Dec. 3, 2024 • Reading time: 19 Min
Climate change is one of the greatest challenges of our time and requires companies to act responsibly. At the heart of this responsibility is an understanding of the greenhouse gas emissions that contribute significantly to global warming. The GHG Protocol provides a structured framework to classify these emissions into three categories - Scopes 1, 2 and 3. In this article, we will shed light on the importance of these emissions scopes for companies, explain their respective characteristics and show how the correct quantification of emissions not only helps to comply with regulatory requirements, but also opens up opportunities to reduce CO₂ emissions. Let's dive into the world of emissions measurement together and find out how your company can actively contribute to climate protection.
Climate changepresents companies with physical, regulatory and reputational risks, but also opportunities. While extreme weather events, stricter environmental regulations and rising stakeholder expectations pose risks, investing in climate-friendly technologies can create competitive advantages. Greenhouse gases such as CO₂, methane and nitrous oxide are key contributors to global warming, with human activity disrupting the natural balance. Companies must reduce their emissions and pursue sustainable strategies to minimize risks, strengthen resilience and take advantage of new market opportunities.
The Greenhouse Gas (GHG) Protocol is an internationally recognized standard for calculating and reporting greenhouse gas emissions. It divides emissions into three categories (scopes): Scope 1 for direct, Scope 2 for indirect through energy consumption and Scope 3 for other indirect emissions along the value chain. Companies are obliged to record Scope 1 and Scope 2 emissions, while Scope 3 emissions are voluntary but essential for comprehensive climate strategies. The protocol helps companies to analyze their environmental impact, reduce emissions and achieve sustainability goals, although the complexity of Scope 3 reporting is a challenge.
Scope 1 includes all direct greenhouse gas emissions from company-owned or controlled sources. These emissions arise, for example, from the operation of vehicles in the company fleet or from heaters and generators that burn fossil fuels. Companies have full control over these emissions and can achieve targeted savings through measures such as the use of renewable energies or energy-efficient technologies.
Scope 2 refers to indirect emissions resulting from the use of purchased energy, such as electricity, district heating or cooling. Although companies do not produce this energy themselves, their consumption generates a significant proportion of emissions. Examples include electricity consumption in office buildings or the use of district heating in production facilities. Companies can reduce Scope 2 emissions by switching to renewable energy sources such as green electricity or through energy efficiency measures.
Scope 3, on the other hand, includes all other indirect emissions that occur along a company's entire value chain. This includes both upstream emissions, such as the production and transportation of raw materials, and downstream emissions, such as the use and disposal of products by customers. Scope 3 poses the greatest challenge for companies, as the large number of actors and processes involved makes the recording and management of emissions complex. Nevertheless, taking Scope 3 into account is crucial in order to record a company's full climate footprint and develop effective climate strategies.
Last but not least, there is Scope 4, also known as "avoided emissions", which covers the reduction in greenhouse gas emissions achieved through the use of a company's products or services compared to conventional alternatives. This category allows companies to quantify their positive contribution to climate protection by demonstrating how innovative solutions can reduce their carbon footprint. Although Scope 4 provides a more comprehensive picture of environmental responsibility, the measurement is complex and currently not standardized. However, it strengthens the position of companies as pioneers in climate protection.
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Climate change poses significant challenges for companies, including physical, regulatory and reputational risks. Physical risks arise from damage, for example due to extreme weather events, while regulatory risks result from increasing and strict environmental regulations. Reputational risks arise from the growing expectations of customers and investors regarding sustainable action. These risks can lead to increased operating costs, interruptions in the supply chain and potential sales losses.
At the same time, there are also opportunities for companies that actively invest in climate-friendly technologies and develop sustainable business models. These measures can give them a competitive edge and open up new markets. Strategic and forward-looking climate management is therefore extremely important. This not only minimizes risks, but also ensures long-term success. A focus on sustainability can therefore contribute to positive differentiation in the market and strengthen the company's resilience.
Greenhouse gases (GHGs) are a group of gases that play a crucial role in the Earth's climate system. They contribute to the warming of the Earth's atmosphere by storing heat and thus causing the natural greenhouse effect. These gases, such as carbon dioxide (CO₂), methane (CH₄) and nitrogen oxides (N₂O), absorb solar radiation and prevent the absorbed energy from quickly escaping into space. The physical process acts like a protective shell or insulating layer around the planet and ensures that the Earth's average temperature remains at around 15 °C. This temperature is essential for the development and maintenance of life as we know it today.
The greenhouse effect therefore plays an important role in storing heat in the Earth's atmosphere. It prevents the planet from cooling to an extreme degree. Over the centuries, however, humans have significantly disturbed the natural balance of this effect. According to the sixth assessment report of the Intergovernmental Panel on Climate Change (IPCC), human activities, in particular the burning of fossil fuels and deforestation, are largely responsible for the fact that the climate has warmed to an unprecedented extent - a level that has not been observed for two thousand years.
These human interventions have released significant quantities of additional greenhouse gases into the atmosphere that exceed natural levels. These gases have significantly accelerated global warming and climate change. Against this backdrop, the Paris Climate Agreement sets out a global framework to reduce greenhouse gas emissions. The aim is to limit the global temperature rise to a maximum of 1.5 °C above pre-industrial levels by 2050. This commitment requires the involvement of all countries and stakeholders to enable a sustainable and climate-friendly lifestyle.
There are different types of greenhouse gases whose influence on climate change is assessed on the basis of two key criteria: Firstly, by their ability to absorb energy - this phenomenon is known as radiative forcing. Secondly, the lifetime of the gases plays a decisive role, i.e. the length of time they can remain in the atmosphere. Both factors lead to a varying effect of greenhouse gases on the climate. In order to measure these criteria, the concept ofGlobal Warming Potential (GWP ) was developed as a scientific indicator. The GWP makes it possible to compare the different climate effects of gases and assess their long-term impact on global warming.
The main greenhouse gases are:
Since the beginning of industrialization, human activities have greatly increased the amount of these gases in the atmosphere, intensifying the natural greenhouse effect. The effects are numerous and affect both the environment and society:
For companies, this means that they are affected both directly by physical hazards (e.g. impairment of infrastructure due to extreme weather events) and indirectly by legal regulations (e.g. CO₂ pricing). It is therefore important to recognize your own influence on greenhouse gas emissions and plan measures to reduce them.
