Scope 3 Emissions Reporting: What You Need to Know

For companies striving to tackle their climate impacts, Scope 1 and 2 emissions are just the tip of the iceberg.

The real challenge lies in quantifying and addressing the often-overlooked Scope 3 emissions - the indirect emissions that occur upstream and downstream in an organization's value chain.

From the raw materials and transportation involved in making products, to the emissions generated during use and disposal, Scope 3 can account for a staggering 80% or more of a company's total carbon footprint. Yet for many businesses, this massive slice of their total emissions pie remains cloaked in mystery and data gaps.

As stakeholders increasingly demand transparency and bold climate action, getting a firm grasp on Scope 3 is no longer a nice-to-have, but a strategic imperative.

This comprehensive guide will equip you with the knowledge to lift that veil, shining a light on your value chain emissions and unlocking new opportunities for impactful decarbonization.

We'll dive into the 15 categories that make up Scope 3 under the Greenhouse Gas Protocol, explore best practices for robust emissions accounting, and share insights on engaging suppliers as partners on this journey. Buckle up - accurately quantifying your carbon impacts just got a whole lot easier.

What are Scope 3 Emissions?

Scope 3 emissions are all indirect emissions that occur in a company's value chain, both upstream and downstream. In addition, Scope 3 emissions encompass all emissions not within the Scope 1 or Scope 2 boundaries. This includes emissions from sources not owned or directly controlled by the company, such as:

• Purchased goods and services

• Business travel

• Employee commuting

• Transportation and distribution

• Use of sold products

• End-of-life treatment of sold products

According to the GHG Protocol, there are 15 categories of Scope 3 emissions. However, not every category is relevant to a company:

1. Purchased Goods And Services

2. Capital Goods

3. Fuel- And Energy-Related Activities

4. Upstream Transportation And Distribution

5. Waste Generated In Operations

6. Business Travel

7. Employee Commuting

8. Upstream Leased Assets

9. Downstream Transportation And Distribution

10. Processing Of Sold Products

11. Use Of Sold Products

12. End Of Life Treatment Of Sold Products

13. Downstream Leased Assets

14. Franchises

15. Investments

The diagram below illustrates these 15 categories and whether they are upstream or downstream emissions.

Why Report Scope 3 Emissions? 

• Increases transparency into emissions across the entire value chain

• Helps identify opportunities for emissions reductions

• Enables companies to set science-based emissions reduction targets

• Upcoming regulations will require Scope 3 reporting (e.g. EU CSRD, US SEC rules)

An Introduction to Scope 3 Emissions Reporting

The GHG Protocol requires that companies report emissions from all relevant Scope 3 categories. The Scope 3 Standard offers advice for identifying which types apply to an organization based on size, influence, risk, stakeholders, outsourcing, sector guidance, and other criteria from the company that establishes the relevance of a category.

After identifying which categories require reporting, business leaders must estimate their Scope 3 emissions, where reporting standards come into play.

Benefits of Accurate Reporting

There are several key benefits to Scope 3 reporting for businesses. First, reporting on all relevant Scope 3 categories increases transparency by shedding light on the emissions from your own operations and supply chain processes. In addition, reporting on Scope 3 increases accountability for business leaders as they strive to achieve Net Zero.

Accurate reporting sheds light on potential cost savings through decarbonization efforts while alerting them of climate change-related risk factors. 

Challenges in Scope 3 Reporting

• Accessing quality data from suppliers is a major barrier (85% of companies cite this)

• Only 6% of emissions factors are based on supplier-specific data

• Determining relevant Scope 3 categories and boundaries

• Selecting appropriate calculation methods (e.g. spend-based vs activity data)

Scope 3 Baselining Challenges

Despite the host of benefits related to Scope 3 accounting and reporting standard, companies still need help with calculating their Scope 3 baseline levels. To track progress related to decarbonization, there needs to be a comparison year to act as a baseline. This is especially important for establishing science-based targets.

The Science Based Targets Initiative conducted a large-scale stakeholder engagement survey to understand companies' challenges in baselining, setting, and meeting Scope 3 targets. There were a few key takeaways from the report specifically tied to baselining:

• 85% of respondents felt that accessing primary data was a barrier to baselining

• Lack of access to supplier-specific emission factors and detailed procurement data contributed to the challenge

• Today, only 6% of carbon emission factors are rooted in supplier-specific data

Clearly, a lack of data poses a significant challenge to companies when embarking on their Scope 3 reporting initiatives, but there are ways to overcome this challenge.

