05 Identifying Scope 3 Emissions
This chapter provides an overview of scope 3 emissions, including the list of scope 3 categories and descriptions of each category. >>>Go back to the start of the GHG Protocol Scope 3 Standard
5.1 Overview of the scopes
The GHG Protocol Corporate Standard divides a company’s emissions into direct and indirect emissions.
- Direct emissions are emissions from sources that are owned or controlled by the reporting company.
- Indirect emissions are emissions that are a consequence of the activities of the reporting company, but occur at sources owned or controlled by another company.
Emissions are further divided into three scopes:
Overview of the scopes |
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Emissions type |
Scope |
Definition |
Examples |
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Direct emissions |
Scope 1 |
Emissions from operations that are owned or controlled by the reporting company |
Emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned or controlled process equipment |
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Indirect emissions |
Scope 2 |
Emissions from the generation of purchased or acquired electricity, steam, heating, or cooling consumed by the reporting company |
Use of purchased electricity, steam, heating, or cooling |
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Scope 3 |
All indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions |
Production of purchased products, transportation of purchased products, or use of sold products |
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Direct emissions are included in scope 1. Indirect emissions are included in scope 2 and scope 3. While a company has control over its direct emissions, it has influence over its indirect emissions. A complete GHG inventory therefore includes scope 1, scope 2, and scope 3.
Scope 1, scope 2, and scope 3 are mutually exclusive for the reporting company, such that there is no double counting of emissions between the scopes. In other words, a company’s scope 3 inventory does not include any emissions already accounted for as scope 1 or scope 2 by the same company. Combined, a company’s scope 1, scope 2, and scope 3 emissions represent the total GHG emissions related to company activities.
By definition, scope 3 emissions occur from sources owned or controlled by other entities in the value chain (e.g., materials suppliers, third-party logistics providers, waste management suppliers, travel suppliers, lessees and lessors, franchisees, retailers, employees, and customers). The scopes are defined to ensure that two or more companies do not account for the same emission within scope 1 or scope 2. By properly accounting for emissions as scope 1, scope 2, and scope 3, companies avoid double counting within scope 1 and scope 2. (For more information, see the GHG Protocol Corporate Standard, chapter 4, “Setting Operational Boundaries.”)
In certain cases, two or more companies may account for the same emission within scope 3. For example, the scope 1 emissions of a power generator are the scope 2 emissions of an electrical appliance user, which are in turn the scope 3 emissions of both the appliance manufacturer and the appliance retailer.
Each of these four companies has different and often mutually exclusive opportunities to reduce emissions. The power generator can generate power using lower-carbon sources. The electrical appliance user can use the appliance more efficiently.
The appliance manufacturer can increase the efficiency of the appliance it produces, and the product retailer can offer more energy-efficient product choices.
By allowing for GHG accounting of direct and indirect emissions by multiple companies in a value chain, scope 1, scope 2, and scope 3 accounting facilitates the simultaneous action of multiple entities to reduce emissions throughout society.
Because of this type of double counting, scope 3 emissions should not be aggregated across companies to determine total emissions in a given region. Note that while a single emission may be accounted for by more than one company as scope 3, in certain cases the emission is accounted for by each company in a different scope 3 category (see section 5.4). For more information on double counting within scope 3, see section 9.6.
5.2 Organizational boundaries and scope 3 emissions
Defining the organizational boundary is a key step in corporate GHG accounting. This step determines which operations are included in the company’s organizational boundary and how emissions from each operation are consolidated by the reporting company.
As detailed in the GHG Protocol Corporate Standard, a company has three options for defining its organizational boundaries as shown in table 5.2.
Companies should use a consistent consolidation approach across the scope 1, scope 2, and scope 3 inventories.
The selection of a consolidation approach affects which activities in the company’s value chain are categorized as direct emissions (i.e., scope 1 emissions) and indirect emissions (i.e., scope 2 and scope 3 emissions). Operations or activities that are excluded from a company’s scope 1 and scope 2 inventories as a result of the organizational boundary definition (e.g., leased assets, investments, and franchises) may become relevant when accounting for scope 3 emissions (see ‘Example of how the consolidation approach affects the scope 3 inventory‘).
Example of how the consolidation approach affects the scope 3 inventory |
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A reporting company has an equity share in four entities (Entities A, B, C and D) and has operational control over three of those entities (Entities A, B, and C). The company selects the operational control approach to define its organizational boundary. Emissions from sources controlled by Entities A, B, and C are included in the company’s scope 1 inventory, while emissions from sources controlled by Entity D are excluded from the reporting company’s scope 1 inventory. Emissions in the value chain of Entities A, B, and C are included in the company’s scope 3 inventory. Emissions from the operation of Entity D are included in the reporting company’s scope 3 inventory as an investment (according to the reporting company’s share of equity in Entity D). If the company instead selects the equity share approach to define its organizational boundary, the company would instead include emissions from sources controlled by Entities A, B, C, and D in its scope 1 inventory, according to its share of equity in each entity. See the figure Example of how the consolidation approach affects the scope 3 inventory.
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Scope 3 includes:
- Emissions from activities in the value chain of the entities included in the company’s organizational boundary
- Emissions from leased assets, investments, and franchises that are excluded from the company’s organizational boundary but that the company partially or wholly owns or controls (see ‘Example of how the consolidation approach affects the scope 3 inventory‘ above)
For example, if a company selects the equity share approach, emissions from any asset the company partially or wholly owns are included in its direct emissions (i.e., scope 1), but emissions from any asset the company controls but does not partially or wholly own (e.g., a leased asset) are excluded from its direct emissions and should be included in its scope 3 inventory1.
Similarly, if a company selects the operational control approach, emissions from any asset the company controls are included in its direct emissions (i.e., scope 1), but emissions from any asset the company wholly or partially owns but does not control (e.g., investments) are excluded from its direct emissions and should be included in its scope 3 inventory.
See the GHG Protocol Corporate Standard, chapter 3, “Setting Organizational Boundaries” for more information on each of the consolidation approaches.
5.3 Upstream and downstream scope 3 emissions
This standard divides scope 3 emissions into upstream and downstream emissions. The distinction is based on the financial transactions of the reporting company.
- Upstream emissions are indirect GHG emissions related to purchased or acquired goods and services.
- Downstream emissions are indirect GHG emissions related to sold2 goods and services.
In the case of goods purchased or sold by the reporting company, upstream emissions occur up to the point of receipt by the reporting company, while downstream emissions occur subsequent to their sale by the reporting company and transfer of control from the reporting company to another entity (e.g., a customer). Emissions from activities under the ownership or control of the reporting company (i.e., direct emissions) are neither upstream nor downstream (see figure 5.2).
A reporting company has an equity share in four entities (Entities A, B, C and D) and has operational control over three of those entities (Entities A, B, and C). The company selects the operational control approach to define its organizational boundary.
Emissions from sources controlled by Entities A, B, and C are included in the company’s scope 1 inventory, while emissions from sources controlled by Entity D are excluded from the reporting company’s scope 1 inventory.
