If you've ever felt overwhelmed by greenhouse gas (GHG) reporting requirements, you're not alone. The good news is that once you understand the terminology, it becomes much more manageable. Let's break down the three scopes of emissions in a way that makes practical sense for your business.
Understanding the scopes
GHG emissions are reported according to the GHG Protocol, the world’s most widely used standard for measuring and managing emissions. In 2023, 97% of disclosing S&P 500 companies reported to CDP (formerly the Carbon Disclosure Project) using the GHG Protocol. The GHG Protocol provides a consistent and internationally recognized framework that helps governments, companies, and organizations measure, manage, and report their GHG emissions in a transparent and comparable way. emissions in a transparent and comparable way.
It provides a comprehensive suite of accounting and reporting standards, tools, and guidance that organizations use to measure and manage their GHG emissions consistently. By adopting the GHG Protocol, businesses align their reporting with globally recognized best practices and ensure their emissions data can be understood and compared by investors, regulators, and customers worldwide.
The GHG Protocol divides emissions into three distinct scopes, helping businesses understand where their emissions originate and how much control they have over each source. Think of these scopes as different levels of your company’s influence and responsibility across your operations and value chain.
Scope 1: Your direct footprint
Scope 1 emissions are the most straightforward—these are emissions that result directly from your company's activities. These are usually fuels that you burn to produce energy or to power your operations. These direct emissions are categorized into stationary combustion, mobile combustion, process combustion, and fugitive emissions, with examples including:
• Stationary combustion
- Natural gas to heat your buildings or power manufacturing
• Process combustion
- PFC emissions from aluminum smelting
• Mobile combustion
- Gasoline to fuel your company vehicles
- Diesel for heavy vehicles
• Fugitive emissions
- Propane to power equipment like forklifts
- Refrigerants in your heating, ventilation, and air-conditioning (HVAC) systems
Example: If your company has 10 offices with gas heating and air-conditioning systems and a fleet of company-owned vehicles, all of these would be considered sources of scope 1 emissions.
Scope 2: Your purchased energy
Scope 2 emissions result from purchased energy; essentially, you're buying electricity, gas, or district heating/cooling from a utility provider. If you're purchasing energy from offsite to use in your operations, this falls under scope 2.
The key thing to remember is that these emissions are actually generated at the utility where power is produced, not at your facility. This is why companies can reduce scope 2 emissions by purchasing clean, renewable energy.
Example: If your company has 10 offices drawing electricity from the local grid, this would generate scope 2 emissions.
Scope 3: Everything else in your value chain
Scope 3 is the most comprehensive category, covering emissions that are an indirect result of your company's activities. This represents everything upstream and downstream in your value chain. While companies have less direct control over these emissions, they often represent the majority of total emissions from company activity. Scope 3 includes 15 different categories, such as:
• Upstream
- Purchased goods and services from suppliers
- Business travel and employee commuting
- Transport and distribution of raw materials
- Leased assets
- Capital goods
• Downstream
- Transportation and distribution of your products
- Waste generated in your operations
- Process and use of your products by customers
- End-of-life treatment of your products
- Leased assets
- Franchises and investment
Why scope 3 matters most
Here's where it gets interesting for supplier relationships: your scope 1 and 2 emissions become part of your customers' scope 3 emissions. To improve their scope 3 reporting, companies will typically request better data from their suppliers.
This means that your emissions need to be allocated to each customer to meet their reporting expectations and ensure transparency in their accounting.
Making it practical
The key to successful emissions reporting is starting with proper tracking of your energy sources. This might sound daunting, but it can be as simple as maintaining an inventory of utility bills and energy purchase agreements or as sophisticated as implementing an energy management system based on ISO 50001 standards.
Tracking energy sources is actually a great exercise to understand all the business activities across your organization. It helps you map out who owns what; who controls your electricity, gas, heating; and who manages your fleet vehicles.
To do now
Continuous tracking allows for year-over-year comparisons and helps measure progress toward not only emissions reduction goals but also energy efficiency goals. Think of it this way: if you're being more energy efficient, you're saving money and making your business operations more productive.
Understanding these three scopes helps your organization better recognize overall environmental impact and identify opportunities for both cost savings and emissions reductions. Once you have this foundation, you can move forward in your sustainability reporting and decision-making.
