Corporate value chain (Scope 3) helps companies understand the indirect sources of their carbon footprint so that they are able to identify key areas where emissions reductions should be prioritized, including the possible inclusion of sustainability in the products they buy, sell or produce. General information on this area is provided below.
What is the GHG Protocol Corporate Value Chain (Scope 3)?
The GHG Protocol Corporate Value Chain (Scope 3) measures indirect carbon emissions within your company’s value chain and it can represent more than 70% of your total carbon footprint. These may include some external organizations and facilities that are not owned or controlled by your company, but have an indirect impacts on your value chain as a result or outcome of your company’s activities. Examples of Scope 3 activities are the extraction, production and transport of purchased materials, fuels and the use of sold products and services. Your Scope 3 emissions could be the Scope 1 or 2 emissions of another organization.
The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard (also referred to as the Scope 3 Standard) provides requirements and guidance for various organizations in preparing and reporting a GHG emissions inventory that includes indirect emissions from value chain activities.
What are the Scope 3 categories and emissions examples?
There are 15 categories under Scope 3 emissions and they are as follows:
Category 1 – Purchased goods and services – this can either be production related, such as materials, components and parts, or non-production related, such as office furniture, office supplies and IT.
Category 2 – Capital goods – these are end products or fixed assets that the company uses to manufacture a product, provide a service or sell, shop and deliver goods. Examples of capital goods are plans, land, equipment, machinery, buildings, plant and vehicles.
Category 3 – Fuel- and energy-related activities– this includes cradle to gate or upstream emissions coming from purchased fuels and electricity, including their transmission and distribution losses.
Category 4 – Upstream transportation and distribution – this category includes the inbound and outbound logistics of Tier 1 suppliers or in-service vehicles or facilities not owned by the reporting entity that are used for the transport and distribution of products purchased or sold by the reporting entity.
Category 5 – Waste generated in operations – this category includes carbon emissions from the disposal and treatment of waste generated at the reporting entity’s operations when the waste treatment facilities are owned or operated by a third party. Waste treatment may refer to disposal in a landfill, incineration, composting, recycling, waste recovery, etc.
Category 6 – Business travel – includes carbon emissions from third parties not owned or controlled by the reporting entity that transport employees for business-related activities within the reporting year. This can include planes, trains, buses, cars and even employees’ own vehicles used for business travel.
Category 7 – Employee commuting – includes carbon emissions that are not owned or operated by the reporting entity and transport employees from their home to their workplace and vice versa within the reporting year. This can include private or public transport such as cars, buses, rail, planes, trains and other non-conventional modes of transport such as cycling, walking and teleworking (remote working).
Category 8 – Upstream leased assets – these are chain emissions impact from the operation of facilities leased by the reporting entity during the reporting year that are not included in the Scope 1 and Scope 2 inventories.
Category 9 – Downstream transportation and distribution – includes chain emissions from vehicles and storage facilities not owned or controlled by the reporting company that are used for the distribution and storage of certain products sold by the company. This also includes emissions from customers traveling to and from the company’s retail shops.
Category 10 – Processing of sold products – this includes the chain emissions impact from the processing of intermediate products sold by third parties (e.g. manufacturers). Intermediate products are products that need to be further processed, transformed or incorporated into another product before they can be used. Examples can be salt, wheat, rubber, electronic parts, etc.
Category 11 – Use of sold products – this category includes the chain emissions impact resulting from the end use of goods and services sold by the reporting entity during the reporting year.
Category 12 – End-of-life treatment of sold products – this includes the chain emissions of the end-of-life treatment methods of the products sold or those already used by the company.
Category 13 – Downstream leased assets – this includes chain emissions from the operation of assets owned by the reporting entity (acting as lessor) and leased to other entities during the reporting year that are not already included in Scope 1 or Scope 2.
Category 14 – Franchises – this includes chain emissions from the operation of franchises not included in Scope 1 or Scope 2. A franchise is a business that operates under a license to sell or distribute the goods or services of another business in a specific location.
Category 15 – Investments – this includes investments made by a reporting entity when it provides capital or funding. These can be for-profit or not-for-profit enterprises, or simply financial services.
How do you define Scope 3 boundaries?
The Corporate Value Chain Scope 3 accounting does not require a full GHG life cycle analysis of all products and services, but it does require mapping your value chain. Your company can focus on one or two key GHG-generating activities where you can prioritize your emissions reductions or use the 15 categories above as a checklist.
However, to determine which of the upstream and downstream activities should be included in your company’s Scope 3 value chain emissions, your company can evaluate them using the following GHG Protocol criteria:
- Size
- Influence
- Risk
- Stakeholders
- Outsourcing
- Sector guidance
- Other
What are the benefits of measuring your Scope 3 emissions?
Measuring your Scope 3 emissions gives you insight into the sustainability risks and opportunities in your value chain. You can identify which suppliers are leading the way in terms of their sustainability performance and which are lagging behind. You can also help your suppliers bring their performance up to acceptable levels, identify areas for cost reduction, and improve their sustainability rating.
You can reach out to your suppliers to help them implement sustainability initiatives and improve the energy efficiency of their products and services. Your employees can also be encouraged to reduce emissions from business travel and commuting.
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