Emissions in the value chain of Entities A, B, and C are included in the company’s scope 3 inventory. Emissions from the operation of Entity D are included in the reporting company’s scope 3 inventory as an investment (according to the reporting company’s share of equity in Entity D).
If the company instead selects the equity share approach to define its organizational boundary, the company would instead include emissions from sources controlled by Entities A, B, C, and D in its scope 1 inventory, according to its share of equity in each entity. See the figure in ‘Example of how the consolidation approach affects the scope 3 inventory‘ above.
5.4 Overview of scope 3 categories
This standard categorizes scope 3 emissions into 15 distinct categories, as listed in ‘Overview of GHG Protocol scopes and emissions across the value chain‘ above and ‘List of scope 3 categories‘ below.
Table 5.3 List of scope 3 categories
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Upstream or downstream |
Scope 3 category |
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Upstream scope 3 emissions |
1. Purchased goods and services 2. Capital goods 3. Fuel- and energy-related activities (not included in scope 1 or scope 2) 4. Upstream transportation and distribution 5. Waste generated in operations 6. Business travel 7. Employee commuting 8. Upstream leased assets |
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Downstream scope 3 emissions |
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 categories are intended to provide companies with a systematic framework to organize, understand, and report on the diversity of scope 3 activities within a corporate value chain. The categories are designed to be mutually exclusive, such that, for any one reporting company, there is no double counting of emissions between categories3. Each scope 3 category is comprised of multiple scope 3 activities that individually result in emissions.
Table 5.4 includes descriptions of each of the 15 categories that comprise scope 3 emissions. Each category is described in detail in section 5.5 Descritions of scope 3 categories.
Table 5.4 Description and boundaries of scope 3 categories in 05 Identifying Scope 3 Emissions
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Category |
Category description |
Minimum boundary |
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1. Purchased goods and services |
Extraction, production, and transportation of goods and services purchased or acquired by the reporting company in the reporting year, not otherwise included in Categories 2 – 8 |
All upstream (cradle-to-gate) emissions of purchased goods and services |
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2. Capital goods |
Extraction, production, and transportation of capital goods purchased or acquired by the reporting company in the reporting year |
All upstream (cradle-to-gate) emissions of purchased capital goods |
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3. Fuel- and energy-related activities (not included in scope 1 or scope 2) Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Extraction, production, and transportation of fuels and energy purchased or acquired by the reporting company in the reporting year, not already accounted for in scope 1 or scope 2, including:
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Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions
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4. Upstream transportation and distribution |
Transportation and distribution of products purchased by the reporting company in the reporting year between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company) Transportation and distribution services purchased by the reporting company in the reporting year, including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company) |
The scope 1 and scope 2 emissions of transportation and distribution providers that occur during use of vehicles and facilities (e.g., from energy use) Optional: The life cycle emissions associated with manufacturing vehicles, facilities, or infrastructure |
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5. Waste generated in operations |
Disposal and treatment of waste generated in the reporting company’s operations in the reporting year (in facilities not owned or controlled by the reporting company) |
The scope 1 and scope 2 emissions of waste management suppliers that occur during disposal or treatment Optional: Emissions from transportation of waste |
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6. Business travel |
Transportation of employees for business-related activities during the reporting year (in vehicles not owned or operated by the reporting company) |
The scope 1 and scope 2 emissions of transportation carriers that occur during use of vehicles (e.g., from energy use) Optional: The life cycle emissions associated with manufacturing vehicles or infrastructure |
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7. Employee commuting |
Transportation of employees between their homes and their worksites during the reporting year (in vehicles not owned or operated by the reporting company) |
The scope 1 and scope 2 emissions of employees and transportation providers that occur during use of vehicles (e.g., from energy use) Optional: Emissions from employee teleworking |
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8. Upstream leased assets |
Operation of assets leased by the reporting company (lessee) in the reporting year and not included in scope 1 and scope 2 – reported by lessee |
The scope 1 and scope 2 emissions of lessors that occur during the reporting company’s operation of leased assets (e.g., from energy use) Optional: The life cycle emissions associated with manufacturing or constructing leased assets |
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9. Downstream transportation and distribution |
Transportation and distribution of products sold by the reporting company in the reporting year between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company) |
The scope 1 and scope 2 emissions of transportation providers, distributors, and retailers that occur during use of vehicles and facilities (e.g., from energy use) Optional: The life cycle emissions associated with manufacturing vehicles, facilities, or infrastructure |
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10. Processing of sold products |
Processing of intermediate products sold in the reporting year by downstream companies (e.g., manufacturers) |
The scope 1 and scope 2 emissions of downstream companies that occur during processing (e.g., from energy use) |
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11. Use of sold products |
End use of goods and services sold by the reporting company in the reporting year |
The direct use-phase emissions of sold products over their expected lifetime (i.e., the scope 1 and scope 2 emissions of end users that occur from the use of: products that directly consume energy (fuels or electricity) during use; fuels and feedstocks; and GHGs and products that contain or form GHGs that are emitted during use) Optional: The indirect use-phase emissions of sold products over their expected lifetime (i.e., emissions from the use of products that indirectly consume energy (fuels or electricity) during use) |
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12. End-of-life treatment of sold products |
Waste disposal and treatment of products sold by the reporting company (in the reporting year) at the end of their life |
The scope 1 and scope 2 emissions of waste management companies that occur during disposal or treatment of sold products |
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13. Downstream leased assets |
Operation of assets owned by the reporting company (lessor) and leased to other entities in the reporting year, not included in scope 1 and scope 2 – reported by lessor |
The scope 1 and scope 2 emissions of lessees that occur during operation of leased assets (e.g., from energy use). Optional: The life cycle emissions associated with manufacturing or constructing leased assets |
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14. Franchises |
Operation of franchises in the reporting year, not included in scope 1 and scope 2 – reported by franchisor |
The scope 1 and scope 2 emissions of franchisees that occur during operation of franchises (e.g., from energy use) Optional: The life cycle emissions associated with manufacturing or constructing franchises |
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15. Investments |
Operation of investments (including equity and debt investments and project finance) in the reporting year, not included in scope 1 or scope 2 |
See the description of category 15 (Investments) in section 5.5 for the required and optional boundaries |
Companies are required to report scope 3 emissions by scope 3 category. Any scope 3 activities not captured by the list of scope 3 categories may be reported separately (see chapter 11).
Minimum boundaries of scope 3 categories
Table 5.4 identifies the minimum boundaries of each scope 3 category in order to standardize the boundaries of each category and help companies understand which activities should be accounted for. The minimum boundaries are intended to ensure that major activities are included in the scope 3 inventory, while clarifying that companies need not account for the value chain emissions of each entity in its value chain, ad infinitum. Companies may include emissions from optional activities within each category. Companies may exclude scope 3 activities included in the minimum boundary of each category, provided that any exclusion is disclosed and justified. (For more information, see chapter 6.)
For some scope 3 categories (e.g., purchased goods and services, capital goods, fuel- and energy-related activities), the minimum boundary includes all upstream (cradle-to-gate4) emissions of purchased products to ensure that the inventory captures the GHG emissions of products wherever they occur in the life cycle, from raw material extraction through purchase by the reporting company.
