Low Carbon Transition Rating
GHG Emissions Scope 3 Categories
The Importance of Full Disclosure*
Companies can benefit from understanding and gradually working towards reporting their Scope 3 emissions. Such an exercise can offer deeper insight into a business’ carbon footprint across its value chain and identify decarbonization opportunities.
Scope 1 emissions refer to the direct emissions from owned or controlled sources and Scope 2 emissions refer to indirect emissions from the generation of purchased energy. In contrast, Scope 3 emissions are all other indirect emissions that derive from an organization’s value chain. It is critically important for companies to account for their Scope 3 emissions as they are estimated to take up more than 70% of a business’ total carbon emissions on average.1 The share of Scope 3 emissions can be as high as 99.84% in financial services and 80.85% for oil and gas.2
The GHG Protocol Corporate Standard divides Scope 3 emissions into upstream and downstream emissions and then classifies them into 15 distinct categories. To achieve full disclosure of emissions data, a company’s Scope 3 emissions inventory should be disclosed by category. But for many companies, this is no easy task.
Common challenges with Scope 3 reporting can include issues with data quality and calculations; lack of accounting or estimation methodologies; and conglomerate, decentralized or geographically diverse organizational structures that hinder data collection and assimilation. However, the need for consistent, comparable Scope 3 emissions data will continue to increase, irrespective of the challenges companies are facing.
*The following excerpt is from an article on the Morningstar Sustainalytics website.
1. Global Compact Network UK. n.d. “Scope 3 Emissions.” https://www.unglobalcompact.org.uk/scope-3-emissions/.
2. CDP. n.d. “CDP Technical Note: Relevance of Scope 3 Categories by Sector.” https://cdn.cdp.net/cdp-production/cms/guidance_docs/pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-by-sector.pdf.
Key Terms
| Greenhouse Gases (GHG) | Represent the six gases covered by the United Nations Framework Convention on Climate Change (UNFCCC): carbon dioxide (CO2); methane (CH4); nitrous oxide (N2O); hydrofluorocarbons (HFCs); perfluorocarbons (PFCs); and sulfur hexafluoride (SF6). |
| Downstream emissions | Indirect GHG emissions derived from sold goods and services. Downstream emissions also include emissions from products that are distributed but not sold (i.e., without receiving payment). |
| Upstream emissions | Indirect GHG emissions from purchased or acquired goods and services. |
| Indirect emissions | Emissions that are a consequence of the activities of the reporting company but occur at sources owned or controlled by another company. |
| Scope 3 emissions | All indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. |
| Value chain (in the context of this guidance) | "Value chain” refers to all of the upstream and downstream activities associated with the operations of the reporting company, including the use of sold products by consumers and the end-of-life treatment of sold products after consumer use. |
| Cradle-to-gate emissions | Includes all emissions that occur in the lifecycle of purchased products, up to the point of receipt by the reporting company (excluding emissions from sources that are owned or controlled by the reporting company). |
Scope 3 Categories
This metric assesses a company's total Scope 3 Category 1 greenhouse gas (GHG) emissions – expressed in metric tonnes CO2e – in a given fiscal year. This covers the goods and services purchased by the company, as defined in the Greenhouse Gas Protocol.
Scope 3 Category 1 GHG emissions, as defined in the GHG Protocol, covers GHG emissions from the extraction, production, and transportation of goods and services purchased or acquired by the company during the fiscal year. They include upstream emissions from the products (tangible goods) and services (intangible goods) purchased or acquired by the company.
This metric assesses a company's total Scope 3 Category 2 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 2, as defined in the GHG Protocol, covers GHG emissions associated with the extraction, production, and transportation of capital goods purchased or acquired by the company during the fiscal year. Capital goods are final products used to manufacture a product, provide a service, or sell, store and deliver merchandise. Equipment, machinery, building and other plant, property, and equipment (PP&E) should also be considered.
This metric assesses a company's total Scope 3 Category 3 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year. Scope 3 Category 3, as defined in the GHG Protocol, covers GHG emissions associated with the extraction, production, and transportation of fuels and energy purchased or acquired by the company during the fiscal year, not already accounted for in Scope 1 or Scope 2.