Each greenhouse gas has a different impact on global warming, as some gases remain in the atmosphere for longer than others. The global warming potential (GWP) describes the effectiveness of these gases in terms of radiation and the degree of warming of the atmosphere over a defined period of time, typically 100 years. Carbon dioxide is used as a reference and has a GWP of 1. Other greenhouse gases are assessed in comparison to the impact of CO2, providing a clear and quantifiable basis for understanding and accounting for different climate impacts.
The global warming potential was developed to compare the effects of different greenhouse gases on global warming. A higher global warming potential indicates that a specific gas warms the earth more intensively than carbon dioxide over a given period of time. This is an important factor in understanding the climate impact of different gases and supports scientific and political decisions to mitigate global warming.
An example: While methane (CH4) remains in the atmosphere for around 12 years and nitrous oxide (N2O) for around 109 years, CO2 remains in the atmosphere for several thousand years. Although CO2 therefore remains in the atmosphere for much longer, CH4 has a global warming potential 27.9 times higher than CO2 over a period of 100 years. N2O, on the other hand, has an even greater impact on global warming and is 273 times more intense than CO2.
Depending on the respective activity, various greenhouse gases can be released in a company and along the value chain. These emissions are documented in tons of CO₂e. Determining the CCF gives companies the opportunity to assess their impact on climate change. In order to successfully implement reduction measures, it is crucial to precisely record and correctly classify the specific greenhouse gas emissions.
The Greenhouse Gas Protocol (GHG) was launched in 1998 as part of a cooperation between the World Resources Institute and the World Business Council for Sustainable Development. The aim of this initiative was to create a consistent and transparent framework for recording greenhouse gas emissions. The GHG Protocol is the most widely used standard worldwide for calculating companies' greenhouse gas emissions balances. It is also recommended by the Global Reporting Initiative (GRI), which underlines its broad acceptance in corporate reporting.
The protocol covers the greenhouse gases regulated by the Kyoto Protocol, in particular carbon dioxide (CO₂), methane (CH₄) and other emissions. These gases are generally converted into CO₂ equivalents (CO₂e) to enable standardized comparability of emissions. Applying the GHG Protocol helps companies to better understand their environmental impact and take appropriate measures to reduce their emissions.
It provides comprehensive guidance and guidelines that enable companies to conduct a thorough analysis of their emissions and accurately determine their corporate carbon footprint. By applying the GHG Protocol, companies are able to more clearly understand their environmental impact, formulate strategies to reduce emissions and effectively implement their sustainability plans.
The corporate carbon footprint (CCF) represents the total amount of greenhouse gas emissions that result both directly and indirectly from the activities of companies. This also includes CO₂ emissions. The CCF enables companies to obtain an overview of where greenhouse gas emissions arise in their operations and value chain and to what extent they are present. On this basis, data can be recorded and reduction targets defined.
The Greenhouse Gas Protocol divides the climate-damaging gases that contribute to a company's CCF into three main categories, which are referred to as "scopes" in the GHG standard: Scope 1, Scope 2 and Scope 3.
A clear distinction is made between direct and indirect emissions. While direct emissions result from a company's own activities, indirect emissions refer to the effects caused by the actions of other companies that are owned or controlled by third parties. In this context, Scope 2 and Scope 3 emissions are very important. The GHG Protocol attaches great importance to a precise distinction between these two categories, as this is the only way to ensure accurate recording and reporting of emissions.
The GHG Protocol stipulates that companies are obliged to record and document all Scope 1 and Scope 2 emissions. Although the recording of Scope 3 emissions is not mandatory, it plays a decisive role within the climate protection strategy. However, identifying and quantifying greenhouse gas emissions that occur along a company's entire value chain and are outside its direct control is a significant challenge.
The large number of stakeholders and processes often leads to a complex and resource-intensive task. It is therefore of great importance to develop suitable methods and tools to effectively monitor and control these emissions. Only an integrative approach can ensure a sustainable reduction in greenhouse gas emissions. Effective management of Scope 3 emissions can not only improve a company's environmental footprint, but also strengthen its competitiveness in the face of increasing legal requirements.
The Corporate Sustainability Reporting Directive (CSRD) is a European Union directive that obliges companies to structure their sustainability reporting in accordance with clearly defined standards. From the 2024 reporting year, CO2 emissions must also be included in the non-financial key figures, taking into account the size of the company. The CSRD came into force on January 5, 2023 and is currently being transposed into national law by the EU member states, including Germany.
The CSRD replaces the previously applicable Non-Financial Reporting Directive (NFRD). The latter was an existing sustainability reporting obligation in the European Union that was introduced in 2014 and applied to companies with more than 500 employees. With the introduction of the CSRD, the scope of reporting has been significantly expanded. This affects both the requirements for the information to be published and the group of people who are included in the mandatory reporting. The CSRD aims to promote greater transparency and quality in sustainability reporting and thus increase the relevance of companies for sustainable investments.
The two main innovations of the CSRD are to be implemented by companies:
Many of the more than 50,000 companies affected across Europe have not yet sufficiently considered the issue of CO2 emissions. However, from the 2024 reporting year, implementation will be mandatory for companies already covered by the NFRD. For the 2025 reporting year, the directive will also become mandatory for large companies. In accordance with Section 267 (3) HGB, companies are classified as "large" if they meet two out of three of the following criteria They employ an annual average of more than 250 employees, have a balance sheet total of more than €25 million or generate sales revenue of more than €50 million.
The extension of this regulation will also indirectly affect smaller companies in the coming years. From 2026, listed SMEs, for which simplified standards (LSME standards) are currently being developed, will also be affected. Listed SMEs also have the option of applying for a deferral until 2028.