For other categories (e.g., transportation and distribution, waste generated in operations, business travel, employee commuting, leased assets, franchises, use of sold products, etc.), the minimum boundary includes the scope 1 and scope 2 emissions of the relevant value chain partner (e.g., the transportation provider, waste management company, transportation carrier, employee, lessor, franchisor, consumer, etc.).
For these categories, the major emissions related to the scope 3 category result from scope 1 and scope 2 activities of the entity (e.g., the fuel consumed in an air-plane for business travel), rather than the emissions associated with manufacturing capital goods or infrastructure (e.g., the construction of an air-plane or airport for business travel). Companies may account for additional emissions beyond the minimum boundary where relevant.
Time boundary of scope 3 categories
This standard is designed to account for all emissions related to the reporting company’s activities in the reporting year (e.g., emissions related to products purchased or sold in the reporting year).
For some scope 3 categories, emissions occur simultaneously with the activity (e.g., from combustion of energy), so emissions occur in the same year as the company’s activities (see ‘Time boundary of scope 3 categories‘).
Figure [5.3] Time boundary of scope 3 categories
For some categories, emissions may have occurred in previous years. For other scope 3 categories, emissions are expected to occur in future years because the activities in the reporting year have long-term emissions impacts. For these categories, reported emissions have not yet happened, but are expected to happen as a result of the waste generated, investments made, and products sold in the reporting year.
For these categories, the reported data should not be interpreted to mean that emissions have already occurred, but that emissions are expected to occur as a result of activities that occurred in the reporting year.
5.5 Descriptions of scope 3 categories
This section provides detailed descriptions of each scope 3 category.
Category 1: Purchased goods and services
This category includes all upstream (i.e., cradle-to-gate) emissions from the production of products purchased or acquired by the reporting company in the reporting year. Products include both goods (tangible products) and services (intangible products).
This category includes emissions from all purchased goods and services not otherwise included in the other categories of upstream scope 3 emissions (i.e., category 2 through category 8). Specific categories of upstream emissions are separately reported in category 2 through category 8 to enhance the transparency and consistency of scope 3 reports.
Cradle-to-gate emissions include all emissions that occur in the life cycle of purchased products, up to the point of receipt by the reporting company (excluding emissions from sources that are owned or controlled by the reporting company). Cradle-to-gate emissions may include:
- Extraction of raw materials
- Agricultural activities
- Manufacturing, production, and processing
- Generation of electricity consumed by upstream activities
- Disposal/treatment of waste generated by upstream activities
- Land use and land-use change55
- Transportation of materials and products between suppliers
- Any other activities prior to acquisition by the reporting company
Emissions from the use of products purchased by the reporting company are accounted for in either scope 1 (e.g., for fuel use) or scope 2 (e.g., for electricity use), rather than scope 3.
Companies may find it useful to differentiate between purchases of production-related and non-production- related products. Doing so may be aligned with existing procurement practices and therefore may be a useful way to more efficiently organize and collect data (see ‘Production-related and non-production-related procurement‘).
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A company’s purchases can be divided into two types:
Production-related procurement (often called direct procurement) consists of purchased goods that are directly related to the production of a company’s products. Production-related procurement includes:
Non-production-related procurement (often called indirect procurement) consists of purchased goods and services that are not integral to the company’s products, but are instead used to enable operations. Non-production-related procurement may include capital goods, such as furniture, office equipment, and computers. Non-production-related procurement includes:
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Companies may also find it useful to differentiate between purchases of intermediate products, final products, and capital goods (see ‘Intermediate products, final products, and capital goods‘).
Box 5.3 Intermediate products, final products, and capital goods |
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Intermediate products are inputs to the production of other goods or services that require further processing, transformation, or inclusion in another product before use by the end consumer. Intermediate products are not consumed by the end user in their current form. Final products are goods and services that are consumed by the end user in their current form, without further processing, transformation, or inclusion in another product. Final products include:
Capital goods are final goods that are not immediately consumed or further processed by the company, but are instead used in their current form by the company to manufacture a product, provide a service, or sell, store, and deliver merchandise. Scope 3 emissions from capital goods are reported in category 2 (Capital goods), rather than category 1 (Purchased goods and services). Intermediate goods and capital goods are both inputs to a company’s operations. The distinction between intermediate goods and capital goods depends on the circumstances. For example, if a company includes an electrical motor in another product (e.g., a motor vehicle), the electrical motor is an intermediate good. If a company uses the electrical motor to produce other goods, it is a capital good consumed by the reporting company. |
Category 2: Capital goods
This category includes all upstream (i.e., cradle-to-gate) emissions from the production of capital goods purchased or acquired by the reporting company in the reporting year. Emissions from the use of capital goods by the reporting company are accounted for in either scope 1 (e.g., for fuel use) or scope 2 (e.g., for electricity use), rather than scope 3.
Capital goods are final products that have an extended life and are used by the company to manufacture a product, provide a service, or sell, store, and deliver merchandise. In financial accounting, capital goods are treated as fixed assets or as plant, property, and equipment (PP&E). Examples of capital goods include equipment, machinery, buildings, facilities, and vehicles.
In certain cases, there may be ambiguity over whether a particular purchased product is a capital good (to be reported in category 2) or a purchased good (to be reported in category 1). Companies should follow their own financial accounting procedures to determine whether to account for a purchased product as a capital good in this category or as a purchased good or service in category 1. Companies should not double count emissions between category 1 and category 2.
Accounting for emissions from capital goods |
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In financial accounting, capital goods (sometimes called “capital assets”) are typically depreciated or amortized over the life of the asset. For purposes of accounting for scope 3 emissions companies should not depreciate, discount, or amortize the emissions from the production of capital goods over time. Instead companies should account for the total cradle-to-gate emissions of purchased capital goods in the year of acquisition, the same way the company accounts for emissions from other purchased products in category 1. If major capital purchases occur only once every few years, scope 3 emissions from capital goods may fluctuate significantly from year to year. Companies should provide appropriate context in the public report (e.g., by highlighting exceptional or non-recurring capital investments). |
BASF: Scope 3 emissions from purchased goods and services |
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BASF, a global chemical company, is committed to acting responsibly throughout its entire value chain in order to build stable and sustainable relationships with business partners. When making decisions, BASF chooses carriers, service providers, and suppliers not just on the basis of price, but also on the basis of their performance in environmental and social responsibility. When calculating scope 3 emissions from category 1 (Purchased goods and ser vices), BASF accounted for emissions from raw materials, components, packaging materials, and other goods and services not included in the other upstream scope 3 categories. BA SF found that , in 2009, scope 3 emissions from categor y 1 (Purchased goods and services) accounted for 24 percent of its total scope 3 emissions and 20 percent of its combined scope 1, scope 2, and scope 3 emissions. Calculating emissions from raw materials BASF accounted for scope 3 emissions from 100 percent of its procured raw materials and component manufacturing at its suppliers’ facilities (by weight). BASF calculated the cradle-to-gate emissions of raw materials, including all direct GHG emissions from raw material extraction, precursor manufacturing, and transport, as well as indirect emissions from energy use. To do so, BASF determined the quantity of each product purchased, then applied cradle-to-gate emission factors for about 90 percent of the purchased products (by weight), obtained from commercially and publically available data sources as well as from its own life cycle assessment database, which is based mainly on primary data. BASF multiplied the CO2e emissions per kilogram of each product by the respective quantity of the product purchased to determine cradle-to-gate emissions. Finally, BASF extrapolated the resulting scope 3 emissions to 100 percent of total purchases in order to account for all procured raw materials and components. Calculating emissions from packaging BASF first determined the types and quantities of packaging materials purchased in the reporting year (such as plastic, paper board, and steel) based on the number of containers purchased and the fractions of materials used in each container. BASF then calculated GHG emissions by multiplying the total amount of various materials by their respective cradle-to gate emission factors. Results BASF found that 93 percent of its category 1 GHG emissions result from the raw materials purchased, while packaging, services and, equipment account for only 7 percent. This finding suggests the need to prioritize future scope 3 accounting and reduction efforts on raw materials. Working with suppliers to improve GHG performance will help BASF reduce its scope 3 emissions from raw materials over time. The company’s results could also inform the development of sector-specific guidance for the chemical industry, by focusing on raw materials and components for the chemical sector. Scope 3 emissions from category 1 (Purchased goods and services) accounted for 24 percent of BASF’s total scope 3 emissions and 20 percent of its combined scope 1, scope 2, and scope 3 emissions. |
This category includes emissions related to the production of fuels and energy purchased and consumed by the reporting company in the reporting year that are not included in scope 1 or scope 2.
