Understanding your company’s carbon footprint today is a business imperative. With investors, regulators, and customers all demanding transparency, professionals need to grasp the essentials of carbon accounting, especially when it comes to Scope 3 emissions. But what do Scope 1, 2, and 3 really mean, and why is Scope 3 so crucial today? Let’s break it down.

What Are Scope 1, 2, and 3 Emissions?

The Greenhouse Gas (GHG) Protocol, the world’s leading standard for carbon accounting, categorizes emissions into three “scopes.” Each scope helps organizations map, measure, and manage their climate impact across their operations and value chain.

• Scope 1: Direct emissions from sources owned or controlled by your company (e.g., company vehicles, onsite fuel combustion).
• Scope 2: Indirect emissions from purchased energy, typically electricity, steam, or heat.
• Scope 3: All other indirect emissions that occur in your value chain, both upstream and downstream- think suppliers, business travel, product use, and more.

While Scope 1 and 2 are relatively straightforward, Scope 3 emissions are broad, complex, and often make up the largest share of a company’s total carbon footprint.

Why Scope 3 Emissions Matter More Than Ever

For many businesses, Scope 3 emissions constitute up to 70-90% of their total GHG footprint. These are the so-called “value chain emissions,” encompassing everything from the raw materials you buy to how customers use and dispose of your products.

Why focus here?

• Regulatory pressure: Frameworks like the EU CSRD, UK SECR, and proposed SEC rules require more detailed carbon reporting—including Scope 3.
• Investor expectations: Investors increasingly demand transparency across the entire value chain.
• Reputation and competitiveness: Customers and partners favor companies who tackle full-spectrum emissions, not just what happens “in-house.”

Breaking Down Scope 3 Emissions: The 15 Categories

Scope 3 covers a vast landscape. According to the GHG Protocol, it’s split into 15 categories, including:

1. Purchased goods and services
   This category includes all upstream emissions associated with the production of goods and services a company buys—from raw materials to professional services. For most organizations, this is one of the largest drivers of Scope 3 emissions because it reflects the embedded carbon from suppliers’ operations, energy use, and manufacturing processes. Companies must understand this category to influence supplier performance, improve procurement practices, and build low-carbon value chains.
   
   
2. Capital goods
   Capital goods emissions come from the production of long-term assets a company invests in, such as machinery, equipment, buildings, and infrastructure. These assets are not consumed immediately but support operations over many years. Because their manufacturing is resource-intensive, capital goods often represent a significant share of indirect emissions for industrial, manufacturing, and asset-heavy businesses.
   
   
3. Fuel- and energy-related activities (not in Scope 1/2)
   This category captures upstream emissions from the extraction, production, and transport of fuels and energy purchased by the reporting company. Even when energy consumption is accounted for in Scope 2, the wider lifecycle emissions of producing and delivering that energy fall under Scope 3. It helps companies understand the full climate impact of their energy choices.
   
   
4. Upstream transportation and distribution
   These emissions come from the transport and distribution of purchased goods from suppliers to a company’s facilities. They include emissions from logistics providers, shipping, trucking, warehousing, and third-party distribution networks. Companies often address this category by working with sustainable logistics partners or optimizing their supply chain.
   
   
5. Waste generated in operations
   This includes emissions from the processing and disposal of waste produced in a company’s own operations but handled by third parties. Waste treatment methods such as recycling, landfilling, composting, or incineration have varying carbon impacts. Reducing operational waste and improving waste management practices directly lowers emissions in this category.
   
   
6. Business travel
   Business travel emissions cover transportation used by employees for work activities outside the office, such as flights, hotels, and rental cars. As organizations grow and operate globally, business travel can become a significant contributor to emissions. Companies often mitigate this by adopting virtual meeting practices, partnering with low-carbon travel providers, or encouraging sustainable travel choices.
   
   
7. Employee commuting
   This category includes emissions from employees traveling between their homes and workplaces. These emissions depend on commuting distance, mode of transportation, and frequency. Organizations can influence this category by promoting public transit, carpooling, shuttle services, hybrid work, and cycling infrastructure.
   
   
8. Upstream leased assets
   Upstream leased assets refer to emissions from assets a company leases but does not control or operate directly. These emissions arise from the energy use and operation of leased buildings, vehicles, or equipment used by the reporting company but owned by another party. Understanding this category helps companies align leased operations with sustainability goals.
   