The CSRD significantly expands the reporting obligations of companies, particularly with regard to non-financial indicators. ESRS E1 Climate Change is one of the topic-related standards that companies must consider as part of the materiality analysis. Due to the enormously high greenhouse gas emissions in almost all economic activities, this standard is expected to be of central importance for almost every company. It obliges companies to publish their greenhouse gas emissions in the management report, whereby these must be determined on the basis of a corporate carbon footprint (CCF). The CCF, also known as a carbon footprint, records the annual emissions according to Scopes 1, 2 and 3 and helps to identify emission hotspots and use the climate protection budget efficiently. The CO2 values collected must be documented in accordance with the requirements of the EFRAG ESRS E1 Climate Change standard; a rough approximation of the emissions is not sufficient.
Mandatory sustainability reporting in accordance with the CSRD will come into effect for the first companies in the 2024 calendar year. In order to meet the new challenge, early and verified data collection of non-financial key figures is required. From the 2024 financial year, depending on the size of the company, additional information must be included in the management report that corresponds to the material reporting topics of the ESRS standards.
In particular, the ESRS E1 standard covers the recording of greenhouse gas emissions along the entire value chain (Scope 1, 2 and 3). In Scope 3, upstream and downstream emission sources associated with the company's business activities are relevant. This complex topic presents companies with new challenges, as there is often a lack of internal expertise. In addition, the accounting must be checked and externally validated, which is why a reliable partner should be selected promptly.
A climate report that takes into account Scopes 1, 2 and 3 in accordance with the GHG Protocol helps companies to formulate realistic, measurable and verifiable targets for reducing emissions and to achieve them in a targeted manner.
Here is a brief explanation of scopes 1, 2 and 3:
Scope 1: Direct greenhouse gas emissions caused by the company itself. Scope 2: Indirect emissions resulting from the purchase of energy. Scope 3: Indirect emissions resulting from the upstream and downstream value chain.
According to the GHG Protocol, the recording and reporting of Scope 3 emissions is not mandatory for the calculation of the carbon footprint. The reason for this lies in the complex analysis of the many actors and processes involved within a company's value chain. However, this situation is changing with the new requirements of the CSRD Climate Change Standard.
This area includes a company's direct emissions. But what exactly does "direct" mean? According to the GHG Protocol, Scope 1 emissions include all sources that are owned, controlled or for which the company is responsible. This includes emissions from energy sources used at the company's site, such as natural gas and various fuels, refrigerants and emissions from the operation of boilers and furnaces. These emissions are controlled or accounted for by the company itself. Scope 1 also includes emissions from the company's own vehicle fleet (e.g. cars, vans, trucks, helicopters for hospitals, etc.).
Scope 1 emissions in manufacturing companies are a major challenge, as they are mainly attributable to combustion processes. This includes emissions released by the operation of boilers, furnaces and industrial production facilities. Emissions resulting from chemical reactions during the manufacturing process are also included here.
Cement production is particularly noteworthy. Large quantities of greenhouse gases are released here through chemical transformations. For this reason, the construction industry is increasingly looking for more environmentally friendly alternatives in order to meet both ecological and regulatory requirements.
Another important aspect is emissions from company-owned vehicles. These include, in particular, trucks used for transportation and logistics tasks, as well as forklift trucks used in production facilities. Emissions from vehicles used for business purposes are also included in this area. Scope 1 also includes emissions from generators used to supply energy to machines or as an emergency power source.
In the area of services, Scope 1 emissions are often not so obvious, but are just as important for the holistic assessment of a company's environmental impact. This includes emissions caused by heating systems in office buildings and exhaust fumes from company-owned vehicles. Emissions from small power plants used to supply energy to buildings and from cooling systems used in data centers or to cool offices are also included. Service companies that have their own maintenance or delivery fleets can also have high emissions from these sources. Companies in the service sector should therefore also consider Scope 1 emissions in order to develop targeted measures to reduce their environmental footprint and achieve their sustainability targets.
In agriculture, Scope 1 emissions are mainly caused by direct agricultural activities. These include methane emissions from ruminants, emissions caused by the use of fertilizers and the combustion of biomass. Direct emissions also include the use of agricultural machinery such as tractors and harvesters that run on diesel.
Scope 1 emissions play an important role in the area of energy generation. These emissions arise directly from the combustion of fossil fuels in power plants that are used to generate electricity and heat. Scope 1 also includes emissions released during the extraction and processing of crude oil, natural gas and coal.
The above examples illustrate that Scope 1 emissions can occur in different sectors and can take completely different forms. Each sector therefore faces its own challenges when it comes to reducing these emissions. Companies that analyze their corporate carbon footprint have the opportunity to immediately identify potential for reduction. These include switching to lower-emission vehicles and gradually switching their own energy production to renewable energy sources.
Direct measurements: Use of measuring devices to continuously monitor emissions at the source. This method offers high accuracy, but is often costly and technically demanding.
Activity data and emission factors: Collection of data on fuel consumption or production volume and application of standardized emission factors to calculate emissions. This method is widely used and is based on recognized standards such as the GHG Protocol.
Mass balance approach: Calculation of emissions by comparing the input and output quantities of a process, particularly in the chemical industry.
Modeling: Use of computer models to estimate emissions based on process parameters and operating conditions.
Accessibility and quality of data:
For many companies, it is difficult to obtain precise and complete data on fuel consumption or emissions from various sources. Often, consumption records are not standardized or incomplete.
Various emission sources:
The large number of potential emission sources, such as heating systems, production facilities and vehicle fleets, makes data collection complex. Different sources therefore require different measurement or estimation methods.
Lack of infrastructure:
Older systems in particular often lack the technical infrastructure to measure emissions directly or to document consumption in detail.
Costs and effort:
Implementing measurement systems, training employees or procuring software solutions requires investment. These costs can be a hurdle for smaller companies.
Avoid double counting:
In complex corporate structures involving several locations or subsidiaries, there is a risk of double counting or omissions in the allocation of emission sources.
Changing regulatory requirements:
The regulations and requirements for recording and reporting emissions are constantly changing. Companies need to keep up to date and regularly adapt their processes.
Recording Scope 1 emissions is an important step in developing effective reduction strategies. Companies have the opportunity to take targeted measures, such as switching to renewable energy sources or optimizing their energy efficiency, in order to reduce direct emissions.
In addition to directly reducing emissions, the measures often contribute to increasing operational efficiency. In the long term, this can even save costs. By using low-emission technologies, companies also have the opportunity to strengthen their market position and position themselves as pioneers in the field of sustainability. Such investments not only promote more environmentally friendly business practices, but also increase competitiveness.