Category 3 excludes emissions from the combustion of fuels or electricity consumed by the reporting company, since they are already included in scope 1 or scope 2.
Scope 1 includes emissions from the combustion of fuels by sources owned or controlled by the reporting company. Scope 2 includes the emissions from the combustion of fuels to generate electricity, steam, heating, and cooling purchased and consumed by the reporting company. This category includes emissions from four distinct activities (see ‘Activities included in category 3 (Fuel- and energy-related emissions not included in scope 1 or scope 2′)).
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Activity |
Description |
Applicability |
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a. Upstream emissions of purchased fuels |
Extraction, production, and transportation of fuels consumed by the reporting company • Examples include mining of coal, refining of gasoline, transmission and distribution of natural gas, production of biofuels, etc. |
Applicable to end-users of fuels |
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b. Upstream emissions of purchased electricity |
Extraction, production, and transportation of fuels consumed in the generation of electricity, steam, heating, and cooling that is consumed by the reporting company • Examples include mining of coal, refining of fuels, extraction of natural gas, etc. |
Applicable to end users of electricity, steam, heating and cooling |
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c. T&D losses |
Generation of electricity, steam, heating, and cooling that is consumed (i.e., lost) in a T&D system – reported by end user |
Applicable to end users of electricity, steam, heating and cooling |
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d. Generation of purchased electricity that is sold to end users |
Generation of electricity, steam, heating, and cooling that is purchased by the reporting company and sold to end users – reported by utility company or energy retailer • Note: This activity is particularly relevant for utility companies that purchase wholesale electricity supplied by independent power producers for resale to their customers. |
Applicable to utility companies and energy retailers |
Accounting for emissions from the production, transmission, and use of electricity |
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Figure [5.4] Emissions across an electricity value chain This figure illustrates an electricity value chain. A coal mining and processing company (A) directly emits 5 metric tons of CO2e per year from its operations and sells coal to a power generator (B), which generates 100 MWh of electricity and directly emits 100 metric tons of CO2e per year. A utility (C) that owns and operates a T&D system purchases all of the generator’s electricity. The utility consumes 10 MWh due to T&D losses (corresponding to 10 metric tons CO2e of scope 2 emissions per year) and delivers the remaining 90 MWh to an end user (D ), which consumes 90 Mwh (corresponding to 90 metric tons CO2e of scope 2 emissions per year). The table below explains how each company accounts for GHG emissions. In this example, the emission factor of the electricity sold by Company B is 1 t CO2e/MWh. All numbers are illustrative only. |
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Accounting for emissions across an electricity value chain |
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Reporting company |
Scope 1 |
Scope 2 |
Scope 3 |
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Coal mining, processing, and transport (Company A) |
5t CO2e |
0 (unless electricity is used during coal mining and processing) |
100t CO2e from the combustion of sold products (i.e., coal) Reported in category 11 (Use of sold products) |
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Power generator (Company B) |
100t CO2e |
0 |
5t CO2e from the extraction, production, and transportation of fuel (i.e., coal) consumed by the reporting company Reported in Category 3 (Fuel- and energy-related activities) Note: The generator does not account for scope 3 emissions associated with sold electricity because the emissions are already accounted for in scope 1. |
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Utility (Company C) |
0 (unless SF6 is released from the T&D system) |
10t CO2e from the generation of electricity purchased and consumed by Company C |
0.5t CO2e from the extraction, production, and transportation of fuels (i.e., coal) consumed in the generation of electricity consumed by Company C (5tons from coal mining x 10 percent of electricity generated by B that is consumed by C) 94.5t CO2e from the generation of electricity purchased by Company C and sold to Company D Both are reported in category 3 (Fuel- and energy-related activities) |
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End consumer of electricity (Company D) |
0 |
90t CO2e from the generation of electricity purchased and consumed by Company D |
4.5t CO2e from the extraction, production, and transportation of coal consumed in the generation of electricity consumed by Company D 10.5t CO2e from the generation of electricity that is consumed (i.e., lost) in transmission and distribution Both are reported in category 3 (Fuel- and energy-related activities) |
Category 4: Upstream transportation and distribution
This category includes emissions from the transportation and distribution of products (excluding fuel and energy products) purchased or acquired by the reporting company in the reporting year in vehicles and facilities not owned or operated by the reporting company, as well as other transportation and distribution services purchased by the reporting company in the reporting year (including both inbound and outbound logistics).
Specifically, this category includes:
- Transportation and distribution of products purchased by the reporting company in the reporting year, between a company’s tier 1 suppliers6 and its own operations (including multi-modal shipping where multiple carriers are involved in the delivery of a product)
- Third-party transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and third-party transportation and distribution between a company’s own facilities
Emissions may arise from the following transportation and distribution activities throughout the value chain:
- Air transport
- Rail transport
- Road transport
- Marine transport
- Storage of purchased products in warehouses, distribution centers, and retail facilities
Outbound logistics services purchased by the reporting company are categorized as upstream because they are a purchased service. Emissions from transportation and distribution of purchased products upstream of the reporting company’s tier 1 suppliers (e.g., transportation between a company’s tier 2 and tier 1 suppliers) are accounted for in scope 3, category 1 (Purchased goods and services). The table below explains the scope and scope 3 category where each type of transportation and distribution activity should be accounted for.
