasises waste reduction, reuse, and recycling and can significantly reduce the amount of waste sent to landfills and incineration facilities.
Examples of effective waste management practices include:
Emissions resulting from employee travel undertaken for work-related purposes primarily come from the use of transportation modes, such as aeroplanes, trains, rental cars, and taxis.
Quantifying and managing business travel emissions can be tricky because of poor standardisation of emission factors for different modes and the difficulty in tracking individual travel patterns. These challenges can be addressed using the following strategies.
Businesses can encourage the use of virtual meetings and conferences, which reduce the need for in-person travel and, in turn, reduce category six emissions.
Alternatively, where meetings cannot be held virtually, businesses can optimise travel itineraries to minimise the distance travelled and reduce the use of high-emitting transportation modes, such as air travel.
Organisations can recommend more fuel-efficient vehicles for business travel. Additionally, businesses should set clear travel policies for staff. These policies should promote sustainable travel practices, including setting travel limits, encouraging the use of eco-friendly hotels, and promoting carbon offsetting programs.
These are emissions associated with employees travelling to and from work using transportation modes, such as cars, motorcycles, public transportation, and bicycles.
Measuring and influencing employee commuting patterns is challenging due to the privacy concerns with tracking employee travel data and attempting to steer employee commuting choices. Additionally, employee commuting decisions are often influenced by personal preferences, public transportation availability, and urban planning factors.
Despite these challenges, businesses can take the following actions to encourage more sustainable transportation options.
One of the most significant ways that organisations can reduce emissions related to employee commuting is to promote flexible working arrangements. This may include options such as telecommuting, compressed work weeks and working from home, which can reduce the need for daily commuting.
Organisations can also ensure they offer suitable on-site amenities, such as bike parking, showers, and lockers. Having these amenities available can encourage employees to select more active commuting options.
Businesses can create commuting subsidies to provide financial incentives for employees to use public transportation, car sharing, or cycle-to-work schemes.
Additionally, they can partner with transportation providers to offer discounted fares or special services for their employees.
This category refers to emissions related to producing and transporting leased assets, such as vehicles, equipment, and buildings, before they are leased by a company. These emissions arise from various activities, including:
Attributing Scope 3 emissions to leased assets can be challenging due to the lack of visibility into the upstream supply chain and the difficulty in obtaining accurate emission data from manufacturers and suppliers. Additionally, the allocation of emissions between the lessor and lessee can be complex.
These emissions can be reduced by taking the following actions.
Businesses must be transparent about their expectations regarding leased asset contracts. Sustainability requirements should be included in these, such as specific minimum energy-efficiency standards and the need for accurate emission data from suppliers.
Lessors and lessees can collaborate to identify emission-reduction initiatives. Some of these include promoting renewable energy for manufacturing facilities and adopting more fuel-efficient transportation modes for asset deliveries.
Organisations can work together to adopt emission reduction targets, implement energy efficiency measures and disclose their environmental performance effectively. This helps create a better understanding so that future adjustments can be made.
In addition to target setting, businesses should establish clear systems for monitoring and reporting emissions from leased assets. Factors to consider include tracking fuel consumption, energy usage, and waste generation associated with leased assets.
This refers to emissions associated with the transportation of products from a company's premises to the end consumer. The various activities include:
While measuring and influencing downstream emissions from transportation can be a challenge due to the involvement of multiple logistics providers, an organisation can take the following actions to reduce these emissions.
Organisations should be intentional in their choice of providers, prioritising fuel efficiency, adopting renewable energy sources, and implementing emission-reduction strategies.
Businesses can encourage the use of lower-emitting transportation modes, such as rail or sea freight, as well as electric vehicles or biofuels.
Additionally, businesses can collaborate with suppliers on optimising transportation routes, consolidating shipments and minimising empty backhauls to reduce fuel consumption and emissions.
Many suppliers utilise advanced logistics technologies, such as route-optimisation software and telematics systems, to improve transportation efficiency and reduce emissions.
When reducing emissions, it is vital that businesses request accurate data from supply chain partners. Having access to this data enables them to better understand and manage Scope 3 emissions from downstream transportation.
These are emissions associated with the processing, modification, or treatment of products sold by a business after they leave the company's premises, including:
These emissions suffer from the lack of visibility into the downstream supply chain, the involvement of multiple processing partners and the difficulty in obtaining accurate emission data from processors. To address these challenges, organisations can take the following steps.
Transparency is key when working alongside suppliers and partners. By prioritising open communication, businesses can effectively discuss reduction goals and identify opportunities for improvement.
As part of this open communication, businesses should share accurate emissions data and provide technical assistance to help partners understand their emissions profiles and implement emission-reduction measures.
Businesses can incorporate sustainability requirements into supply agreements. This could include specifying minimum energy efficiency standards for processing facilities or requiring suppliers to adopt emission reduction targets.
Incentives are useful when it comes to encouraging energy efficiency. Effective incentives may include reward programs for downstream partners who adopt sustainable practices.