A comprehensive analysis of Scope 1 emissions not only contributes to the immediate reduction of greenhouse gases, but also has a lasting effect on the sustainability and corporate strategy.
Scope 2 emissions refer to the indirect greenhouse gas emissions caused by the consumption of purchased energy. These include electricity, water vapor and district heating and cooling. Although these emissions are generated outside a company's premises, they are closely linked to operational processes. This energy is used in various processes and activities, such as lighting, heating or the operation of machinery.
Scope 2 emissions are very important as they represent a significant component of a company's carbon footprint. They result from energy production, which is caused by the company's energy consumption. Therefore, reducing these emissions is a crucial approach for companies that want to improve their environmental footprint and achieve their climate goals. By implementing strategies to reduce Scope 2 emissions, companies can not only further their sustainability goals, but also increase efficiency and reduce costs.
If companies purchase electricity from an external energy supplier, the resulting emissions are categorized as indirect emissions. In contrast, emissions resulting from self-produced energy from sources that the company controls or for which it is responsible are categorized as direct Scope 1 emissions. This also applies to companies such as electricity providers that have their own power plants to generate electricity and feed all of the electricity produced into the local power grid. The greenhouse gas emissions from these plants are recorded accordingly as Scope 1 emissions. This distinction between direct and indirect emissions is crucial for understanding a company's greenhouse gas footprint and its impact on sustainable business strategies.
In summary, the scope of Scope 2 only includes indirect emissions that arise from the generation of purchased energy. In addition, all emissions resulting from the production and processing of upstream fuels and the distribution of energy within a network fall under Scope 3.
A company manages several office buildings in which various electrical devices such as computers, lighting and air conditioning systems are used. The electricity required to operate these devices is generated externally, for example in coal or gas-fired power plants. The resulting emissions are defined as the company's Scope 2 emissions. Only in the case of energy suppliers do these emissions fall under the category of Scope 1 emissions, as they are directly linked to electricity generation.
A manufacturer requires thermal energy for various production processes, for example to heat materials. If it obtains this thermal energy in the form of district heating, which is generated in an external heating plant and supplied via a district heating network, the emissions resulting from the generation of this heat fall under the company's Scope 2 emissions.
IT companies and data center operators rely on large cooling capacities to operate their servers and IT infrastructure within optimal temperature ranges. The energy required to operate the cooling systems can be obtained either in the form of cooled air or water from external service providers. The indirect emissions that result from this are counted as Scope 2 emissions.
This classification is important for companies that want to optimize their carbon footprint in terms of transparency and responsibility in the context of sustainability reporting. A conscious approach to cooling solutions and the use of energy-efficient technologies can not only reduce operating costs, but also make a significant contribution to reducing CO2 emissions.
In many industries, including food processing and the pharmaceutical industry, steam plays a central role in cleaning and sterilization processes. If companies purchase steam from an external supplier that generates it in a power plant by burning fossil fuels, the associated emissions are classified as Scope 2 emissions.
Companies that enter into contracts for the procurement of renewable energy, such as wind or solar power, also have to deal with Scope 2 emissions. While the actual operation of renewable energy sources is generally emission-free, greenhouse gases can be generated during the production and installation of these technologies. However, these emissions are generally significantly lower than those from conventional fossil energy sources. In addition, emissions associated with the production and supply of biogas used by companies must also be taken into account.
The energy purchased by the company is recorded in Scope 2 emissions. This also includes heat, cooling, steam and comparable energy sources that companies use for their production processes. The reduction of Scope 2 emissions can be achieved through various measures, such as more efficient energy consumption strategies and the use of sustainable energy sources. In addition, solutions are now available that enable heat and steam to be generated from renewable sources and stored. These approaches can not only reduce the ecological footprint, but also strengthen the competitiveness of companies with regard to sustainable practices.
Accurate recording and calculation of Scope 2 emissions is important to measure a company's indirect greenhouse gas emissions resulting from the consumption of purchased energy. The Greenhouse Gas Protocol recommends two main methods for calculating these emissions:
Location-Based Method:
Description: This method takes into account the average emission factors of the electricity grid in the region where the energy consumption takes place. It reflects the emissions intensity of the local electricity mix.
Application: Companies multiply their total electricity consumption by the average emission factor of the regional electricity grid.
Data source: National or regional authorities usually publish these emission factors.
Market-Based Method:
Description: This method takes into account the specific emission factors based on the actual energy sources that a company purchases. This also includes contractual agreements such as electricity supply contracts or guarantees of origin.
Application: Companies use the emission factors that correspond to the specific energy sources they purchase. For example, electricity from renewable sources can have an emission factor of zero.
Data source: Information from energy suppliers, renewable energy certificates or specific contract details.
The GHG Protocol recommends that companies use both methods and report the results separately in order to obtain a comprehensive picture of their Scope 2 emissions.
Data availability and quality:
Companies need accurate data on their energy consumption and the specific emission factors of the energy sources used. In some regions, this data may not be readily available or up-to-date.
Complexity of energy supply chains:
When using energy from different sources or in the case of complex supply contracts, it can be difficult to determine the exact emission factors.
Variable emission factors:
The emission intensity of the electricity grid can vary depending on the time of day, season or year, which makes the calculation more difficult.
Avoid double counting:
In complex company structures, there is a risk that energy consumption will be recorded multiple times or overlooked.
Transition to renewable energy sources
One of the most effective strategies for reducing Scope 2 emissions is to switch to renewable energy sources. These include wind energy, solar energy and hydropower. Unlike fossil fuels, these sources do not release harmful greenhouse gases when generating electricity. By purchasing green electricity, companies can not only significantly reduce their dependence on conventional energy sources, but also improve their carbon footprint at the same time.
In addition, the use of renewable energies signals the company's commitment to climate protection. This is relevant for both customers and business partners, as it can promote the company's competitiveness.
Increasing energy efficiency
Improving energy efficiency is an important step towards reducing a company's environmental impact. This can be achieved by comprehensively modernizing buildings, introducing energy-efficient technologies and processes and optimizing workflows. These measures help to reduce energy consumption and operate more sustainably. A targeted reduction in energy consumption not only leads to a reduction in Scope 2 emissions, but can also result in cost savings.