Accounting for emissions from transportation and distribution activities in the value chain |
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Transportation and distribution activity in the value chain |
Scope 1 (for fuel use) or scope 2 (for electricity use) |
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Transportation and distribution in vehicles and facilities leased by and operated by the reporting company (and not already included in scope 1 or scope 2) |
Scope 3, category 8 (Upstream leased assets) |
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Transportation and distribution of purchased products, upstream of the reporting company’s tier 1 suppliers (e.g., transportation between a company’s tier 2 and tier 1 suppliers) |
Scope 3, category 1 (Purchased goods and services), since emissions from transportation are already included in the cradle-to-gate emissions of purchased products. These emissions are not required to be reported separately from category 1. |
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Production of vehicles (e.g., ships, trucks, planes) purchased or acquired by the reporting company |
Account for the upstream (i.e., cradle-to-gate) emissions associated with manufacturing vehicles in Scope 3, category 2 (Capital goods) |
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Transportation of fuels and energy consumed by the reporting company |
Scope 3, category 3 (Fuel- and energy-related emissions not included in scope 1 or scope 2) |
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Transportation and distribution of products purchased by the reporting company, between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company) |
Scope 3, category 4 (Upstream transportation and distribution) |
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Transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company) |
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Transportation and distribution of products sold by the reporting company between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company) |
Scope 3, category 9 (Downstream transportation and distribution) |
A reporting company’s scope 3 emissions from upstream transportation and distribution include the scope 1 and scope 2 emissions of third-party transportation companies.
Category 5: Waste generated in operations
This category includes emissions from third-party disposal and treatment of waste that is generated in the reporting company’s owned or controlled operations in the reporting year. This category includes emissions from disposal of both solid waste and wastewater. Only waste treatment in facilities owned or operated by third parties is included in scope 3. Waste treatment at facilities owned or controlled by the reporting company is accounted for in scope 1 and scope 2.
Treatment of waste generated in operations is categorized as an upstream scope 3 category because waste management services are purchased by the reporting company. This category includes all future emissions that result from waste generated in the reporting year. (See section 5.4 for more information on the time boundary of scope 3 categories.)
Waste treatment activities may include:
- Disposal in a landfill
- Disposal in a landfill with landfill-gas-to-energy (LFGTE) – i.e., combustion of landfill gas to generate electricity
- Recovery for recycling
- Incineration
- Composting
- Waste-to-energy (WTE) or energy-from-waste (EfW) – i.e., combustion of municipal solid waste (MSW) to generate electricity
- Wastewater treatment
Companies may optionally include emissions from transportation of waste.
See the table below for guidance on accounting for emissions from recycling.
Accounting for emissions from recycling |
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Companies (e.g., plastic bottle manufacturers) may both purchase materials with recycled content (e.g., plastic) and sell products that are recyclable (e.g., plastic bottles). In this case, accounting for emissions from the recycling processes both upstream and downstream would double count emissions from recycling. To avoid double counting of emissions from recycling processes by the same company, companies should account for upstream emissions from recycling processes in category 1 and category 2 when the company purchases goods or materials with recycled content. In category 5 and category 12, companies should account for emissions from recovering materials at the end of their life for recycling, but should not account for emissions from recycling processes themselves (these are instead included in category 1 and category 2 by purchasers of recycled materials). Companies should not report negative or avoided emissions associated with recycling in category 5 or category 12. Any claims of avoided emissions associated with recycling should not be included in, or deducted from, the scope 3 inventory, but may instead be reported separately from scope 1, scope 2, and scope 3 emissions. Companies that report avoided emissions should also provide data to support the claim that emissions are avoided (e.g., that recycled materials are collected, recycled, and used) and report the methodology, data sources, system boundary, time period, and other assumptions used to calculate avoided emissions. For more information on avoided emissions, see section 9.5. |
A reporting company’s scope 3 emissions from waste generated in operations include the scope 1 and scope 2 emissions of solid waste and waste-water management companies.
Category 6: Business travel
This category includes emissions from the transportation of employees for business-related activities in vehicles owned or operated by third parties, such as aircraft, trains, buses, and passenger cars.
Emissions from transportation in vehicles owned or controlled by the reporting company are accounted for in either scope 1 (for fuel use) or scope 2 (for electricity use). Emissions from leased vehicles operated by the reporting company not included in scope 1 or scope 2 are accounted for in scope 3, category 8 (Upstream leased assets). Emissions from transportation of employees to and from work are accounted for in scope 3, category 7 (Employee commuting).
Emissions from business travel may arise from:
- Air travel
- Rail travel
- Bus travel
- Automobile travel (e.g., business travel in rental cars or employee-owned vehicles other than employee commuting to and from work)
- Other modes of travel
Companies may optionally include emissions from business travelers staying in hotels.
A reporting company’s scope 3 emissions from business travel include the scope 1 and scope 2 emissions of transportation companies (e.g., airlines).
Category 7: Employee commuting
This category includes emissions from the transportation of employees7 between their homes and their worksites.
Emissions from employee commuting may arise from:
- Automobile travel
- Bus travel
- Rail travel
- Air travel
- Other modes of transportation
Companies may include emissions from teleworking (i.e., employees working remotely) in this category.
A reporting company’s scope 3 emissions from employee commuting include the scope 1 and scope 2 emissions of employees and third-party transportation providers.
Even though employee commuting is not always purchased or reimbursed by the reporting company, it is categorized as an upstream scope 3 category because it is a service that enables company operations, similar to purchased or acquired goods and services.
Category 8: Upstream leased assets
This category includes emissions from the operation of assets that are leased by the reporting company in the reporting year and not already included in the reporting company’s scope 1 or scope 2 inventories. This category is only applicable to companies that operate leased assets (i.e., lessees). For companies that own and lease assets to others (i.e., lessors), see category 13 (Downstream leased assets).
Leased assets may be included in a company’s scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries (see section 5.2).
If the reporting company leases an asset for only part of the reporting year, it should account for emissions for the portion of the year that the asset was leased. A reporting company’s scope 3 emissions from upstream leased assets include the scope 1 and scope 2 emissions of lessors (depending on the lessor’s consolidation approach).
See Appendix A for more information on accounting for emissions from leased assets.
Category 9: Downstream transportation and distribution
This category includes emissions from transportation and distribution of products sold by the reporting company in the reporting year between the reporting company’s operations and the end consumer (if not paid for by the reporting company), in vehicles and facilities not owned or controlled by the reporting company. This category includes emissions from retail and storage.
Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 only includes transportation- and distribution-related emissions that occur after the reporting company pays to produce and distribute its products. See the table below for guidance on accounting for emissions from transportation and distribution in the value chain.
