Understanding Scope 1, 2, and 3 GHG Emissions | Greenhouse Gas Protocol

Scope three emissions (emissions from supply chains and value chains) represent approximately 70% of global emissions but are among the most challenging to address due to poor data quality, complex supply chains, and limited visibility. Key strategies for tackling scope three include: (1) Recognizing that not all scope three emissions are equal - some are easier to address than others; (2) Applying the Pareto principle - focusing on the 20% of suppliers responsible for 80% of emissions; (3) Engaging major suppliers collaboratively; (4) Improving products to reduce downstream emissions; (5) Mapping emissions to understand the problem before attempting management. The fundamental challenge is that current tools only allow static pictures of scope three emissions, not dynamic monitoring systems needed for effective management.

Organizations can improve Scope 3 management through five key strategies: (1) Materiality - conduct value chain mapping to identify which of the 15 categories matter most for your business; (2) Engagement - collaborate with suppliers and consumers, formalize data requirements through contracts and codes of conduct; (3) Data Quality - start with spend-based estimates but transition to hybrid or supplier-specific methods for material categories, documenting assumptions transparently; (4) Technology - leverage ESG platforms, carbon accounting software, and traceability tools for standardized tracking; (5) Integration - embed Scope 3 into procurement decisions, product development, and investment planning to drive actual emissions reductions rather than just compliance.

Managing scope 3 complexity requires systematic approaches: (1) Build internal capability while seeking external validation for data accuracy; (2) Create specialized engagement programs for top suppliers (like GSK's '30 for 30') and broader programs for middle-tier suppliers; (3) Integrate scope 3 work smoothly into existing processes to avoid overwhelming colleagues; (4) Be comfortable with uncertainty while continuing to take meaningful action; (5) Use hybrid models moving from spend data toward activity-based data; (6) Establish rules for when to restate historical baselines versus accepting reasonable approximations.

Scope 3 emissions are divided into upstream and downstream: Upstream Scope 3 includes production of purchased products, capital goods, fuel, energy, waste, and commuting (72% of bike industry emissions); Downstream Scope 3 includes transportation after sale, consumer use, and end-of-life disposal (11% use, 0.9% end-of-life).

Scope 3 emissions represent up to 90% of corporate emissions and encompass all indirect emissions across the value chain, from raw materials to end-of-life disposal. The 15 categories are divided into upstream (Categories 1-8) and downstream (Categories 9-15). Categories 1-4 cover upstream activities: purchased goods/services (activity × emission factor), capital goods (life cycle assessment), fuel/energy extraction/distribution, and upstream transportation. Categories 5-8 address operational activities: waste disposal (method-specific factors), business travel, employee commuting, and upstream leased assets. Each category requires specific data collection methods and stakeholder engagement to accurately quantify indirect emissions beyond direct control.

Organizations can effectively set Science-Based Targets (SBTi) by following a structured 10-step process that includes generating organizational buy-in through eight key prerequisites—such as leadership messaging, confidence in research, transparency, inventory quality, clear role definitions, investment assurance, leadership prioritization, and autonomy—and building internal strategies through work stream planning, defining internal targets, initial action planning, refinement, and final roadmap consolidation, with the critical success factor being a quality GHG inventory that enables stakeholder engagement and informed decision-making.

The Science-Based Targets initiative provides an Excel-based tool for companies to model science-based emission reduction targets using either the Absolute Contraction Approach (requiring minimum linear annual reductions of 2.5% for scope 1 and 2, and 1.23% for scope 3) or the Sectoral Decarbonization Approach (SDA), which uses sector-specific decarbonization pathways to derive ambition levels based on convergence to sectoral emissions intensity, with approved targets receiving 'well below 2°C' classification except for power sector targets modeled with the 1.5°C aligned pathway.

The Science-Based Targets initiative (SBTi), created in 2015 alongside the Paris Agreement, provides international guidance for credible corporate decarbonization targets. Key approaches include absolute value reduction (minimum -42% by 2030 for Paris alignment), sector-specific targets, intensity-based approaches using economic units like value added, and supplier engagement commitments. Examples include Decathlon committing to -90% scope 1-2 reduction by 2026 and Bet Brands targeting -42% scope 1-2 plus -35% per product by 2027. Companies must balance external reference frameworks with internal feasibility.

