“Scope 1 and 2 typically account for only 20% of the total GHG emissions, while Scope 3 constitutes 80% on average. Consequently, the majority of emissions are generated beyond the immediate operations of your company, complicating the data collection and analysis process.”
Scope 3 in Relationship to the CSRD
If climate change mitigation becomes a material topic during their Double Materiality Assessment (DMA), companies must report on their greenhouse gas (GHG) emissions according to the GHG Protocol. This protocol categorises emissions into three scopes: Scope 1, Scope 2, and Scope 3. Many companies obligated by the Corporate Sustainability Reporting Directive (CSRD) already calculate and report their Scope 1 and 2 emissions. However, Scope 3 emissions often remain unaccounted for, despite their significant impact.
The relevance of Scope 3 calculation
Scope 1 and 2 emissions represent the (semi-)direct emissions from your organisation. In contrast, Scope 3 encompasses the indirect emissions that occur outside your organization but within your value chain. This distinction means that Scope 1 and 2 typically account for only 20% of the total GHG emissions, while Scope 3 constitutes 80% on average. Consequently, the majority of emissions are generated beyond the immediate operations of your company, complicating the data collection and analysis process for Scope 3, and therefore there are noticeable differences compared to scope 1 and 2 calculations. The following aspects should be considered when starting with Scope 3.
Understanding Scope 3 Upstream & Downstream Categories
Scope 3 emissions are divided into 15 categories, out of which 8 are upstream and 7 downstream. Upstream emissions cover activities such as the acquisition of raw material acquisition by your organisation, including purchased goods and services, waste generated during operation, and employee commuting. Downstream emissions relate to activities conducted by your organisation from the point of sale to the disposal of products, including the use of sold products, transportation, and processing of sold goods.
Challenges in Data Collection, Calculation, and Assurance
This broad scope necessitates gathering data from various sources, including suppliers of suppliers, also known as Tier 2 suppliers. Additionally, different calculation methods can be employed based on the quality and availability of data, including supplier-specific, hybrid, average data, and spend-based methods. Each category within Scope 3 may necessitate a different approach, further adding to the complexity.
Furthermore, while governments provide emission factors for Scope 1 and 2 (such as those from CO2emissiefactoren.nl and DEFRA), facilitating straightforward calculations based on usage. However, Scope 3 lacks such standardised emission factors, requiring companies to source data from technical institutions, suppliers, and paid databases.
At least, obtaining assurance for Scope 3 emissions is more intricate than for Scope 1 and 2 due to the numerous choices and assumptions involved. Proper documentation is critical to ensure that auditors can verify your calculations and provide limited assurance, ensuring compliance with the CSRD.
Conclusion
As climate change mitigation becomes a priority in your CSRD reporting, calculating Scope 3 emissions is unavoidable. Unlike the relatively straightforward process for Scope 1 and 2, Scope 3 requires extensive third-party information, resources, expertise, and knowledge. If you need assistance navigating this complex process, contact us for a discovery call with our team of experts. We are here to help you achieve accurate and comprehensive GHG accounting.