Accounting for emissions from transportation and distribution activities in the value chain |
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Transportation and distribution activity in the value chain |
Scope 1 (for fuel use) or scope 2 (for electricity use) |
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Transportation and distribution in vehicles and facilities leased by and operated by the reporting company (and not already included in scope 1 or scope 2) |
Scope 3, category 8 (Upstream leased assets) |
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Transportation and distribution of purchased products, upstream of the reporting company’s tier 1 suppliers (e.g., transportation between a company’s tier 2 and tier 1 suppliers) |
Scope 3, category 1 (Purchased goods and services), since emissions from transportation are already included in the cradle-to-gate emissions of purchased products. These emissions are not required to be reported separately from category 1. |
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Production of vehicles (e.g., ships, trucks, planes) purchased or acquired by the reporting company |
Account for the upstream (i.e., cradle-to-gate) emissions associated with manufacturing vehicles in Scope 3, category 2 (Capital goods) |
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Transportation of fuels and energy consumed by the reporting company |
Scope 3, category 3 (Fuel- and energy-related emissions not included in scope 1 or scope 2) |
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Transportation and distribution of products purchased by the reporting company, between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company) |
Scope 3, category 4 (Upstream transportation and distribution) |
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Transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company) |
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Transportation and distribution of products sold by the reporting company between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company) |
Scope 3, category 9 (Downstream transportation and distribution) |
Emissions from downstream transportation and distribution can arise from:
- Storage of sold products in warehouses and distribution centers
- Storage of sold products in retail facilities
- Air transport
- Rail transport
- Road transport
- Marine transport
Companies may include emissions from customers traveling to retail stores in this category, which can be significant for companies that own or operate retail facilities. See section 5.6 for guidance on the applicability of category 9 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from downstream transportation and distribution include the scope 1 and scope 2 emissions of transportation companies, distribution companies, retailers, and (optionally) customers.
Category 10: Processing of sold products
This category includes emissions from processing of sold intermediate products by third parties (e.g., manufacturers) subsequent to sale by the reporting company. Intermediate products are products that require further processing, transformation, or inclusion in another product before use (see Intermediate products, final products, and capital goods, below), and therefore result in emissions from processing subsequent to sale by the reporting company and before use by the end consumer. Emissions from processing should be allocated to the intermediate product.
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Intermediate products, final products, and capital goods |
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Intermediate products are inputs to the production of other goods or services that require further processing, transformation, or inclusion in another product before use by the end consumer. Intermediate products are not consumed by the end user in their current form. Final products are goods and services that are consumed by the end user in their current form, without further processing, transformation, or inclusion in another product. Final products include:
Capital goods are final goods that are not immediately consumed or further processed by the company, but are instead used in their current form by the company to manufacture a product, provide a service, or sell, store, and deliver merchandise. Scope 3 emissions from capital goods are reported in category 2 (Capital goods), rather than category 1 (Purchased goods and services). Intermediate goods and capital goods are both inputs to a company’s operations. The distinction between intermediate goods and capital goods depends on the circumstances. For example, if a company includes an electrical motor in another product (e.g., a motor vehicle), the electrical motor is an intermediate good. If a company uses the electrical motor to produce other goods, it is a capital good consumed by the reporting company. |
In certain cases, the eventual end use of sold intermediate products may be unknown. For example, a company may produce an intermediate product with many potential downstream applications, each of which has a different GHG emissions profile, and be unable to reasonably estimate the downstream emissions associated with the various end uses of the intermediate product. See section 6.4 for guidance in cases where downstream emissions associated with sold intermediate products are unknown.
Companies may calculate emissions from category 10 without collecting data from customers or other value chain partners. For more information, see Guidance for Calculating Scope 3 Emissions, available online at www.ghgprotocol.org. See also section 5.6 for guidance on the applicability of category 10 to final products and intermediate products sold by the reporting company.
A reporting company’s scope 3 emissions from processing of sold intermediate products include the scope 1 and scope 2 emissions of downstream value chain partners (e.g., manufacturers).
Category 11: Use of sold products
This category includes emissions from the use of goods and services sold by the reporting company in the reporting year. A reporting company’s scope 3 emissions from use of sold products include the scope 1 and scope 2 emissions of end users. End users include both consumers and business customers that use final products.
This standard divides emissions from the use of sold products into two types:
- Direct use-phase emissions
- Indirect use-phase emissions
The minimum boundary of category 11 includes direct use-phase emissions of sold products. Companies may also account for indirect use-phase emissions of sold products, and should do so when indirect use-phase emissions are expected to be significant. See table 5.8 for descriptions and examples of direct and indirect use-phase emissions.
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Table 5.8 Emissions from use of sold products |
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Type of emissions |
Product type |
Examples |
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Direct use-phase emissions (Required) |
Products that directly consume energy (fuels or electricity) during use |
Automobiles, aircraft, engines, motors, power plants, buildings, appliances, electronics, lighting, data centers, web-based software |
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Fuels and feedstocks |
Petroleum products, natural gas, coal, biofuels, and crude oil |
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|
Greenhouse gases and products that contain or form greenhouse gases that are emitted during use |
CO2, CH4, N2O, HFCs, PFCs, SF6, refrigeration and air-conditioning equipment, industrial gases, fire extinguishers, fertilizers |
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Indirect use-phase emissions (Optional) |
Products that indirectly consume energy (fuels or electricity) during use |
Apparel (requires washing and drying), food (requires cooking and refrigeration), pots and pans (require heating), and soaps and detergents (require heated water) |
This category includes the total expected lifetime emissions from all relevant products sold in the reporting year across the company’s product portfolio.
By doing so, the scope 3 inventory accounts for a company’s total GHG emissions associated with its activities in the reporting year. (Refer to section 5.4 for more information on the time boundary of scope 3 categories.) Here is an example of reporting product lifetime emissions and an example for guidance related to product lifetime and durability.
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Example of reporting product lifetime emissions |
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An automaker sells one million cars in 2010. Each car has an expected lifetime of ten years. The company reports the anticipated use-phase emissions of the one million cars it sold in 2010 over their ten year expected lifetime. The company also reports corporate average fuel economy (km per liter) and corporate average emissions (kg CO2e/km) as relevant emissions-intensity metrics. |
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Example of product lifetime and durability |
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Because the scope 3 inventory accounts for total lifetime emissions of sold products, companies that produce more durable products with longer lifetimes could appear to be penalized because, as product lifetimes increase, scope 3 emissions increase, assuming all else is constant. To reduce the potential for emissions data to be misinterpreted, companies should also report relevant information such as product lifetimes and emissions intensity metrics to demonstrate product performance over time. Relevant emissions intensity metrics may include annual emissions per product, energy efficiency per product, emissions per hour of use, emissions per kilometer driven, emissions per functional unit, etc. |
Refer to the GHG Protocol Product Standard for information on accounting for GHG emissions from individual products over their life cycle.
Companies may optionally include emissions associated with maintenance of sold products during use.
See section 5.6 for guidance on the applicability of category 11 to final products and intermediate products sold by the reporting company.
Companies may calculate emissions from category 11 without collecting data from customers or consumers.
Calculating emissions from category 11 typically requires product design specifications and assumptions about how consumers use products (e.g., use profiles, assumed product lifetimes, etc.). For more information, see Guidance for Calculating Scope 3 Emissions, available online at www.ghgprotocol.org. Companies are required to report a description of the methodologies and assumptions used to calculate emissions (see chapter 11 Reporting).
Where relevant, companies should report additional information on product performance when reporting scope 3 emissions in order to provide additional transparency on steps companies are taking to reduce GHG emissions from sold products. Such information may include GHG intensity metrics, energy intensity metrics, and annual emissions from the use of sold products (see section 11.3). See section 9.3 for guidance on recalculating base year emissions when methodologies or assumptions related to category 11 change over time.