In-house production of electricity
By installing solar panels or other renewable energy systems at company headquarters, companies can generate their own environmentally friendly electricity. This not only has a positive impact on reducing Scope 2 emissions, but also reduces dependence on external energy suppliers. Producing their own energy enables companies to achieve greater independence in their energy supply and reduce the associated energy costs in the long term.
Scope 3 includes all indirect emissions that occur in the course of a company's value chain. To capture the differences between Scope 2 and Scope 3, the US Environmental Protection Agency (EPA) defines Scope 3 emissions as "the result of activities at facilities that are not owned or controlled by your company. However, these activities are directly influenced by your company in its own value chain." This differentiation is critical for companies that want to accurately track and reduce their overall greenhouse gas emissions.
Scope 3 emissions are divided into a total of 15 categories, each of which is subdivided into upstream and downstream areas. This categorization was developed to promote a consistent and comparable method for calculating and reporting companies' carbon footprints. The most widely used and recognized guidance for reporting Scope 3 emissions is the Greenhouse Gas Protocol (GHG Protocol), which includes the Corporate Value Chain (Scope 3) Accounting and Reporting Standard. The standard provides companies with a clear structure to record and report their emissions holistically, which improves the transparency and traceability of their sustainability strategy.
The ESRS E1 Climate Change divides Scope 3, which covers emissions from the entire value chain, into a total of 15 specific categories of greenhouse gases. The categories that are classified as material are mandatory for reporting in accordance with the CSRD. Companies with up to 750 employees benefit from a simplification: they are granted an additional year for preparation, so that the disclosure of greenhouse gas emissions from Scope 3 can be waived in the first reporting year.
Various factors must be taken into account in the context of CO2 emissions in Scope 3. These include energy consumption in rented properties, such as office buildings and vehicles. The purchase of goods and services and the disposal of waste also have an impact. Other relevant aspects include water consumption and wastewater treatment, business travel and employee commuting. These emissions are crucial for a comprehensive assessment of a company's environmental impact and should therefore be systematically recorded and reduced. Although these emissions are not controlled by companies, they may well make up the largest proportion of a company's greenhouse gas emissions.
As already indicated, the GHG Protocol differentiates between Scope 3 emissions that occur before and after the company's own operations. These two categories differ as follows:
Upstream emissions (upstream)
Cradle-to-gate (cradle to gate + within) refers to all emissions that occur both before and during the production of a product. These emissions occur in the value chain before the company is involved. This includes emissions associated with the extraction and transportation of raw materials, materials and components supplied to the company by suppliers.
Downstream emissions (downstream)
Gate-to-grave refers to all emissions that occur from the time the product leaves the company. Emissions caused by the use, consumption or disposal of the company's products and services by customers are also included.
The "Purchased Goods and Services" category refers to the indirect greenhouse gas emissions that arise during the procurement and processing of raw materials for products and services that a company uses for its own operational purposes.
To clarify this: When a company purchases raw materials, materials or components for the manufacture of its products, indirect emissions are usually generated. These emissions are generated during the production of the purchased goods. In addition, the services that a company uses can also lead to emissions, especially if they are associated with high energy consumption or environmentally harmful processes. It is important to take these factors into account in order to obtain a comprehensive picture of a company's environmental impact.
The "Purchased products and services" category can have a significant impact on a company's environmental footprint, as it represents a significant proportion of total indirect emissions. These emissions can be reduced by choosing suppliers who also strive to reduce their CO2 emissions.
The capital goods category refers to the indirect greenhouse gas emissions resulting from the production of plant, equipment, machinery and other non-current assets that a company uses for its operating activities.
The construction of new buildings, the installation of production facilities or the procurement of other long-term capital goods generate indirect emissions associated with the production of these capital goods. Furthermore, additional emissions are generated during the operation and maintenance of these goods over their entire life cycle. The "capital goods" sector can therefore account for a significant proportion of a company's total greenhouse gas emissions. Companies have the opportunity to reduce these emissions by prioritizing energy-efficient technologies and sustainable materials, both in the manufacture and use of their capital goods. By making conscious decisions in procurement and use, companies can make a responsible contribution to climate protection and optimize their operating costs at the same time.
The Energy- and Fuel-Related Activities category refers to the indirect greenhouse gas emissions caused by upstream processes and losses in the energy and fuel network.
One example of this is the efficiency losses that occur in connection with the extraction of crude oil, the generation of electricity in power plants or the production of natural gas. These losses take the form of energy that either remains unused or cannot be utilized economically. They occur even before the energy enters the utilization process.
In the specific context of electrical energy, grid losses are a significant phenomenon that occurs during transportation through lines and grids. These losses result from physical factors, in particular electrical resistance, and occur when energy is transmitted from its source to its destination. Minimizing these losses is important to optimize the overall performance of the energy system and promote sustainable energy policies. Effective strategies to reduce grid losses can not only increase efficiency, but also contribute to the implementation of sustainable energy concepts by reducing the environmental footprint of energy generation and distribution.
The Upstream Transportation and Distribution category refers to the indirect greenhouse gas emissions caused by the transportation and distribution of raw materials, materials and products supplied to the company by its suppliers.
To explain this in more detail: When companies purchase raw materials, semi-finished products or other materials from their suppliers, emissions are caused by the transportation of these goods from the supplier's site to the company's site. These emissions can include road and rail transport as well as transportation by water or air. A thorough analysis of these transports is therefore important in order to comprehensively assess the environmental impact and develop effective strategies to reduce CO₂ emissions.
The "Upstream transportation and distribution" category can have a significant impact on a company's overall greenhouse gas emissions. This is particularly relevant in sectors that have an extensive value chain and international procurement processes. Companies have the opportunity to reduce these emissions by relying on sustainable transport solutions, optimized logistics routes and environmentally conscious suppliers. By implementing such measures, companies not only help to reduce their environmental footprint, but also strengthen their competitiveness and image as responsible players in the global economy.
The waste category refers to the indirect greenhouse gas emissions resulting from the disposal and treatment of waste generated in the course of a company's business activities.
