What Are Scope 3 Emissions?

Scope 3 emissions are indirect greenhouse gas emissions that occur in an organization's value chain—both upstream (supply chain) and downstream (product use and end-of-life). They encompass all emissions not classified as Scope 1 (direct emissions from owned sources) or Scope 2 (indirect emissions from purchased energy).

The Greenhouse Gas Protocol defines 15 Scope 3 categories spanning the full value chain:

Upstream (supply chain):

1. Purchased goods and services

2. Capital goods

3. Fuel- and energy-related activities (not in Scope 1 or 2)

4. Upstream transportation and distribution

5. Waste generated in operations

6. Business travel

7. Employee commuting

8. Upstream leased assets

Downstream (product/service use): 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

For most organizations—particularly those in consumer goods, retail, finance, and technology—Scope 3 represents 70-90% of total emissions. It's where the climate impact actually lives.

Why Scope 3 Emissions Matter for Business Leaders

Scope 3 is where decarbonization gets difficult—and where it matters most.

Organizations that optimize Scopes 1 and 2 while ignoring Scope 3 achieve marginal climate impact. A retailer can install solar panels on distribution centers and reach 100% renewable electricity—yet their Scope 3 emissions from manufacturing, transportation, and product use may be 50x larger. Ignoring Scope 3 is like optimizing your living room's energy efficiency while your factory burns coal.

Regulatory and investor pressure has caught up. SBTi requires Scope 3 targets for any company where Scope 3 represents 40%+ of total emissions. CSRD mandates Scope 3 disclosure. Investors increasingly view Scope 3 management as an indicator of climate strategy sophistication.

Beyond compliance, Scope 3 analysis reveals supply chain risks and opportunities. Suppliers with high carbon intensity face transition risk that becomes your business continuity risk. Products designed for lower lifecycle emissions meet growing customer demand. Understanding Scope 3 illuminates strategic decisions that simple Scope 1 and 2 accounting misses.

How Scope 3 Emissions Measurement Works

1. Identify Relevant Categories Screen all 15 Scope 3 categories for relevance to your business. Not every category applies to every organization. A professional services firm has minimal Category 11 (use of sold products) but significant Category 7 (employee commuting). A manufacturer has the inverse.

2. Determine Materiality For relevant categories, assess emission magnitude. Focus measurement effort where emissions concentrate—typically purchased goods/services, upstream transportation, and (for product companies) product use phase. Don't let perfect measurement of immaterial categories distract from imperfect measurement of material ones.

3. Select Calculation Methods The GHG Protocol provides three approaches:

• Supplier-specific: Use actual data from suppliers. Most accurate but hardest to obtain at scale.

• Hybrid: Combine supplier data with secondary data where primary data unavailable.

• Spend-based: Apply emission factors to spending categories. Least accurate but most feasible for broad supply chains.

Most organizations use hybrid approaches—supplier-specific data for key categories and suppliers, spend-based for the long tail.

4. Collect Data Gather activity data (purchases, shipments, product volumes) and apply appropriate emission factors. Data collection typically involves procurement, logistics, product development, and finance teams. Supply chain engagement may be required for supplier-specific data.

5. Calculate and Validate Compute emissions by category, validate results against benchmarks and expectations, and document methodology and assumptions. Sensitivity analysis helps understand where methodological choices significantly affect results.

6. Report Transparently Disclose Scope 3 emissions with clear methodology explanation, categories included/excluded, and data quality assessment. Transparency about limitations builds more credibility than false precision.

Scope 3 Emissions vs. Related Terms

Scope 3 vs. Scopes 1 and 2: Scope 1 is direct emissions from owned sources (facilities, vehicles). Scope 2 is indirect emissions from purchased energy. Scope 3 is everything else in the value chain. Many organizations mastered Scopes 1 and 2 first because they control those sources directly—Scope 3 requires influencing others.

Scope 3 vs. Value Chain Emissions: Value chain emissions is a broader term for emissions across the full lifecycle. Scope 3 is the GHG Protocol classification for value chain emissions outside Scopes 1 and 2. The terms overlap substantially.

Scope 3 vs. Embodied Carbon: Embodied carbon refers to emissions from manufacturing, transporting, and installing materials—particularly relevant in construction. Embodied carbon typically falls within Scope 3 Category 1 (purchased goods and services) for the purchasing organization.

Scope 3 vs. Supply Chain Emissions: Supply chain emissions generally refers to upstream Scope 3 categories (1-8). Downstream Scope 3 (categories 9-15) extends beyond traditional supply chain to include product use and end-of-life.

Common Misconceptions About Scope 3 Emissions

"We can't measure Scope 3 without supplier cooperation." Spend-based methods enable Scope 3 estimation without supplier data. The estimates are rough but directionally useful for identifying hotspots and setting priorities. Perfect data isn't prerequisite to progress.

"Scope 3 targets require controlling supplier operations." You don't need control—you need influence. Procurement criteria, supplier engagement programs, contract requirements, and product design choices all shift Scope 3 emissions without operational control. The leverage is real.

"Our suppliers won't share emissions data." Supplier response rates are improving as CDP supply chain programs expand and customer expectations increase. Large buyers have market power. And many suppliers increasingly recognize that carbon data is becoming table stakes for key accounts.

"Scope 3 is too uncertain to include in targets." Data quality is imperfect but improving. SBTi accepts Scope 3 targets based on reasonable estimates with appropriate methodology. Uncertainty isn't an excuse for exclusion—it's a reason to invest in better measurement over time.

"We'll address Scope 3 after we solve Scopes 1 and 2." This sequence delays action on your largest emission sources. Organizations can—and should—work on all scopes simultaneously. The skills and supplier relationships built through Scope 3 engagement often yield faster results than optimizing already-efficient direct operations.

When Scope 3 Analysis May Not Be the Right Starting Point

If your Scopes 1 and 2 inventory isn't reliable, Scope 3 analysis lacks the foundation for meaningful comparison and prioritization. Establish credible direct emission measurement first.

For organizations with genuinely minimal value chains—very small companies with limited suppliers, no physical products, and local operations—Scope 3 may be immaterial. Verify this through screening before assuming it.

If leadership hasn't committed to acting on findings, comprehensive Scope 3 analysis may be premature. The exercise is resource-intensive; ensure the organization will use results to inform strategy.

How Scope 3 Emissions Connect to Broader Business Systems

Scope 3 sits at the center of supply chain strategy. Procurement decisions, supplier selection criteria, and contract terms increasingly incorporate carbon considerations. Organizations managing Scope 3 effectively build supplier engagement programs that drive emission reduction throughout their value chain.

Product development connects directly to Scope 3. Design choices determine lifecycle emissions—materials selection, energy efficiency in use, recyclability at end-of-life. Organizations integrating Scope 3 thinking into product development reduce emissions while meeting growing customer demand for lower-carbon options.

For science-based targets, Scope 3 is typically required. SBTi's threshold (40% of total emissions) catches most organizations. Target-setting forces rigorous Scope 3 assessment; achievement requires supply chain transformation.

Climate risk management increasingly incorporates Scope 3 exposure. Suppliers with high carbon intensity face transition risk—carbon pricing, regulatory requirements, market shifts—that becomes your supply chain risk. Understanding Scope 3 illuminates where value chain vulnerability concentrates.

Related Definitions

→ What Is Science-Based Targets?

→ What Is Net Zero vs. Carbon Neutral?

→ What Is Sustainable Supply Chain?

→ What Is ESG Strategy?