Any claims of avoided emissions related to a company’s sold products must be reported separately from the company’s scope 1, scope 2, and scope 3 inventories. (For more information, see section 9.5.)
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IKEA: Scope 3 emissions from the use of sold products |
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IKEA, an international home furnishings retailer, estimated its scope 3 emissions from all sold products that consume energy during the use-phase. The products included all types of appliances (e.g., refrigerators, freezers, stoves, and ovens) and lighting (e.g., incandescent light bulbs, compact fluorescent bulbs, and halogen lights) sold in approximately 25 countries. IKEA calculated GHG emissions by first grouping hundreds of products into 15 distinct product groups, then determining the average power demand (in watts), average annual use time, and average product lifetimes for each product group. IKEA obtained information on product-use profiles and lifetimes from IKEA’s suppliers and other experts. IKEA calculated the products’ expected lifetime energy use and applied an average electricity emission factor to calculate the expected lifetime GHG emissions. The results showed that the use of sold products accounted for 20 percent of IKEA’s combined scope 1, scope 2, and scope 3 emissions, or approximately 6 million metric tons of GHG emissions. With the help of the scope 3 inventory, IKEA realized that small changes in the efficiency of its sold products would have significant effects on IKEA’s total GHG emissions. As a result, IKEA has adopted a target that, by 2015, all products sold will be 50 percent more efficient on average than the products on the market in 2008. IKEA expects this strategy to achieve annual GHG reductions of several million metric tons, significantly more than the company’s total scope 1 and scope 2 emissions, which in 2010 was approximately 800,000 metric tons of CO2e. IKEA has adopted a target that, by 2015, all products sold will be 50 percent more efficient on average than the products on the market in 2008. |
Category 12: End-of-life treatment of sold products
This category includes emissions from the waste disposal and treatment of products sold by the reporting company (in the reporting year) at the end of their life.
This category includes the total expected end-of-life emissions from all products sold in the reporting year. (See section 5.4 for more information on the time boundary of scope 3 categories.) End-of-life treatment methods (e.g. land-filling, incineration) are described in category 5 (Waste generated in operations). A reporting company’s scope 3 emissions from end-of-life treatment of sold products include the scope 1 and scope 2 emissions of waste management companies.
See section 5.6 for guidance on the applicability of category 12 to final products and intermediate products sold by the reporting company and box 5.6 for guidance on accounting for emissions from recycling, which applies to both category 5 and category 12. Calculating emissions from category 12 requires assumptions about the end-of-life treatment methods used by consumers. For more information, see Guidance for Calculating Scope 3 Emissions, available online at www.ghgprotocol.org. Companies are required to report a description of the methodologies and assumptions used to calculate emissions (see chapter 11).
Category 13: Downstream leased assets
This category includes emissions from the operation of assets that are owned by the reporting company (acting as lessor) and leased to other entities in the reporting year that are not already included in scope 1 or scope 2.
This category is applicable to lessors (i.e., companies that receive payments from lessees). Companies that operate leased assets (i.e., lessees) should refer to category 8 (Upstream leased assets).
Leased assets may be included in a company’s scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries. (See section 5.2 for more information.) If the reporting company leases an asset for only part of the reporting year, the reporting company should account for emissions from the portion of the year that the asset was leased. See Appendix A for more information on accounting for emissions from leased assets.
In some cases, companies may not find value in distinguishing between products sold to customers (accounted for in category 11) and products leased to customers (accounted for in category 13).
Companies may account for products leased to customers the same way the company accounts for products sold to customers (i.e., by accounting for the total expected lifetime emissions from all relevant products leased to other entities in the reporting year).
In this case, companies should report emissions from leased products in category 11 (Use of sold products), rather than category 13 (Downstream leased assets) and avoid double counting between categories.
A reporting company’s scope 3 emissions from downstream leased assets include the scope 1 and scope 2 emissions of lessees (depending on the lessee’s consolidation approach).
Category 14: Franchises
This category includes emissions from the operation of franchises not included in scope 1 or scope 2. A franchise is a business operating under a license to sell or distribute another company’s goods or services within a certain location. This category is applicable to franchisors (i.e., companies that grant licenses to other entities to sell or distribute its goods or services in return for payments, such as royalties for the use of trademarks and other services). Franchisors should account for emissions that occur from the operation of franchises (i.e., the scope 1 and 2 emissions of franchisees) in this category.
Franchisees (i.e., companies that operate franchises and pay fees to a franchisor) should include emissions from operations under their control in this category if they have not included those emissions in scope 1 and scope 2 due to their choice of consolidation approach. Franchisees may optionally report upstream scope 3 emissions associated with the franchisor’s operations (i.e., the scope 1 and scope 2 emissions of the franchisor) in category 1 (Purchased goods and services).
Category 15: Investments
This category includes scope 3 emissions associated with the reporting company’s investments in the reporting year, not already included in scope 1 or scope 2. This category is applicable to investors (i.e., companies that make an investment with the objective of making a profit) and companies that provide financial services.
Investments are categorized as a downstream scope 3 category because the provision of capital or financing is a service provided by the reporting company8.
Category 15 is designed primarily for private financial institutions (e.g., commercial banks), but is also relevant to public financial institutions (e.g., multi-lateral development banks, export credit agencies, etc.) and other entities with investments not included in scope 1 and scope 2.
Investments may be included in a company’s scope 1 or scope 2 inventory depending on how the company defines its organizational boundaries. For example, companies that use the equity share approach include emissions from equity investments in scope 1 and scope 2.
Companies that use a control approach account only for those equity investments that are under the company’s control in scope 1 and scope 2. Investments not included in the company’s scope 1 or scope 2 emissions are included in scope 3, in this category. A reporting company’s scope 3 emissions from investments are the scope 1 and scope 2 emissions of investees.
For purposes of GHG accounting, this standard divides financial investments into four types:
- Equity investments
- Debt investments
- Project finance
- Managed investments and client services
The below tables 5.9 ‘Accounting for emissions from investments (required)’ and table 5.10 ‘Accounting for emissions from investments (optional)‘ provide GHG accounting guidance for each type of financial investment. ‘Accounting for emissions from investments (required)’ provides the types of investments included in the minimum boundary of this category. Table 5.10 identifies types of investments that companies may optionally report, in addition to those provided in ‘Accounting for emissions from investments (required)’.
