8 August 2023

Understanding Scope 3: Measuring and Reporting

In a previous post this week, we looked at what scope 3 emissions are and why they should be accurately measured by an organisation to help make real and meaningful carbon reductions across its supply chain. As well as contributing to a more sustainable future, direct benefits for the company can be seen in a range of areas including – but not limited to – financial risk management, investor satisfaction, hitting sustainability targets and strengthening partnerships.

Here, the focus will shift on how to measure and report scope 3 emissions – also known as ‘carbon accounting’.

What is Carbon Accounting?

Carbon accounting refers to the methods and processes a reporting organisation uses when calculating the level of carbon emissions it is responsible for. It allows companies of all sizes to accurately measure its impact, and target areas where there are the greatest reduction opportunities.

Also known as Greenhouse Gas Accounting, the process permits a company to be able to reduce its own carbon output whilst enabling the equal and fair trade of carbon credits if this is an area of interest.

Whether carbon accounting is conducted to reduce emissions or to increase financial value in the carbon market, it helps produce a quantifiable measure for which a company or business can be accountable.

Carbon accounting refers only to the process of measuring the level of greenhouse gas emissions that the reporting company is responsible for producing. However, a carbon assessment is an evaluation of this data, which then helps the organisation understand its own emissions and assists them in making decisions on what actions to take next to promote increasingly sustainable business operations.

So, the result of carbon accounting is simply a figure. A carbon assessment results in a figure with suggestions and target areas on what can be reduced.

Identifying Relevant Scope 3 Activities

The Greenhouse Gas Protocol (GHGP) suggest that the first step in conducting a successful carbon account is a relevant assessment to determine which of the 15 scope 3 categories are pertinent to the reporting organisation.

As we covered previously, scope 3 emissions are split into 8 upstream and 7 downstream categories, and a screening process using the following criteria can help uncover the most relevant of these scope 3 activities:

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 technology, compliance/litigation, and reputational risks)
Stakeholders They are deemed critical 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
Spending or 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)
Other They meet any additional criteria developed by the company or industry sector.

By using the above criteria against the 15 scope 3 categories, reporting organisations can identify which scope 3 activities have the most significant GHG emissions for their business. It can also help calculate which areas offer the most substantial GHG reduction opportunities and which are most relevant to the business's long and short-term goals.

Through undertaking this initial process, companies can decide which categories require more labour-intensive – and therefore costly – data collection. Generally, it is advised that the areas that generate the greatest level of emissions should receive more exact data collection. However, depending on a business's goals, targets and customer base, some of the lesser categories may also value this more in-depth treatment.

As a result of this initial screening, a company can decide on both the volume and the quality of the data required for each category, with sections that score highly on emissions requiring more high-quality data, and less significant categories using industry-standard information that is more generalised.

Data Utilisation for Scope 3 Reporting

There are two main types of data to look at when calculating emissions – activity data and emission factors.

Whilst activity data measures the basic quantitative activity that results in GHG emissions, emission factors focus on whatever converts the activity data into GHG emission data. For example, activity data looks at how many litres of fuel is consumed, whereas emission factors look at the kilograms of CO2 emitted per litre of fuel consumed. All reporting companies are expected to report the types of activity data and emission factors that are used to during the calculation.

Reporting companies may use either primary or secondary data sources to calculate its scope 3 emissions.

  • Primary Data - Data from specific activities within a company’s value chain
  • Secondary Data - Data that is not from specific activities within a company’s value chain

Primary data can include information presented by suppliers that directly relates to a specific activity in the reporting company’s value chain. It also includes data that can be obtained through direct monitoring, meter readings, utility bills and invoices.

To allow primary data that a company is gathering to be as accurate and effective as possible, the following table should be followed – with the data type listed in order of importance:

Product-level Data Upstream GHG emissions for the product of interest
Activity-, process-, or production line-level data GHG emissions and/or activity data for the activities, processes, or production lines that produce the product of interest
Facility-level data GHG emissions and/or activity data for the facilities or operations that produce the product of interest
Business-unit-level data GHG emissions and/or activity data for the business units that produce the product of interest
Corporate-level data GHG emissions and/or activity data for the entire corporation

Secondary data can include information from the general industry such as databases, case studies, industry bodies or government stats. When using this data, it is preferable that information used is peer-reviewed and from reliable sources. Considerations should also be made to fully understand the data to reduce the risk of double-counting errors across the value chain.

Reporting companies should remember that data quality is essential and take the view that improving its data is an essential ongoing process. Particular focus should be on areas that currently have low-quality data or areas that have particularly high levels of emissions.

A more comprehensive breakdown of calculation methods for each of the 15 scope 3 categories can be found in the Greenhouse Gas Protocol’s Technical Guidance for Calculating Scope 3 Emissions.

Reporting Values

When reporting, companies can use either the IPCC global warming potential (GWP) values agreed by the UN Framework Convention on Climate Change, or the most recent GWP values published by the IPCC. Whichever method is used requires disclosure.

For more information on carbon dioxide equivalence (CO2e) and GWP, please see a previous article here.