This refers to emissions associated with the energy consumption, operation, and maintenance of products sold by a company during their lifecycle in the hands of end-users. Including:
The vast number of products in circulation, the diversity of consumer behaviour, and difficulties with tracking individual product usage patterns make these complex to track.
Energy efficiency should be considered at every stage of the product. One of the most significant stages is production, where businesses can prioritise the use of more energy-efficient processes so that less energy is consumed.
Organisations can also integrate renewable energy sources into product design, such as solar panels or rechargeable batteries. Products should be designed with longevity and durability as a priority, reducing the need for frequent replacements. This underscores the importance of using high-quality materials as well.
Organisations can provide clear, comprehensive instructions to suppliers to promote more efficient operations regarding product manufacturing. Alongside this, it can be helpful to educate consumers on how to reduce emissions when using the products.
These emissions arise from various practices, including:
Quantifying Scope 3 emissions from end-of-life treatment of products is challenging because of limited visibility into downstream waste management practices, the diversity of product materials and the difficulty in tracking individual product disposal routes.
To address these challenges, companies can promote sustainable product end-of-life treatment by taking the following actions.
Businesses should be encouraged to design products that facilitate disassembly and separation of materials to enhance recyclability and reduce waste generation.
If product materials cannot be recycled effectively, businesses should consider implementing take-back programs to collect and manage the end-of-life treatment of sold products. Following this, businesses can dispose of the items responsibly while collaborating with reputable waste management companies that prioritise sustainable practices.
Organisations should provide convenient and environmentally friendly options to minimise emissions from end-of-life treatment.
Businesses should use materials that are easily recyclable or compostable to reduce the environmental impact of product disposal.
They should also ensure customers are aware of the available disposal options and encourage their use. This can be achieved through clear labelling and recycling guides.
These are the emissions associated with operating leased assets after they have been transferred to lessees, including:
The lack of control over the lessee's operations, difficulty in obtaining the correct data from lessees and the complexity of allocating emissions between the lessor and lessee are obstacles to tracking these emissions. Doing the following will help ensure they are logged accurately.
When creating lease agreements, businesses must ensure that they include sustainability requirements. These may include specifying minimum energy efficiency standards for leased assets or requiring lessees to adopt emission reduction measures.
Providing energy audits and making optimisation recommendations enables lessees to identify opportunities for reducing energy consumption and associated emissions in leased assets.
Lessors should take the necessary steps to support lessees in adopting sustainable practices, such as using energy-efficient appliances and equipment. They should also establish open communication channels and encourage data sharing with lessees.
Category 14 refers to the emissions associated with the operations of franchised businesses that operate under the franchisor's brand and business model, including:
The decentralised nature of franchise businesses, diversity of franchise activities and the difficulties in obtaining accurate data from individual franchisees make this particularly difficult. Franchisors may also have limited control over the operational decisions of franchisees.
These emissions can be addressed through the following measures.
By developing clear sustainability guidelines and setting realistic targets for franchises to follow regarding emission reduction, businesses can set a clear framework for improvements.
Businesses can also offer their franchisees training on how to be more sustainable regarding energy efficiency measures and waste reduction strategies.
They can also encourage franchisees to adopt sustainable procurement practices, such as sourcing eco-friendly products and working with sustainable suppliers.
Businesses can introduce centralised reporting systems to collect and analyse emission data from franchisees, enabling improved tracking and the ability to identify areas for improvement.
Consider offering incentives and rewards to franchisees that demonstrate leadership in sustainability and achieve emission reduction goals.
Additionally, it can be useful to involve franchisees in sustainability initiatives actively. This involvement fosters a sense of collaboration and a shared commitment to environmental responsibility.
These are the greenhouse gas (GHG) emissions associated with investments in other companies or entities, such as subsidiaries, joint ventures, or associate companies.
There is often a lack of direct control over the investee companies' operations and difficulty in obtaining accurate emission data. However, investors can adopt several strategies to manage this category of Scope 3 emissions.
Open communication with investee companies is crucial. It enables parties to discuss sustainability goals, emission reduction targets and opportunities for improvement with ease.
As a result of this transparency, it’s easier to integrate sustainability criteria into investment decisions. Every business has its own environmental, social, and governance (ESG) goals, and these should be clearly communicated to ensure successful collaboration.
Consider offering investment incentives to enhance sustainability. These can include preferential financing or performance-based rewards to investee companies that demonstrate progress towards sustainability goals.
If you’re looking to start measuring your Scope 3 emissions, then here’s what you need to do.
While Scope 3 reporting can be complex, delaying action can increase regulatory, reputational, and commercial risk as expectations around transparency continue to grow. At the same time, organisations that take early steps to understand and manage their Scope 3 emissions are better positioned to strengthen supplier relationships, respond to stakeholder pressure, and gain a competitive advantage as reporting requirements evolve.
Taking a structured approach to Scope 3 reporting can help organisations improve transparency, strengthen supplier engagement, and prepare for future regulatory expectations.
If you're looking to better understand and manage your Scope 3 emissions, our net-zero consultants can provide practical guidance, backed by Pulse, our software that simplifies Scope 3 data collection, analysis, and reporting. Chat to one of our experts today.