Understanding Scope 3: Upstream vs Downstream and Why They Matter

As the world grapples with the ongoing climate crisis, the need to understand and measure greenhouse gas emissions has become more critical than ever before. As customers become more aware of the environmental impact of their products and governments implement policies to address climate change, the importance of measuring and reducing all types of emissions will only grow.

If this is your first time reading about "Scope emissions", then it's unlikely to be the last. “Scopes” are a way of categorising the different kinds of carbon emissions a company creates in its own operations and in its wider value chain.

While many focus on their Scope 1 and Scope 2 emissions, Scope 3, also known as value chain emissions, is equally critical to understanding a company’s complete carbon footprint.

What are Scope Emissions?

The term was first mentioned in the 1998 Greenhouse Gas Protocol (GHGP); a globally recognised framework and standard that businesses, investors, governments and organisations use to measure, manage, and report greenhouse gas (GHG) emissions accurately and transparently.

The GHGP is a collaboration between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). The standard undergone several updates to ensure it remains relevant and current with the latest scientific and technical developments. The current version of the GHGP, released in 2015, is known as the GHG Protocol Corporate Standard.

The GHG Protocol is based on a simple yet comprehensive framework which divides GHG emissions into three broad categories, also known as "Scopes."

  • Scope 1: Direct emissions from sources that are owned or controlled by a company, such as emissions from fuel combustion, process emissions, and fugitive emissions.
  • Scope 2: Indirect emissions from the consumption of purchased electricity, heat, or steam.
  • Scope 3: All other indirect emissions in the value chain, such as emissions from the extraction and production of purchased materials, transportation of goods and services, and waste disposal.

Companies that use the Scope framework to measure and report their carbon emissions can better understand their environmental impact and identify opportunities to reduce their carbon footprint.

What are Scope 3 emissions?

Scope 3 emissions are the indirect emissions that occur in a company's value chain outside its operations. These emissions are a consequence of the company's business activities but arise from sources it doesn't own or control, such as suppliers, transportation, and product use and disposal. In essence, Scope 3 emissions represent the entire carbon footprint of a company's activities.

The GHG Protocol divides Scope 3 emissions into 15 categories, split further by "upstream" and "downstream" sources.

  • Upstream Scope 3 emissions refer to the emissions that occur in the production and transportation of the goods and services a company purchases from its suppliers. For example, a company that manufactures cleaning products might have upstream Scope 3 emissions from the extraction of raw materials and the transportation of finished products to warehouses.
  • Downstream Scope 3 emissions occur when customers use a company's products or services. These emissions can be caused by various factors, including the energy used to power the products, the disposal of the products at the end of their useful life, and the transportation of the products to the customer. For example, a company that sells cleaning products might have downstream Scope 3 emissions from the fuel used to dispose of empty bottles or the energy used to heat water used with the product.

Companies must consider both upstream and downstream Scope 3 emissions when measuring their carbon footprint in order to develop meaningful strategies to reduce environmental impact.

Upstream Scope 3 Categories

 The table below shows the 8 upstream emissions categories defined by the Greenhouse Gas Protocol: 

Purchased goods and services  Extraction, production, and transportation of goods and services purchased or acquired by the company
Capital goods Extraction, production, and transportation of capital goods purchased or acquired by the company
Capital goods Extraction, production, and transportation of capital goods purchased or acquired by the company
Fuel- and energy-related activities Extraction, production, and transportation of fuels and energy purchased or acquired by the company not already accounted for in Scope 1 or Scope 2
Upstream transportation and distribution Transportation and distribution of products purchased by the company between its tier 1 suppliers and its operations, in addition to other services such as inbound logistics, outbound logistics, and transportation and distribution between a company's own facilities. 
 Waste generated in operations Disposal and treatment of waste generated in the company's operations in facilities not owned or controlled by the company.
Business travel Transportation of employees for business-related activities in vehicles not owned or operated by the company.
Employee commuting Transportation of employees between their homes and worksites in vehicles not owned or operated by the company.
Upstream leased assets Operation of assets leased by the company and not included in Scope 1 and Scope 2.

Downstream Scope 3 Categories

 The table below shows the 7 downstream emissions categories defined by the Greenhouse Gas Protocol:

Downstream transportation and distribution  Transportation and distribution of products the company sells between its operations and the end consumer, including retail and storage.
Processing of sold products Processing of intermediate products sold by downstream companies, e.g. manufacturing.
Use of sold products The end use of goods and services sold by the company
End-of-life treatment of sold products Waste disposal and treatment of products sold at the end of their life
Downstream leased assets  The operation of assets owned by the company and leased to other entities not included in Scope 1 and Scope 2.
Franchises Operation of franchises in the reporting year, not included in Scope 1 or Scope 2.
Investments Operation of investments, including equity and debt investments and project finance not included in Scope 1 or Scope 2.

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

Why should we measure Scope 3 emissions?

 Scope 3 emissions are a critical piece of the puzzle in reducing greenhouse gas emissions. Companies that take the time to understand the full impact of their activities can work with their suppliers to make meaningful steps towards reducing their impact and contributing to a more sustainable future with the following benefits:

  • Financial risk management:
    As climate policies evolve, companies with high Scope 3 emissions may face financial jeopardy due to the reliance on carbon-intensive inputs, which are expected to become increasingly costly due to carbon pricing policies.
  • Stronger partnerships
    By tracking Scope 3 emissions, companies can comprehensively understand their supply chain's carbon footprint. Armed with this knowledge, businesses can collaborate better with suppliers and take measures to reduce the carbon intensity of their end products.
  • Greener business operations
    Scope 3 data empowers companies to make informed decisions about operational policies and practices, from work travel and waste disposal to remote work models.
  • Reach Sustainability targets
    Measuring Scope 3 emissions is central to assessing whether a company is reaching its stated sustainability targets. It allows them to direct resources to underperforming parts of the supply chain.
  • Help consumers make sustainable choices
    People have the power to make a positive impact on the environment through the products they choose to purchase. With growing awareness of the effects of Scope 3 emissions, companies need to be transparent about their indirect emissions to increase consumer awareness and influence their purchasing decisions.
  • Satisfy investors:
    Investors who prioritise the environment understand they can inadvertently contribute to GHG emissions by growing processes that impact climate change. By accurately accounting for Scope 3 emissions, companies can provide transparency on any hidden environmental impacts that may exist within their supply chain and help investors make informed decisions about where to allocate their financial resources.
  • Support Policymakers
    Some industries, such as car manufacturing, can significantly impact GHG emissions due to their products' carbon-intensive nature but are drastically underreporting their life-cycle emissions. Only 2% of a car manufacturer's emissions are covered in Scope 1 and 2, whilst Scope 3 emissions go unreported. Accurately accounting for Scope 3 emissions is crucial for policymakers who wish to implement impactful regulations that promote less carbon-intensive products.