To explain this in more detail: every company produces waste, be it in the form of production residues, office waste or other types of waste generated in the course of its operational processes. The disposal of this waste leads to emissions that can come from various sources. For example, landfill gases are produced during the decomposition of organic waste or emissions are released through the incineration of waste to generate energy.
Companies have numerous opportunities to reduce these emissions by implementing effective waste management strategies. The focus should be on recycling, the reuse of materials and the targeted minimization of waste. Through these measures, companies actively contribute to sustainable development and improve their environmental footprint at the same time. Such an approach not only makes ecological sense, but can also bring economic benefits by using resources more efficiently and reducing costs associated with waste disposal.
The business travel category includes indirect greenhouse gas emissions caused by business travel by employees of a company. These trips can involve various means and types of transportation, including air travel, rail travel, car travel and transportation by other modes of transport.
These emissions are classified as indirect because they are not directly caused by the operational activities of a company at its headquarters or production facilities. Rather, they result from the movement of employees in connection with their professional tasks.
Companies can reduce their emissions by using alternative technologies such as video conferencing to reduce business travel. In addition, environmentally friendly transportation options for business travel should be promoted to further support sustainability goals and make a positive contribution to climate protection.
The commuting category (employee commuting) refers to the indirect greenhouse gas emissions caused by employees' daily journeys to their workplace. These emissions result from energy consumption and the associated greenhouse gas emissions during commuting, for example through fuel consumption during car journeys or the energy requirements of public transportation. Companies have the opportunity to reduce these emissions by implementing measures to promote environmentally friendly mobility.
The upstream leased assets category is assigned to Scope 1 & 2 in accordance with the operational control approach. If a company does not own its own property, plant and equipment, such as buildings, production facilities, machinery or vehicles, but rents or leases them from external providers, emissions can of course also be generated. These result from energy consumption and the use of rented or leased facilities.
Companies have the opportunity to reduce their emissions by opting for energy-efficient rental appliances or introducing measures to increase energy efficiency in their operations.
Downstream transportation and distribution refers to the indirect greenhouse gas emissions caused by transportation and distribution to customers or end consumers - or financed by third parties.
To be more precise: When a company transfers or sells its goods to customers, the transportation from the company to the end customer generates emissions. This transportation can take place via different modes of transport, including road, rail, water or air, depending on the logistics and transportation methods used.
Companies have the opportunity to reduce their emissions by implementing environmentally friendly transport alternatives, optimizing logistics processes and promoting resource-saving shipping techniques.
The Processing of Sold Products category refers to the indirect greenhouse gas emissions generated by the post-processing of the products offered by the company. These emissions occur when customers further process the purchased goods, whereby particular attention must be paid to the energy requirements of the machines used. The precise recording and analysis of these emissions is crucial in order to obtain a comprehensive picture of a company's overall environmental impact and to develop targeted measures to reduce CO2 emissions.
The category "Use of Sold Products" comprises the indirect greenhouse gas emissions generated by customers or end consumers during the use of the products offered by a company.
To be more precise: When a company sells its products, emissions can be released during use by customers or end consumers. These emissions are often caused by the energy required during use, for example through the energy consumption of electrical appliances or cars.
The "use of products sold" category is a decisive factor for Scope 3 emissions, as customer usage behavior has a significant impact on a company's overall greenhouse gas footprint. Companies can reduce these emissions by developing energy-efficient products that minimize energy consumption during use.
The End-of-Life Treatment of Sold Products category includes the indirect greenhouse gas emissions that are released during the disposal and processing of products after they have reached the end of their service life.
To be more precise: When a company sells goods, emissions are generated during the disposal and recycling processes when these products are disposed of or recycled at the end of their life. These emissions can be released through landfill gases when products are placed in landfills or through the incineration of waste to generate energy. In addition, emissions can also occur during the dismantling and subsequent recycling of products. It is
Companies have the opportunity to reduce their emissions by developing products that are easily recyclable or reusable and by supporting environmentally friendly disposal practices.
The category of leased property, plant and equipment (downstream leased assets) includes indirect greenhouse gas emissions resulting from the use of property, plant and equipment leased by a company to other companies.
When a company owns physical assets such as real estate, machinery or vehicles and rents or leases them to other companies, emissions are generated as a result of the energy consumption and operations of these rented or leased assets. These emissions are an important aspect of assessing a company's environmental performance and should therefore be considered as part of sustainability reporting and risk management.
Companies have the opportunity to reduce their emissions by renting or leasing energy-efficient equipment. They can also take targeted measures to increase the energy efficiency of their facilities in order to improve their environmental footprint in the long term.
The franchise category includes indirect greenhouse gas emissions caused by the business activities of franchisees.
In the franchising system, a company, the franchisor, grants a license to use its business model, its brand and its intellectual property to independent entrepreneurs who act as franchisees. These franchisees operate their businesses under the franchisor's name and are therefore part of a uniform brand identity. The greenhouse gas emissions resulting from the business activities of franchisees are recorded in the "Franchises" category of the greenhouse gas inventory. This enables transparent tracking and assessment of the environmental impact on a global level.
These issues can be completely different, as they depend on the activities of the franchisees.
This could include the following:
As these emissions are indirectly caused by the actions of franchisees, they are also of great importance to the franchisor, particularly with regard to analyzing and reducing their overall emissions and environmental footprint.
The investments category includes indirect greenhouse gas emissions caused by a company's investments in other companies or projects.
When a company invests in other companies or projects in the form of shares or other equity investments, the business activities of the invested companies generate indirect emissions. Companies have the opportunity to reduce their emissions by investing in environmentally conscious and sustainable companies or initiatives that have reduced CO2 emissions.
The recording and calculation of Scope 3 emissions presents companies with complex tasks, as these emissions come from a variety of sources along the entire value chain. The GHG Protocol provides a recognized framework for this and distinguishes between four main methods for quantifying greenhouse gas emissions from purchased goods and services:
Supplier-specific method: This method is based on specific emissions data provided directly by the suppliers. It enables precise recording of emissions, but requires close cooperation with suppliers and access to detailed data.
Environmental Economic Input-Output Analysis (EEIO): This uses average emissions data based on economic input-output tables. This method is useful when specific data is missing, but provides less accurate results as it is based on average values.
