What Are Scope 3 Greenhouse Gas Emissions?

Greenhouse gas (GHG) emissions are becoming an increasing consideration for companies and organizations due to state regulations and business goals to address and mitigate emissions. The European Union (EU) is phasing in GHG reporting requirements for companies based in the EU or doing business there. GHG emissions are broken into three different categories according to the GHG Protocol: Scopes 1, 2, and 3. Scope 1 emissions are direct emissions generated at the facility and by sources under the direct control of the organization, such as company-owned vehicles, while Scope 2 emissions are indirect emissions resulting from purchased utilities such as electricity, steam, or chilled water. Finally, there are Scope 3 emissions, which are also indirect emissions, but include sources across the entire supply chain. But what exactly are Scope 3 emissions, and why are they becoming more of a concern to companies? This blog will outline Scope 3 emissions and why they are important to understand.

What Are Scope 3 Emissions?

Scope 3 emissions, or value chain emissions, are indirect GHG emissions that result due to the activities of a company or organization, but from assets or sources the company does not own or control. Scope 3 emissions are often difficult to quantify because value chains are complex and consist of both upstream and downstream activities, but these emissions typically make up the majority of a company’s total GHG emissions.

The GHG Protocol provides the most widely used GHG accounting standards and has defined 15 categories of Scope 3 emissions, eight upstream and seven downstream, from the company’s operations. It should be noted that not every category will be relevant for every company, but to meet GHG Protocol standards, emissions from every material category must be reported. The 15 categories are:

1. Purchased goods and services
2. Capital goods
3. Fuel- and energy-related activities
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
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

Figure 1 from the Scope 3 Standard of the GHG Protocol provides an excellent illustration of how Scope 3 emissions fit within a company’s structure and with Scope 1 and Scope 2 emissions.

Figure 1. Overview of GHG Protocol scopes and emissions across the value change.

Why are Scope 3 Emissions Important?

As Scope 3 emissions typically comprise the majority of a company or organization’s GHG footprint, having a good understanding of the full GHG impact requires a thorough and accurate accounting of Scope 3 emissions and provides the biggest opportunity for GHG emissions reductions. This can have a larger overall impact on a company by providing insight into the different types of risk they may be subject to both upstream and downstream of their direct activities. Understanding Scope 3 emissions also allows for a company to have a robust understanding of their supply chain and assist in engagement with stakeholders both upstream and downstream of the process. One example of this is identifying supply chain costs and reliability issues due to higher energy- or emissions-related costs or business interruption risks in the supply chain. This can ultimately lead to reductions in costs, increased efficiency, and better risk mitigation, which are beneficial to the health and success of a company.

There are also regulatory pressures, starting with the California Climate Corporate Data Accountability Act (SB-253) which is requiring companies doing business in California with $1 billion or more in gross annual revenue to report their Scope 3 emissions by 2027. It is important to understand how to quantify these emissions now to ensure that your company has the necessary information to meet the reporting requirements of the rule. For more details on state regulatory requirements, please see Evan Mia and Louise Schaffer’s 4 the Record Article posted on April 9, 2025.

How Can a Company Start a Scope 3 Emissions Inventory?

Scope 3 emissions calculations are complex, so it is important to first create a plan for these calculations. Developing a Scope 3 emissions inventory can be a daunting task, but can be broken down into three stages:

1. Determining material Scope 3 categories
2. Estimating GHG emissions in each category
3. Improving and expanding emissions data over time

The initial stage allows a company to identify the Scope 3 categories that are material through examining the Scope 3 Standard’s descriptions. Starting small and identifying the top three to five categories can be a great way to begin the process. The second stage relies on available data to estimate the GHG emissions within the identified categories. This requires engagement with suppliers and other stakeholders.

Finally, the Scope 3 emissions inventory should be a work in progress that improves and expands over time. This may include developing more accurate sources of data, expanding to other relevant categories that are harder to quantify, or expanding plans to reduce Scope 3 emissions. With an increase in mandatory reporting and disclosure in different states, Scope 3 emissions inventories are becoming an important part of a company’s management and business strategy. Developing a full Scope 3 emissions inventory can be a slow and iterative process, so it is important to start early to get the best results.

Helping Companies with Scope 3 Emissions Inventories

ALL4 can help your company develop its Scope 3 emissions inventory and provide Scope 3 playbook assistance, GHG reporting, tracking, and mitigation services to companies or organizations that need to comply with state regulations or are interested in better understanding and developing strategies to reduce their GHG emissions. For inquiries about the impact of Scope 3 emissions and how ALL4 can assist, contact Staci McGill at smcgill@all4inc.com, Daryl Whitt at dwhitt@all4inc.com, or your ALL4 project manager.