What are scope 3 emissions?

What are scope 3 emissions? A quick ESG training guide to a very common term in conversations about the environment and sustainability. 

Scope 3 emissions are all about activities that you might not necessarily associate with a company’s carbon footprint. Here, we’re talking about emissions lying outside their direct control, but within their overall environmental impact. In other words, emissions that are ‘hidden’ in supply chains and product usage. 

These are known as scope 3 emissions, and for many businesses, they represent the largest and most challenging part of their environmental impact to measure and manage.

Scope 3 emissions are all indirect emissions that occur in the value chain (either up or down) of any given company. They are part of a wider collection of two other classes of emissions: 

• Scope 1: Direct emissions from sources owned or controlled by the company (eg, fuel combustion in company vehicles).
• Scope 2: Indirect emissions from the generation of electricity that the company uses. 
• Scope 3: All other indirect emissions. Examples include emissions from purchased goods and services, business travel, employee commuting, and the use and end-of-life treatment of sold products. Overall, it can get really complex, since there are so many types of emissions which can fall into this bracket. 

Who or what originally defined the three ‘scopes’? It is something called the Greenhouse Gas (GHG) protocol – an international accounting standard which emerged in the late 1990s.

Two reasons:

• A massive number of crucial organisations, standards agencies and governments use the three scopes as a crucial pillar of climate reporting. Examples include the UN, the International Sustainability Standards Board (ISSB), and the EU – especially through its Corporate Sustainability Reporting Directive (CSRD). In other words, the three scopes are a universal language through which different companies and industries across the world can be compared. 
• For most businesses, scope 3 emissions make up a staggering majority—often over 70%—of their total carbon footprint. Focusing only on scopes 1 and 2, therefore, provides an incomplete picture of a company’s true impact.

Boards have a pivotal role in overseeing climate strategy and risk. From that, it should be clear that, even if climate and sustainability aren’t your expertise, you should have a baseline knowledge of important metrics like scope 3 emissions as part of your work. 

Here are a few tips:

• Strategic oversight: In your role as a strategist, you will often need to make sure efforts to reduce scope 3 emissions are woven entirely into the company’s strategy, and not treated as a side project. 
• Risk and opportunity: You also need to assess the risks surrounding scope 3 emissions. This involves looking at them from every angle. How can they be reduced? What happens if we don’t reduce them? What happens if we change too much too fast?  
• Data and collaboration: You should ensure the company can manage all the data available to it around emissions. Often, this involves exploring innovations like AI.
• Incentivisation: You should consider how executive compensation and employee incentives are linked to achieving climate goals, including those related to scope 3 emissions. This reinforces the importance of sustainability across the organisation.

Scope 3 emissions are the most indirect, yet often the most consequential emissions associated with a company. They’re so impactful that they have taken centre stage in many conversations, combining strategy with compliance and corporate governance. As a director, your job is to understand the basics of what they are and how you can achieve related targets.