A 2024 guide to Scope 3 carbon emissions (definition, examples, and more)

Since Scope 3 emissions are generated outside your organization, they're usually the hardest to measure. Despite that, they represent a significant part of any company's total carbon footprint. In fact, between 70-80% of greenhouse gas emissions, i.e. by suppliers or customers.

So, whether you're a corporate leader who’s setting sustainability goals or a senior finance manager who’s ensuring you adhere to legislation, it's important to understand how to measure and report your carbon emissions effectively to ensure compliance and minimize your CO2 footprint.

Scope 3 emissions definition

Scope 3 emissions are indirect emissions generated outside your organization by other contributors within your supply chain.

The business actions of your company cause Scope 3 emissions, but you can't completely control them since your company doesn't create them directly. These emissions are produced by other companies within your supply chain, making them the most difficult to measure accurately.

Nonetheless, if your company is affected by the Corporate Sustainability Reporting Directive CSRD or potential SEC and CSA Proposals, then you're likely considering reporting on these emissions as a part of a corporate ESG reporting strategy.

Need an example of Scope 3 carbon emissions? Think operation-generated waste, employee commuting, purchasing goods and services, and business travel.

What are Scope 1 and Scope 2 emissions?

Scope 1 emissions are the most straightforward to measure because they directly relate to your organization. Scope 1 emissions examples include fuel burned for company-owned vehicles, machinery, and on-site energy use.

Unlike Scope 1, Scope 2 emissions are indirect, which means they’re associated with emissions generated by the companies providing your company with utilities, such as electricity and heating. You can calculate Scope 2 emissions accurately thanks to the publicly available information on company energy consumption.

Three benefits of tracking and reducing Scope 3 emissions

1. Improve your brand image by embracing transparency

Tracking and reporting your Scope 3 emissions makes you more informed about the environmental impact of your company’s operations. By proxy, this also helps you communicate the environmental impact of your company’s actions to core stakeholders and environmentally conscious customers.

By being transparent with these figures, you can demonstrate that you care about the environmental impact of your actions and that you have a plan to encourage sustainability and reduce indirect emissions.

2. Achieve cost savings by making environmentally conscious choices

We’re all looking for new ways to save money. And Scope 3 emissions, money, and sustainability can go hand in hand.

Depending on your goals, research shows that you can save money by prioritizing sustainability. Take business travel for example, if you encourage your employees to take public transport, or taxi share transport you not only help reduce emissions but reduce outgoings at the same time.

Additionally, you could introduce carbon offsetting measures within your supply chain to reduce the carbon tax on your operations.

3. Meet stakeholder expectations by becoming eco-conscious

Investors, customers, employees, and many other modern stakeholders have high expectations about a company’s sustainability practices. Let’s paint a picture of how these might look.

• 83% of people want to take action on climate change in their jobs
• 77% of customers say they would be more loyal to brands that value sustainability
• 89% of investors consider reporting on ESG performance (Environmental, Social, and Governance) as a part of their investment approach

The results show that stakeholders are often passionate about supporting businesses willing to take sustainability seriously. But the big question is, how do you measure and report effectively on this?

How to measure Scope 3 carbon emissions in four steps

This section discusses four actions your company can take to report on Scope 3 emissions. Here’s a quick overview to get you started:

1. Assess your entire product lifecycle to understand your supply chain

By analyzing your product lifecycle, you can understand how much carbon your organization produces through its supply chain. You must map out all of your inputs (energy and materials) to different suppliers within your chain to identify all the data points you need to consider when calculating total Scope three emissions.

From producing raw materials and the final product to packing, logistics, and disposal, you must ensure that you clearly understand all carbon contributors.

2. Work closely with suppliers to get accurate energy usage.

Getting emission figures directly from your suppliers is the best form of carbon accounting*. But this type of primary data can be time-consuming and tedious for finance teams to collect — you’ll need to work closely with each of your suppliers to ensure their emissions and energy usage data is accurate. With these figures, you can start estimating what part of their total emission output is linked to your business operations.

*Carbon accounting is the framework for measuring and tracking your carbon emissions.

3. Factor in employee commuting emissions

Employee commuting emissions are surprisingly high. They comprise roughly 10-15% of Scope 3 emissions worldwide. So whether employees travel by car, bus, rail, or air, you should factor these emissions into the Scope 3 part of your ESG report. This can be done using available commute emission calculators.

One important piece of legislation you should know about commute emissions is The Greenhouse Gas Protocol. It shares three ways to measure commute-related emissions: fuel-based, distance-based, or average-data:

• The fuel-based method involves calculating the fuel used during commuting and applying the appropriate emission factor for that fuel
• The distance-based method involves collecting employee data on commuting patterns (e.g., distance traveled and mode used for commuting) and applying appropriate emission factors for the modes used
• The average-data method estimates emissions from employee commuting based on average (e.g., national) data on commuting patterns

Once you calculate the total commuting emissions using one of these methods, you’ll clearly understand the major contributing factors and be able to devise commute emission-reduction strategies accordingly.

4. Identify additional waste sources and introduce recycling/upcycling strategies to reduce emission output

Each method of waste disposal generates different emissions; for example, landfills or burning waste generates more emissions than recycling or reusing.

Once you identify your waste sources, it’s time to understand the emission factors based on each waste source. Understanding how your company disposes of its materials and unused products, you can pinpoint opportunities to reuse or recycle where possible, drastically reducing the amount of waste your organization produces, therefore reducing your carbon emissions.

Three ways to reduce your Scope 3 carbon emissions

If reducing your carbon emissions is the end goal, there are many ways to get started. Here are three good ones we’ve found in our research:

1. Work closely with your suppliers

Working together toward the same goal is important when implementing sustainability practices that are cohesive and effective. You must engage your suppliers to identify where to reduce your supply chain carbon emissions. Gather to discuss their workflows and help each other identify ways to reduce carbon emissions in daily operations.

2. Optimize your packaging materials

By sourcing suppliers who promote sustainability and use eco-friendly packaging from recycled materials, you will effectively reduce your overall negative environmental impact within the supply chain.

Take your time understanding what materials are being used within your supply chain and opt for more environmentally-conscious options where possible. Choosing sustainable logistics partners makes recycling easier and reduces the weight of your product packaging, reducing transport emissions.

3. Foster a recycling/upcycling culture within the supply chain

By placing recycling or upcycling at the heart of your organization, you can encourage employees, suppliers, and customers to embrace recycling at every turn. From taking part in recycling initiatives to educating everyone about the importance of CSRD compliance - it’s your responsibility to ensure you reduce your carbon emissions.

You can also take an extra step and introduce upcycling or energy-to-waste initiatives, transforming the by-product from the supply chain operations into energy or using some leftover materials to produce future products.

Before you go

Although reporting on Scope 3 emissions can present significant challenges, looking for ways to support your suppliers and employees in implementing sustainable practices can help your ESG reporting and goals.

Looking at sustainable strategies can also help you find potential cost savings, lower emissions, and get a competitive advantage for stakeholders and investors.

Book a demo today to better understand how Payhawk can help your finance team report on Scope 3 emissions.