Hybrid method: This combines the supplier-specific method with EEIO analysis to use both specific and average data. This can increase accuracy, but requires more effort in data collection and processing.
Process-based life cycle analysis (LCA): This detailed method analyzes the emissions along the entire life cycle of a product or service. It offers the highest accuracy, but is also the most resource-intensive and requires extensive data.
The collection of Scope 3 emissions data is associated with several challenges:
Data availability and quality:
Specific emissions data from suppliers is often missing or incomplete. The quality of the available data can vary, which affects the accuracy of the emissions calculations.
Complexity of the supply chain:
In global supply chains with numerous players, it is difficult to identify and quantify all relevant sources of emissions. The large number of parties involved makes traceability and transparency difficult.
Standardization:
There is often a lack of standardized methods and processes for data collection and processing, which makes it difficult to compare and ensure the consistency of the data.
Resource expenditure:
Collecting and analyzing the necessary data requires considerable human and financial resources, especially if detailed and accurate data is required.
The introduction of the new EFRAG standards, which apply to reporting companies as part of the Corporate Sustainability Reporting Directive, has resulted in changes to reporting requirements with regard to Scope 3 emissions. The carbon footprint in relation to Scope 3 must now be included in the calculation by all companies in accordance with the EFRAG standard ESRS E1 Climate Change.
However, the Climate Change Standard offers a certain amount of leeway with regard to the individual Scope 3 categories. Some of these categories remain optional, depending on their relevance for the respective business activity. In addition, it is possible to combine certain Scope 3 categories in order to optimize the effort for CO2 calculation and reporting. This enables companies to make their sustainability reporting more efficient without losing sight of the key aspects of emissions reduction.
In particular, the recording of Scope 3 emissions, which is required as part of the ESRS E1 Climate Change, poses challenges for many companies. In particular, data gaps need to be closed and there are uncertainties as to what information is required for proper accounting. For these reasons, it is advisable to have the procedure for recording and analyzing Scope 3 emissions supported by experts. Sound expertise is crucial in order to successfully overcome the challenges and efficiently implement the requirements of the CSRD.
The reduction of Scope 3 emissions presents companies with challenges, as these emissions come from indirect sources along the entire value chain. Nevertheless, there are effective strategies to reduce these emissions:
Supplier management and cooperation:
Engagement with suppliers: Work closely with your suppliers to understand their emissions and set reduction targets together. This can be done through training, workshops and sharing best practice.
Sustainable procurement: Give preference to suppliers that apply environmentally friendly practices and provide transparent emissions data. Choosing suppliers with low emissions can reduce your company's overall carbon footprint.
Product design and development:
Energy-efficient products: Develop products that consume less energy during their use. This reduces emissions during the use phase and can also increase customer satisfaction.
Circular economy: Rely on durable, repairable and recyclable products. By promoting reuse and recycling, emissions from the production of new materials can be reduced.
Optimization of logistics:
Efficient transport routes: Analyze and optimize your supply chains in order to shorten transport routes and use lower-emission means of transport. This can be achieved by using rail transport instead of truck transport or by bundling deliveries.
Sustainable packaging: Reduce packaging materials and use environmentally friendly alternatives to minimize emissions from production and disposal.
Promotion of sustainable consumer behavior:
Customer education: Inform your customers about the environmentally friendly use and disposal of your products. This can be done through instructions, labels or information campaigns.
Take-back systems: Implement programs to take back and recycle your products to extend their life and reduce waste.
Investments in climate protection projects:
Offsetting: Invest in certified climate protection projects to offset unavoidable emissions. However, this should be seen as a complementary measure and should not take the focus away from direct emission reductions.
Implementing these strategies requires a holistic view of the entire value chain and cooperation with various stakeholders. By taking proactive measures, companies can not only reduce their Scope 3 emissions, but also increase their competitiveness and make a positive contribution to climate protection.
In addition to the established terms Scope 1, 2 and 3, a new term is currently gaining in importance: Scope 4. This category, which is also referred to as "avoided emissions", enables companies to analyze their impact on the climate more comprehensively and communicate it transparently.
Scope 4 emissions refer to the reduction in greenhouse gas emissions achieved indirectly through the use of a company's products or services compared to conventional alternatives. These emissions represent the greenhouse gases that can be avoided through the use of innovative products or services, thereby reducing the overall carbon footprint.
This approach offers companies the opportunity not only to reduce their own emissions, but also to make an active contribution to climate protection. By providing efficient and sustainable solutions, companies can play a key role in climate management. The precise measurement of avoided emissions also opens up a new dimension of environmental responsibility and helps companies to better understand and manage their climate impact. This promotes a comprehensive understanding of sustainability and positions companies as leaders in reducing greenhouse gas emissions within their industries.
However, this category is not standardized and its measurement and reporting are more complex than for the first three scopes.
Scope 4 is important for all stakeholders who want to gain a comprehensive understanding of the climate impact of companies. This approach goes beyond the traditional Scope 1, 2 and 3 emissions categories to consider the positive effects of products and services. When Scope 4 is included, companies can build a more complete picture of their environmental footprint and thus develop targeted measures to improve their environmental sustainability.
The company
Companies offering goods or services that aim to reduce their customers' greenhouse gas emissions may discover a valuable opportunity to accurately measure and effectively communicate this positive effect by considering Scope 4. In this way, a more comprehensive understanding of the environmental impact can be developed, which can be beneficial for both internal strategic planning and for optimizing market position. The clear presentation of one's own contributions to reducing emissions not only strengthens one's own competitiveness, but also promotes trust among stakeholders.
Investors
Investors interested in investing in environmentally friendly companies have the opportunity to use Scope 4 as an important indicator of a company's commitment to environmental responsibility and innovation. This benchmark can play a decisive role in the evaluation of ESG criteria and thus provide a sound basis for decision-making on sustainable investments.
Consumers
More and more consumers value sustainable practices and have the opportunity to make informed decisions when purchasing products or services through Scope 4 information. This information enables them to actively contribute to reducing their own carbon footprint.
Politics and regulatory authorities
Governments and policy makers have the opportunity to use Scope 4 data to analyze the effectiveness of environmental strategies and initiatives and to understand how companies are contributing to national or international climate goals.