Table 5.9 Accounting for emissions from investments (required) |
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Financial investment/service |
Description |
GHG accounting approach (Required) |
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Equity investments Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Equity investments made by the reporting company using the company’s own capital and balance sheet, including:
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In general, companies in the financial services sector should account for emissions from equity investments in scope 1 and scope 2 by using the equity share consolidation approach to obtain representative scope 1 and scope 2 inventories. If emissions from equity investments are not included in scope 1 or scope 2 (because the reporting company uses either the operational control or financial control consolidation approach and does not have control over the investee), account for proportional9 scope 1 and scope 2 emissions10 of equity investments that occur in the reporting year in scope 3, category 15 (Investments). |
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Equity investments made by the reporting company using the company’s own capital and balance sheet, where the reporting company has neither financial control nor significant influence over the emitting entity (and typically has less than 20 percent ownership) |
If not included in the reporting company’s scope 1 and scope 2 inventories: Account for proportional scope 1 and scope 2 emissions of equity investments that occur in the reporting year in scope 3, category 15 (Investments). Companies may establish a threshold (e.g., equity share of 1 percent) below which the company excludes equity investments from the inventory, if disclosed and justified. |
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Debt investments (with known use of proceeds) Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Corporate debt holdings held in the reporting company’s portfolio, including corporate debt instruments (such as bonds or convertible bonds prior to conversion) or commercial loans, with known use of proceeds (i.e., where the use of proceeds is identified as going to a particular project, such as to build a specific power plant) Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
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For each year during the term of the investment, companies should account for proportional scope 1 and scope 2 emissions of relevant projects11 that occur in the reporting year in scope 3, category 15 (Investments). In addition, if the reporting company is an initial sponsor or lender of a project: Also account for the total projected lifetime12 scope 1 and scope 2 emissions of relevant projects financed during the reporting year and report those emissions separately from scope 3. |
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Project finance |
Long-term financing of projects (e.g., infrastructure and industrial projects) by the reporting company as either an equity investor (sponsor) or debt investor (financier) |
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Table 5.10 Accounting for emissions from investments (optional) |
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Financial investment/service |
Description |
GHG accounting approach (Optional) |
|
Debt investments (without known use of proceeds) |
General corporate purposes debt holdings (such as bonds or loans) held in the reporting company’s portfolio where the use of proceeds is not specified |
Companies may account for scope 1 and scope 2 emissions of the investee that occur in the reporting year in scope 3, category 15 (Investments) |
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Managed investments and client services Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Investments managed by the reporting company on behalf of clients (using clients’ capital) or services provided by the reporting company to clients, including:
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Companies may account for emissions from managed investments and client services in scope 3, category 15 (Investments) Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
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Other investments or financial services Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Other investments, financial contracts, or financial services not included above (e.g., pension funds, retirement accounts, securitized products, insurance contracts, credit guarantees, financial guarantees, export credit insurance, credit default swaps, etc.) |
Companies may account for emissions from other investments in scope 3, category 15 (Investments) Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Emissions from investments should be allocated to the reporting company based on the reporting company’s proportional share of investment in the investee.
Because investment portfolios are dynamic and can change frequently throughout the reporting year, companies should identify investments by choosing a fixed point in time, such as December 31 of the reporting year, or using a representative average over the course of the reporting year.
Citi: Scope 3 emissions from project finance |
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Citi, a global financial services company, annually reports GHG emissions from power plants it finances through its project finance business worldwide. Citi reports these emissions to provide transparency in GHG emissions from its project finance portfolio. Citi’s reporting includes emissions from closed (i.e., completed) project financings of new capacity only, including expansions of existing plants, but not re-financings of existing plants. Emissions data are derived from the power plant’s capacity and heat rate, the carbon content of the fuel, and projected capacity utilization. Citi accounts for the total estimated lifetime emissions of projects financed in the reporting year, and calculates project-specific emissions for both a 30- and 60-year assumed plant lifetime. To allocate power plant emissions to Citi, total emissions are multiplied by the ratio of Citi’s project finance loan to total project costs (total debt plus equity). In 2009, Citi financed one thermal power project via project finance with an estimated lifetime emissions of 8.7 to 17.4 million metric tons of CO2e. (The lower end of the range represents a 30-year plant life and the higher number represents a 60-year plant life.) In 2008, Citi reported zero emissions from power plants, since Citi did not finance any fossil-fuel fired power plants in 2008. |
Applicability of downstream scope 3 categories to final and intermediate products
Upstream emissions are applicable for all types of purchased products. The applicability of downstream scope 3 categories depends on whether products sold by the reporting company are final products or intermediate products. (See the table below for descriptions of final and intermediate products.)
Intermediate products, final products, and capital goods |
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Intermediate products are inputs to the production of other goods or services that require further processing, transformation, or inclusion in another product before use by the end consumer. Intermediate products are not consumed by the end user in their current form. Final products are goods and services that are consumed by the end user in their current form, without further processing, transformation, or inclusion in another product. Final products include:
Capital goods are final goods that are not immediately consumed or further processed by the company, but are instead used in their current form by the company to manufacture a product, provide a service, or sell, store, and deliver merchandise. Scope 3 emissions from capital goods are reported in category 2 (Capital goods), rather than category 1 (Purchased goods and services). Intermediate goods and capital goods are both inputs to a company’s operations. The distinction between intermediate goods and capital goods depends on the circumstances. For example, if a company includes an electrical motor in another product (e.g., a motor vehicle), the electrical motor is an intermediate good. If a company uses the electrical motor to produce other goods, it is a capital good consumed by the reporting company. |
If a company produces an intermediate product (e.g., a motor), which becomes part of a final product (e.g., an automobile), the company accounts for downstream emissions associated with the intermediate product (the motor), not the final product (the automobile).
The table below explains the applicability of downstream scope 3 categories to final and intermediate products sold by the reporting company. See section 6.4 for guidance on disclosing and justifying exclusions of downstream emissions from sold intermediate goods when their eventual end use is unknown.
Applicability of downstream scope 3 categories to final and intermediate products sold by the reporting company |
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Scope 3 category |
Applicability to final products |
Applicability to intermediate products |
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9. Downstream transportation and distribution Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
Transportation and distribution of final products, between the point of sale by the reporting company to the end consumer, including retail and storage |
Transportation and distribution of intermediate products between the point of sale by the reporting company and either 1) the end consumer (if the eventual end use of the intermediate product is known) or 2) business customers (if the eventual end use of the intermediate product is unknown) |
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10. Processing of sold products |
Not applicable to final products |
Processing of sold intermediate products by customers (e.g., manufacturers) |
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11. Use of sold products Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions |
The direct use-phase emissions of sold final products by the end user (i.e., emissions resulting from the use of sold final products that directly consume fuel or electricity during use, fuels and feedstocks, and GHGs or products that contain GHGs that are released during use). Companies may optionally include the indirect use-phase emissions of sold final products (see table 5.8) |
The direct use-phase emissions of sold intermediate products13 (see chapter 8) by the end user (i.e., emissions resulting from the use of sold intermediate products that directly consume fuel or electricity during use, fuels and feedstocks, and GHGs or products that contain GHGs that are released during use). Companies may optionally include the indirect use-phase emissions of sold intermediate products (see table 5.8) |
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12. End-of-life treatment of sold products |
Emissions from disposing of sold final products at the end of their life |
Emissions from disposing of sold intermediate products at the end of their life |
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13. Downstream leased assets |
Unrelated to product type: Applicable to all companies with downstream leased assets |
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14. Franchises |
Unrelated to product type: Applicable to all companies with franchises |
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15. Investments |
Unrelated to product type: Applicable to all companies with investments |
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Continue to next standard – Guidance 06 Setting the scope 3 Boundary
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions
Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions Identifying Scope 3 Emissions