Knowledge > About ESG

May 7, 2023

Carbon Emissions Scope 1,2,3

What does scope 1,2,3 mean for SMEs?

The GHG Protocol Corporate Standard classifies a company’s greenhouse gas (GHG) emissions into three ‘scopes’. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. Typically scope 3 emissions account for about 90% of a company’s GHG emissions.

Scope 1 emissions (direct)

Scope 1 emissions are direct emissions that include greenhouse gases (GHG) that arise from the combustion of fuels owned or controlled by the reporting SME. It’s helpful to consider scope 1 emissions in three categories:
– Stationary combustion of fossil fuels at a facility (such as boiler, combustion turbines, process heaters, incinerators)
– Fugitive Emissions, which result from leaks of greenhouse gases over the operational lifetime of the equipment (refrigerated transport, industrial process refrigeration, cold storage warehouses, mobile air conditioning)
– Mobile combustion of owned or leased mobile sources (on-road vehicles, non-road vehicles (mobile machinery)

Scope 2 emissions (indirect)

Scope 2 emissions include greenhouse gases (GHG) emissions that result from the consumption of purchased or acquired energy such as electricity, heating, cooling, and steam. They are called indirect emissions because the organisation doesn’t burn the fuels directly, but because of their consumption, they are made responsible for the equivalent amount of emissions that arise directly, for example at the power plant owner.

Scope 2 emissions can be reported using the market-based or location-based approaches. The market-based approach refers to the emissions of the electricity supplier or an individual electricity product, whereas location-based figures refer to the average emission factors of the area where the electricity consumption takes place.

Scope 3 emissions (in the value chain)

Scope 3 emissions are basically all other emissions. Typically they account for about 90% of most business’ GHG emissions. This means that SMEs are directly involved in the calculations of supply chain partners, investors and lenders. That’s one of the reasons SMEs are receiving requests for ESG data.

Scope 3 emissions include the remainder of indirect GHG emissions which cannot be categorised as energy-related emissions in Scope 2. Scope 3 emissions occur outside the organisation, e.g. in the supply chain, as well as during transport and distribution (by subcontractors), business travel, employee commuting, and waste.

Scope 3 emissions in a company’s value chain. This means that SMEs can be an important component in the Scope 3 calculations of larger organisations, such as publicly-listed corporations and financial institutions.

  • Purchased goods and services
  • Capital goods
  • Fuel and energy related activities not included in Scope 1 and 2
  • Upstream transportation and distribution
  • Waste generated in operations
  • Business trips
  • Employee Commuting
  • Upstream leased assets
  • Downstream transportation and distribution
  • Processing of sold products
  • Use of sold products
  • End-of-life treatment of sold products
  • Downstream leased assets
  • Investments
  • Franchises

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