Scope 4 emissions open up exciting opportunities in numerous sectors. Some specific examples from different sectors are listed below.
A company that produces and installs renewable energy systems has the opportunity to systematically quantify the emissions saved through the use of its solar panels or wind turbines compared to traditional energy sources. This calculation highlights the company's impact on reducing greenhouse gas emissions and underlines its contribution to a sustainable energy future.
A provider of energy-efficient servers and data centers can measure exactly how its products reduce energy consumption and thus the CO2 emissions of its customers. This analysis is particularly important when comparing them to older, less efficient technologies. By collecting and analyzing data, companies can improve their environmental footprint and demonstrate a clear benefit to their customers.
A car manufacturer specializing in the production of electric vehicles could quantify the CO₂ emissions saved compared to conventional combustion engines. This analysis would illustrate the potential impact of electromobility on reducing greenhouse gas emissions and thus contribute to the promotion of sustainable mobility solutions.
A company that offers environmentally friendly building concepts such as optimized insulation or energy-efficient windows should systematically analyze and document the emissions saved due to the reduced energy consumption for heating and cooling compared to conventional construction methods.
A manufacturer of household appliances can calculate exactly how much energy and CO2 its energy-efficient products save compared to conventional appliances. This analysis helps to raise awareness of environmental issues and informs consumers about the environmental benefits of their purchasing decisions. By providing helpful information, companies can involve their customers in their sustainability strategies and thus make a positive contribution to reducing their environmental footprint.
A provider of innovative fertilizers or cultivation methods that aims to increase yields while minimizing the consumption of agricultural resources can systematically determine the emissions saved by reducing the use of fuel, fertilizers and materials. This enables a transparent assessment of the ecological effects and helps farmers to make more sustainable decisions.
Scope 4, like CO₂ offsetting, has no direct influence on a company's Scope 1, 2 and 3 emissions. Instead, Scope 4 is a separately reportable category that captures the positive effects of a company in terms of reducing emissions outside its operational boundaries. This category enables companies to transparently present their sustainable practices and their impact on the entire ecosystem and thus make a contribution to global emissions reduction. Scope 4 reporting helps companies to recognize and communicate their responsibility for climate change.
Scope 4 is therefore a special form of documentation that highlights a company's positive impact on reducing emissions within the global community. Scope 4 does not focus on the reduction of a company's own direct or indirect emissions, but serves as a tool to highlight the benefits created by a company's products or services. An example of this is how teleconferencing services can help to minimize business travel and the associated emissions that are outside the company's direct control.
There is currently no generally accepted standard for the accounting of Scope 4 emissions. Scope 4 is still a relatively new concept that differs significantly from the established emission categories (Scope 1, 2 and 3), which are well established through recognized protocols such as the Greenhouse Gas Protocol. The guidelines and standards for Scope 4 are therefore still in the development process. It is important to monitor the ongoing development in this area in order to make optimum use of future requirements and opportunities for accounting for Scope 4 emissions.
Companies wishing to report on avoided emissions should be guided by existing frameworks and standards that have been developed for comparable calculations. However, these standards are often adapted to meet the specific requirements of calculating avoided emissions. A common approach to adaptation is to conduct a comprehensive Life Cycle Assessment (LCA) for products or services. As part of this analysis, the avoided emissions are determined in comparison to a clearly defined baseline scenario. This methodical approach enables companies to make informed decisions and make their environmental footprint more transparent.
Companies should pay attention to transparency, consistency and verifiability when communicating avoided emissions in order to ensure the credibility of their information. As uniform standards are still lacking, it is all the more important to present the methods and assumptions on which the calculations are based clearly and unambiguously. This will ensure that stakeholders can understand and appropriately assess the reported avoided emissions.
The connection between Scope 1 and Scope 2 and Scope 3 is important for a comprehensive understanding of a company's climate impact. Scope 1 covers the direct emissions that arise directly from the company's own activities. In contrast, Scope 2 refers to the indirect emissions that result from the generation of supplied energy, such as electricity, heat or steam.
At this point, it is important to consider how the emissions of other companies affect these scopes. For example, if a company purchases electricity from a coal-fired power plant, the emissions generated during electricity production fall under Scope 1 of the power plant. For the purchasing company, however, these emissions count as Scope 2 emissions, as they are caused by the energy purchase.
Scope 3 expands the understanding of all indirect emissions that occur throughout a company's entire value chain. In particular, this includes emissions resulting from the production and transportation of purchased materials and services, as well as emissions generated during business trips or when disposing of products. A significant proportion of these emissions originate from the Scope 1 or Scope 2 emissions of other companies. For example, if a company purchases parts from a supplier, the emissions resulting from the production of these parts are classified as Scope 1 emissions of the supplier, but fall under Scope 3 of the purchasing company.
This differentiation is critical as it helps companies gain a comprehensive picture of their overall greenhouse gas emissions. By managing and reducing these emissions, companies can not only reduce their own environmental footprint, but also build more sustainable relationships with their suppliers to make joint progress in reducing CO2 emissions. Scope 3 thus makes an important contribution to achieving climate targets and promoting responsible corporate governance.
This connection illustrates how closely global economic activities are linked and that a company's climate impact can go far beyond its own direct emissions. Looking at all three scopes enables companies to get a complete picture of their climate impact and develop effective strategies to reduce their overall greenhouse gas emissions.
In this article on emissions scopes and the GHG Protocol, we have highlighted the crucial role of climate change and its far-reaching consequences for companies. The different scope categories - from direct emissions in Scope 1 to indirect emissions in Scope 2 and complex Scope 3 emissions - are essential components of a responsible sustainability strategy. We have established how important it is to record these emissions accurately in order to meet regulatory requirements such as the CSRD and at the same time make an active contribution to reducing greenhouse gases.
Given the increasing importance of corporate responsibility and transparency in sustainability reporting, it is essential for companies to proactively address these issues. The right strategy for reducing their emissions not only helps to meet legal requirements, but also to strengthen the trust of stakeholders and gain valuable competitive advantages.
In summary, understanding emission scopes and managing them effectively are crucial steps towards a more sustainable future.