The Science-Based Target Initiative (SBTi) provides a standardized framework for companies to set emission reduction targets aligned with limiting global warming to 1.5°C, replacing arbitrary percentage-based targets with scientifically validated, industry-specific benchmarks. Organizations must first calculate their carbon footprint across Scope 1, 2, and 3 emissions, then conduct gap analysis to identify reduction hotspots, prioritize initiatives based on impact versus investment, and develop a decarbonization roadmap with annual targets. The journey involves engaging stakeholders including banks (who focus on KPIs), SBTi (which validates targets against 1.5°C pathways), and customers (who increasingly require proof of commitment). For high-emission industries like plastics manufacturing, Scope 3 emissions often dominate (80-85%), requiring engagement with suppliers and circular economy initiatives. Carbon credits can offset residual emissions but must be used strategically after demonstrating maximum feasible reductions, with organizations avoiding greenwashing by ensuring credits address genuine emission gaps rather than substituting for actual reduction efforts.

The Science-Based Target Initiative (SBTi) is a framework enabling organizations to align their decarbonization commitments with global climate goals established in the 2015 Paris Agreement, which aims to limit global temperature increase to 1.5°C or 2°C above pre-industrial levels. Organizations can implement SBTi through five key steps: (1) Make a formal commitment to participate in the decarbonization strategy within 24 months, covering Scope 1, 2, and 3 greenhouse gas emissions; (2) Develop baselines and set science-based targets using one of three approaches—absolute contraction (reducing emissions by fixed numbers regardless of business growth), sectoral decarbonization (reducing emissions intensity per unit of production), or economic intensity (reducing emissions per unit of revenue); (3) Validate targets through independent assessment by WRI to ensure scientific alignment with climate science; (4) Publicly communicate the commitment through corporate channels; and (5) Implement the decarbonization strategy and track performance against set KPIs to ensure targets are met.

Three major regulatory approaches are emerging: ISSB (International Sustainability Standards Board) within IFRS Foundation, developing climate disclosure standards using TCFD pillars; SEC requiring public companies to report climate-related financial data and greenhouse gas emissions (Scope 1, 2, 3) with third-party attestation on Scope 1 and 2; EU CSRD requiring large listed companies and non-EU companies meeting thresholds to use European Sustainability Reporting Standards with third-party assurance. All three base disclosures on TCFD pillars but vary in implementation. ISSB depends on jurisdiction - of 145 jurisdictions requiring IFRS, it's unclear which will require ISSB standards.

Climate disclosure regulations worldwide are converging around two core frameworks: the TCFD (Task Force on Climate-related Financial Disclosures) for assessing financial risks and the GHG Protocol for measuring emissions scopes (1, 2, and 3). While the SEC rule focuses on financial materiality and applies only to large public companies, the EU's CSRD incorporates double materiality (including societal impact) and requires scope 3 disclosures for broader entities, including private companies. California's SB 253/261 sits between these approaches, requiring scope 3 disclosures for companies with $500M-$1B in revenue. This harmonization reduces fragmentation but requires companies to navigate jurisdictional differences in disclosure scope, materiality standards, and application thresholds.

Multiple global frameworks govern climate-related financial disclosures: (1) TCFD (Task Force on Climate-related Financial Disclosures) - provides governance, strategy, risk management, and metrics standards; (2) ISSB (International Sustainability Standards Board) - requires Scope 1, 2, 3 emissions disclosures and climate scenario analysis; (3) IFRS S2 - integrates climate disclosures into financial reporting; (4) EU CSRD - introduces double materiality (financial and impact materiality) covering climate, biodiversity, and social impacts. These frameworks aim to provide consistent climate-related financial disclosures, with TCFD being particularly influential in shaping how banks approach climate risk disclosure. The combination creates a comprehensive approach from high-level frameworks to detailed disclosure standards.

The CSRD applies to EU companies meeting two of three criteria: revenue over 40 million euros, assets over 20 million euros, or 250+ employees. Publicly listed companies comply regardless of size. Non-EU companies with 150+ million euros revenue and EU presence must comply. The most problematic provision is 'double materiality,' requiring companies to collect ESG data from both upstream suppliers and downstream consumers. This creates an impossible compliance burden, as companies must gather data from entire supply chains and customer networks, not just their own operations.

Companies must analyze which regulatory frameworks apply to their operations: (1) US SEC requirements for US-listed companies, (2) EU CSRD for EU operations, (3) ISSB standards for global operations. Different frameworks have different applicability criteria based on company size, listing status, and geographic operations. SEC and EU CSRD disclosure frameworks differ significantly: (1) SEC has four disclosure categories based on company size and listing status, (2) EU CSRD has five disclosure categories based on company size and listing status, (3) SEC requirements are generally narrower in scope, (4) EU CSRD requirements are more comprehensive. Companies must develop compliance strategies based on applicable frameworks: (1) Single-framework compliance requires focused management systems, (2) Multi-framework compliance requires comprehensive management systems capable of meeting multiple requirements.