   
9. Downstream transportation and distribution
   This category covers emissions from the transportation and distribution of products sold by the company to final customers. It includes logistics activities managed by distributors, retailers, or third-party carriers. These emissions can be optimized by improving packaging efficiency, consolidating shipments, and partnering with low-emission transport providers.
   
   
10. Processing of sold products
    These emissions occur when intermediate products sold by a company are further processed or transformed by downstream manufacturers. This category is particularly relevant for industries supplying materials, chemicals, or components. Companies use this insight to redesign products or collaborate with downstream partners to reduce lifecycle emissions.
    
    
11. Use of sold products
    This category accounts for emissions generated when customers use a company’s products after purchase. It is especially significant for energy-consuming goods such as vehicles, appliances, and electronics. Understanding use-phase emissions helps companies improve product efficiency, innovate sustainable designs, and guide customers toward lower-carbon choices.
    
    
12. End-of-life treatment of sold products
    This includes emissions from disposal, recycling, or treatment of products once customers discard them. Companies increasingly influence this stage through recyclable designs, return programs, material recovery systems, and circular-economy initiatives.
    
    
13. Downstream leased assets
    Downstream leased assets refer to emissions from assets owned by the reporting company but leased to others and operated by the lessee. These emissions reflect how customers use operational assets such as buildings, equipment, or vehicles. For franchisors and equipment providers, this category highlights opportunities to improve efficiency across leased portfolios.
    
    
14. Franchises
    Franchise emissions are generated by franchisee-operated outlets under a company’s brand or license. These outlets operate independently but contribute to the franchisor’s overall value-chain emissions. This category is crucial for brands in hospitality, retail, and food services where franchise networks form a significant share of total operations.
    
    
15. Investments
    This category includes emissions associated with companies or projects financed through equity, debt, or project investment. For financial institutions, these “financed emissions” often represent the largest share of climate impact. Transparent reporting of investment-related emissions is increasingly essential for regulatory alignment and climate risk management.

Each business will have a unique emissions profile. For a software company, business travel and cloud computing (energy use) might dominate. For a manufacturer, raw material extraction and supplier activities are likely the biggest contributors.

How to Measure Scope 3 Emissions: Practical Steps

Measuring Scope 3 emissions isn’t easy. Data can be hard to get, and methodologies are still evolving. But here’s a proven starting point:

1. Map your value chain: Identify all relevant Scope 3 categories for your business.
2. Prioritize material categories: Use spend analysis or screening tools to pinpoint hotspots.
3. Collect data: Engage suppliers for primary data (e.g., emissions intensity), but use reputable secondary data (industry averages) where needed.
4. Calculate using GHG Protocol tools: The GHG Protocol offers calculation guidance for each category.
5. Improve over time: As your data and supplier engagement improve, refine your calculations for greater accuracy.

Overcoming Challenges in Scope 3 Carbon Accounting

The complexity of value chain emissions can be daunting. Common challenges include:

• Data gaps: Many suppliers lack emissions data or reporting capability.
• Double counting: Emissions can be reported by multiple entities in the chain.
• Changing standards: Methodologies and regulations are evolving quickly.

Solutions:

• Collaborate with suppliers to build capacity and share best practices.
• Use industry coalitions (like the Science Based Targets initiative) to align standards.
• Leverage technology to automate data collection and reporting.

Scope 3 Emissions and Your Net Zero Strategy

You can’t achieve net zero without addressing value chain emissions. The world’s most credible climate targets, like Science Based Targets or net zero pledges, require action on Scope 3 emissions.

Actionable Tactics:

• Integrate sustainability into procurement decisions.
• Support suppliers’ transition to renewable energy.
• Redesign products for lower-carbon use and end-of-life.

The Business Case for Tackling Value Chain Emissions

Addressing Scope 3 emissions isn’t just about compliance. It’s a chance to drive innovation, cut costs, and build resilience. Companies who lead on value chain emissions reporting and reduction:

• Attract Sustainability investment
• Win customer loyalty
• Stay ahead of regulatory risk
• Unlock supplier collaboration and efficiency

Pro tip: Start small, but start now. Even imperfect data will set you on the path to better carbon management and a stronger business.

Scope 3 Emissions—The Next Frontier in Climate Action

Understanding and managing Scope 3 emissions is now central to credible climate strategies. By mapping value chain emissions, collaborating with suppliers, and leveraging the right tools, your business can lead on sustainability and future-proof itself in a low-carbon economy.

Ready to tackle Scope 3 emissions? See how Sprih helps organizations measure, manage, and reduce value chain emissions- book a demo today.