Tools for Reliable Reporting

While a top-down approach using high-level estimates can provide an initial baseline, it is generally less effective for comprehensive Scope 3 emissions management due to limited supply chain visibility. A bottom-up approach that gathers granular data from across the value chain is recommended for more accurate and auditable reporting.To enable a robust bottom-up Scope 3 emissions inventory,, companies should implement streamlined data collection and emissions calculation tools that integrate with their existing systems and processes. Key capabilities to look for include:

• Supply Chain Mapping: Ability to map the full value chain, identify emissions hotspots, and determine relevant Scope 3 categories per the GHG Protocol.

• Data Automation: Automated data integration from procurement systems, transportation management systems, ERP, etc. to reduce manual effort.

• Calculation Engines: Built-in emissions factors and calculation methodologies aligned with GHG Protocol standards for consistent, auditable results.

• Supplier Engagement: Functionality to collect primary activity data from suppliers through surveys, data sharing platforms like CDP, and integrations.

• Audit Trails: Comprehensive documentation and version control to support external verification and assurance.

• Analytics and Reporting: Dashboards, reports, and tools to analyze emissions drivers, set targets, and disclose to stakeholders.

Leveraging digital tools purpose-built for Scope 3 emissions management enables companies to establish a robust data foundation, streamline reporting processes, and continuously improve data quality over time through enhanced full supply chain emissions traceability. Additionally, companies should explore opportunities to integrate emissions data directly from transportation management systems, freight audit and payment providers, and other logistics partners to accurately capture a major source of Scope 3 emissions. Regular freight audits and collaborative data sharing between shippers and carriers is critical.

Best Practices

While Scope 3 emissions reporting can be challenging due to data availability and complexity, there are several best practices that companies can follow to improve the accuracy and completeness of their reporting over time.

Initially, companies can start with spend-based estimates using industry-average emissions factors to establish a baseline for operational emissions. However, this approach should be supplemented with efforts to collect more granular, supplier-specific data as the program matures. Implementing streamlined data collection and emissions calculation tools can help automate and standardize this process.

A bottom-up approach, gathering detailed activity data from across the value chain, is generally more accurate than top-down estimates. This requires close collaboration with suppliers to share emissions data and establish common calculation methodologies. Engaging suppliers through procurement requirements, performance incentives, and joint decarbonization initiatives can drive better data sharing and emissions reductions.

For emissions related to transportation and distribution, leveraging robust transportation management systems and conducting regular freight audits can provide reliable, shipment-level emissions data. This level of traceability is essential for accurately quantifying a significant portion of Scope 3 emissions.

Supplier Decarbonization Strategies

Engaging suppliers through multiple strategic initiatives is a core component of decarbonization. For example, including decarbonization in the procurement process can include mandatory carbon reporting and carbon reduction requirements for proposals. Taking this a step further, supplier performance management contracts can be tied directly to carbon reduction with clauses that lead to penalties or contract termination.

Rewarding progress is also a great way to meet decarbonization goals. For instance, paying for performance and a premium on low-carbon prices can incentivize suppliers. Ultimately, data sharing and collaboration are the driving forces behind sustainability in supply chain operations.

Trax Carbon Emissions Manager for Scope 3 Reporting

Trax developed its proprietary Carbon Emissions Manager for the transportation industry to make Scope 3 reporting more manageable.

By tracking actual carbon emissions from a company’s transportation network, it’s easier to find a baseline period for companies to set science-based targets for decarbonization efforts. At the same time, the Trax Carbon Emissions Manager allows supply chain leaders to track progress against their goals and optimize transportation costs by leveraging the Trax freight audit and payment suite for transportation spend management.

As companies strive to reduce emissions and reach Net Zero in the coming years, finding a trusted logistics partner is crucial. Trax offers clients the tools, technology, and managerial services to jumpstart decarbonization initiatives.

The Trax product suite, including the Carbon Emissions Manager, allows company leaders to see emissions reduction opportunities and increase transparency and traceability at all supply chain stages.

Contact the Trax team today to build out a strategic decarbonization strategy.