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Understanding the relevance of Scope 3 emissions for science-based target setting

By Emma Watson
10th October 2017

Last week my colleague Emma Watson published the first of a series of blogs on Scope 3 emissions and science-based target setting.

Emma provided an overview of Scope 3 emissions and the Science Based Target initiative (SBTi) requirements for Scope 3; one of which is the requirement that companies demonstrate that they have considered the relevance of each of the 15 Scope 3 emission categories and can provide a justification for any exclusions.

My blog here focuses on how companies should assess whether a Scope 3 emissions category is relevant or not, and therefore whether or not it needs to be included within the Scope 3 target

Back to the basic principles of GHG accounting

The GHG Protocol sets out the GHG accounting principles of relevance, completeness, accuracy, consistency, and transparency. These are intended to underpin and guide GHG accounting and reporting to ensure that the reported information represents a faithful, true, and fair account of a company’s GHG emissions.

Applying these principles can be more challenging for Scope 3 emissions reporting as companies generally have less visibility and control over these emissions. It is therefore important that the principles of completeness and accuracy are appropriately balanced with the principle of relevance so that Scope 3 categories can be excluded from the inventory if they are deemed not to be relevant.

Figure 1: List of Scope 3 categories as defined by the GHG Protocol. Source: Corporate Value Chain (Scope 3) Accounting and Reporting Standard

Is this category applicable to your organisation?

A simple, first step should be to understand if any of the 15 Scope 3 categories are simply “not applicable” to your organisation. For example, depending on your consolidation approach to the organisational boundary, emissions from upstream leased assets may already be included within Scopes 1 and 2. Therefore “Category 8: Upstream Leased Assets” would not be applicable.

Or, for example, your organisation may not have any franchise arrangements, and therefore emissions from “Category 14: Franchises” would also not be applicable. We recommend, in line with the principle of transparency, that companies demonstrate what actions were taken to understand whether these emission sources are applicable or not, document this within an evidence pack, and provide a clear justification for exclusion within their public reports.

Is this category relevant to your organisation?

When considering relevance, a useful starting place can be to have a look at what other companies in your sector are doing. The graph below shows how 14 UK Real Estate companies have reported on relevance of each of the 15 Scope 3 categories within their 2016 CDP submissions. From this we can see that emissions from 5 categories are frequently reported as relevant:

  • Category 1: Purchased Goods & Services;
  • Category 3: Fuel-and-Energy Related Activities (not included in Scopes 1 and 2);
  • Category 5: Waste Generated in Operations;
  • Category 6: Business Travel; and
  • Category 13: Downstream Leased Assets.

Figure 2: UK real estate CDP respondent companies’ 2016 assessment of scope 3 criteria relevance

While looking at what others are doing is a useful starting place and can inform your understanding of Scope 3, every organisation is different, and you should, therefore, carry out company-specific relevance tests as shown below:

  1. Can you influence emissions from this category in any way?
  2. Do emissions from this category contribute to your risk exposure?
  3. Are emissions from this source deemed critical by key stakeholders?
  4. Are emissions from this source outsourced activities that are typically performed in-house by other companies in your sector?
  5. Have emissions from this source been identified as significant by your peers or by sector-specific guidance?
  6. Do emissions from this category contribute significantly to your total anticipated Scope 3 emissions?

It is relatively simple to assess each of the 15 categories against the first five of the relevance criteria listed above by engaging with key internal and external stakeholders. However, the 6th criteria above presents us with a chicken and egg situation; in order to determine whether or not we need to quantify the emissions, we have to quantify them to establish their size and therefore relevance!

Fortunately, as part of this relevance test, we are able to use less specific, secondary data to establish the size of GHG emissions in each of the 15 categories. This avoids overly burdensome primary data collation for categories that turn out to be not relevant.

Secondary data includes industry-average data (for example, from published databases or literature studies), financial data, or proxy data (i.e. where you use specific data from one activity in the value chain to estimate emissions for another activity in the value chain).

The secondary data that you use to model your Scope 3 emissions will depend on your countries of operation, your sector, and a number of other company-specific factors. To find out more about different modelling techniques for estimating Scope 3 emissions, please contact our GHG accountancy experts here.

Further resources

Download | Net Zero: The Guide for Business 

Download | The Guide to Science-Based Targets

Carbon accounting and management with the Carbon Intelligence platform