More and more purchasers, regulators, investors and consumers are seeking information about companies’ Scope 3 emissions — typically the largest area of most organizations’ carbon impact. This data is key to understanding the carbon footprint of products or services, and assessing climate-related risks.
Companies are stepping up and starting to report and address their Scope 3 emissions. But it can be confusing to understand exactly what needs to be reported and how, given the range of reporting frameworks and the difficulties involved in sourcing data about supply chain emissions.
So what are the key requirements for Scope 3 reporting?
Scope 1 = direct GHG emissions from owned or controlled sources
Scope 2 = indirect emissions, from the generation of purchased electricity, heat and steam
Scope 3 = all other indirect emissions in the value chain (upstream and downstream), including: purchased goods & services; capital goods; fuel & energy-related activities; transportation & distribution; leased assets; employee commuting; business travel; waste from operations; processing & use of products, investments & franchises.
The widely accepted GHG accounting and reporting international standard, which underpins many of the other frameworks and standards listed on this page.
The key elements of the GHG Protocol’s reporting requirements are as follows:
For corporate carbon accounting, an emissions source can be excluded if the source is deemed "not relevant" typically using the 5 relevance criteria of: materiality; influence; stakeholder; risk; outsourcing.
For product carbon accounting, attributable emissions sources can be excluded if ALL of the following are true: data gap exists because primary or secondary data cannot be collected; extrapolated and proxy data cannot be determined to fill the gap; an estimation determines that the data is insignificant.
*These calculation standards are for full corporate Scope 3 emissions inventories. For product-specific carbon accounting and reporting, see the GHG Protocol Product Standard. Like the Scope 3 Standard, it takes a value chain (or 'life cycle') approach to GHG accounting and was developed simultaneously.
A key standard setter for sustainability development reporting (including economic, environmental and social impacts). A common format for companies’ self-published annual sustainability reports.
The GRI’s requirements for reporting GHG emissions are based on the GHG Protocol. This means:
The widely used framework for climate-related disclosures, aligned with the CDP climate change questionnaire.
The TCFD recommendations are designed to support a company’s integration of climate change within their existing business processes including risk management, business strategy development, governance and metrics and targets. The metrics and target recommendations strongly encourage the disclosure of Scope 3 GHG emissions and risks, because this is an important metric of an organization’s exposure to climate-related risks and opportunities.
The TCFD recommends that companies disclose Scope 3 emissions where they form a significant portion (i.e. 40% or more) of their overall GHG emissions.
The standard-setting board designed to meet the demand of international investors for corporate climate and other ESG reporting.
In October 2022, the ISSB confirmed that it will require Scope 3 disclosure, to meet investors’ needs and to align with the TCFD framework and GHG Protocol. The ISSB is set to outline relief provisions (e.g. more time or working with jurisdictions on ‘safe harbor’) to help companies apply these new requirements.
The ISSB highlights certain risks and opportunities from activities related to an organization’s Scope 3 emissions, including:
The world’s largest provider of business sustainability ratings
EcoVadis ratings cover all aspects of ESG, assessing a company’s performance across the following key pillars: Environmental, Labor & Human Rights, Ethics and Sustainable Procurement.
Scope 3 emissions sit under ‘Environmental’ and disclosing them influences a company’s rating. Companies with over 1,000 employees are expected to demonstrate ‘Action’ and ‘Reporting’ on Scope 3 emissions, including influencing suppliers to reduce GHG emissions and collecting GHG data from the value chain. Companies can also request GHG information from their suppliers via the EcoVadis platform.
The global platform for corporate environmental disclosure. Over 18,700 companies, representing 64% of global market capitalization, disclosed environmental information through CDP in 2022.
A standard-setter guiding the disclosure of financially material sustainability information.
The SASB standards have been incorporated into the ISSB. The Scope 3 elements of the standards aren’t focused on GHG emissions inventories. Instead they focus on the direct (physical and transitional) risks and opportunities that companies face in relation to upstream and downstream supply chains:
The organization that defines best practice in science-based target setting for GHG emissions reductions, and validates companies' and financial institutions' targets as science-based.
For near-term science-based targets, companies need to include Scope 3 emissions if these account for 40% or more of their total emissions. This is the case for most companies; currently, 96% of science-based targets include Scope 3. The targets for Scope 3 emissions need to be aligned with limiting global warming to well below 2°C.
For long-term net-zero science-based targets, Scope 3 emissions must be included in all cases, with a target reduction of 90-95%.
SBTi Corporate Manual
SB 253 mandates companies operating California with over $1 billion in total revenue to disclose their corporate emissions.
The legislation covers not just direct emissions (Scope 1) and emissions from electricity use (Scope 2), but also Scope 3 emissions. It goes beyond the proposed SEC rules by including all Scope 3 emissions.
As of September 13th, the bill will return to the Senate then to Governor Newsom for a final decision on its passage into law.
While the existing EU Emissions Trading System (ETS) covers European Union (EU) countries, the CBAM will apply a carbon price to goods produced outside the EU.
From October 2023, importers will need to report the total GHG emissions embedded in consignments of aluminum, steel, fertilizers, electrical energy, or cement, if these are produced outside the EU. This covers manufacturing emissions, and emissions from the production of electricity used in the production or manufacturing processes. Find out more.
The UK’s new SECR carbon legislation affects how large companies disclose their greenhouse gas (GHG) emissions and energy data, and advises Scope 3 reporting (although it is not mandatory). View our full explainer of the SEC reporting requirements.
The frameworks and standards listed above are used by companies who voluntarily disclose their emissions. In some cases, mandatory disclosure regulations also include Scope 3. For example:
A major update to the 2014 NFRD (Non-Financial Reporting Directive).
The EU CSRD will apply to over 50,0000 companies, and will phase in from 2024 (starting with large public-interest companies). Disclosure of Scope 3 GHG emissions is required, where relevant (the definition of relevance and significant categories is yet to be defined but it aims to align with the GHG Protocol). Reported information will need to be audited.
A new climate disclosure and target-setting rule for suppliers to the world’s biggest buyer.
Major US Federal contractors will need to publicly disclose Scope 3 GHG emissions through CDP in line with the GHG Protocol, and set science-based targets (including Scope 3 emissions if they count for more than 40% of the organization’s total emissions). Learn more.
Proposed new disclosure requirements for publicly listed companies in the US.
Under the proposed SEC rule, public companies will have to report their climate-related risks, emissions, and net-zero transition plans, in detail, in line with TCFD recommendations, from 2024.
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