This metric assesses a company's total Scope 3 Category 4 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 4, as defined in the GHG Protocol, covers GHG emissions associated with the transportation and distribution of products purchased by the company during the fiscal year, between a company’s tier 1 suppliers and its own operations and/or the transportation and distribution services purchased by the company during the fiscal year, including inbound logistics and outbound logistics. This can include emissions from the following activities throughout the value chain: Air transport, Rail transport, Road transport, Marine transport, Storage of purchased products in warehouses, distribution centers and retail facilities.
This metric assesses a company's total Scope 3 Category 5 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 5, as defined in the GHG Protocol, covers GHG emissions associated with the disposal and treatment of waste generated by the company during the fiscal year. Only waste generated in facilities owned or operated by third parties is included. This includes emissions from disposal of both solid waste and wastewater.
This metric assesses a company's total Scope 3 Category 6 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 6, as defined in the GHG Protocol, covers GHG emissions associated with the transportation of employees for business-related activities by the company during the fiscal year. Only transportation in vehicles not owned or operated by the company is included. This can include the following modes of transport: Air travel, Rail travel, Bus travel, and Automobile transport (rental cars).
This metric assesses a company's total Scope 3 Category 7 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 7, as defined in the GHG Protocol, covers GHG emissions associated with the transportation of employees between their homes and worksites during the fiscal year. This can include the following modes of transport: Air travel, rail travel, bus travel, automobile transport and other forms (bicycling, walking).
This metric assesses a company's total Scope 3 Category 8 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 8, as defined in the GHG Protocol, covers GHG emissions associated with the operation of assets leased by the company (lessee) during the fiscal year. This should not include emissions that are accounted for under the company's scope 1 and Scope 2 inventories.
This metric assesses a company's total Scope 3 Category 9 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 9, as defined in the GHG Protocol, covers GHG emissions associated with the transportation and distribution of products sold between the company’s operations and the end consumer during the fiscal year, in vehicles and facilities not owned or controlled by the company. This includes emissions from retail and storage. This can include emissions from the following activities throughout the value chain: air transport, rail transport, road transport, marine transport, warehouses/distribution centers and retail facilities.
Scope 3 Category 10, as defined in the GHG Protocol, covers GHG emissions associated with the processing of intermediate products sold by third parties subsequent to the sale by the company during the fiscal year. This includes the Scope 1 and 2 emissions of downstream value chain partners (manufacturers).
This metric assesses a company's total Scope 3 Category 11 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year. This covers the use of sold products (direct and indirect use-phase), as defined in the Greenhouse Gas Protocol.
Scope 3 Category 11, as defined in the GHG Protocol, covers GHG emissions from the use of sold products (direct and indirect use-phase), i.e., goods and services sold by the company during the fiscal year.
This metric assesses a company's total Scope 3 Category 12 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 12, as defined in the GHG Protocol, covers GHG emissions associated with the emissions from waste disposal and treatment of products sold by the company at the end of their life during the fiscal year. This includes end-of-life treatment methods used by consumers (final sold product) or used by intermediary partners (sold intermediate product).
This metric assesses a company's total Scope 3 Category 13 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 13, as defined in the GHG Protocol, covers GHG emissions associated with the operation of assets owned by the company (leaser) and leased to other entities during the fiscal year. This should not include emissions that are accounted for under the company's Scope 1 or Scope 2 inventories.
This metric assesses a company's total Scope 3 Category 14 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 14, as defined in the GHG Protocol, covers GHG emissions associated with the operation of franchises during the fiscal year. This should not include emissions that are accounted for under the company's Scope 1 and Scope 2. Franchisors should account for emissions that occur from the operation of franchises (Scope 1 and Scope 2 of franchisees).
This metric assesses a company’s total Scope 3 Category 15 greenhouse gas (GHG) emissions - expressed in metric tonnes CO2e - in a given fiscal year.
Scope 3 Category 15, as defined in the GHG Protocol, covers GHG emissions associated with the emissions from investments not already included in Scope 1 and Scope 2. Reported values for total GHG emissions are taken into consideration only if they cover 100% of the portfolio. However, since many institutions will only disclose the emissions related to a lower percentage of their portfolio, the total emissions for 100% of the portfolio are estimated using the reported figures.
Category 15 is designed primarily for private financial institutions (e.g., commercial banks), but is also relevant to public financial institutions (e.g., multilateral development banks, export credit agencies, etc.) and other entities with investments not included in Scope 1 and Scope 2.