Scope 3 emissions

Read time: 11 minutes

What are Scope 3 emissions?

Scope 3 emissions are every indirect greenhouse gas emission that happens because your business exists but comes from sources you don’t own or control. The GHG Protocol splits a company’s footprint into three scopes:

• Scope 1 — direct emissions from sources you own or control, such as fuel burned in your vehicles, boilers or generators.
• Scope 2 — indirect emissions from the electricity, steam, heating and cooling you purchase.
• Scope 3 — all other indirect emissions across your value chain.

The value chain runs in two directions:

• Upstream emissions come from what you buy and how it reaches you. Examples: the steel in the equipment you purchase, the diesel a contracted carrier burns delivering your stock, your staff’s flights to a client site.
• Downstream emissions come from what happens after you sell. Examples: the energy your customers use to run your product, and what happens to it when they throw it away.

One company’s Scope 1 is usually another company’s Scope 3. When a freight carrier burns diesel moving your goods, that combustion is the carrier’s Scope 1 and part of your Scope 3. That overlap is intentional: Scope 3 shows where you have influence over emissions you don’t directly produce.

For most businesses, Scope 3 is the largest part of the footprint, which is why investors, large customers and climate disclosure rules such as AASB S2 now ask for it.

What are the 15 Scope 3 categories?

The GHG Protocol Corporate Value Chain (Scope 3) Standard groups value chain emissions into 15 categories: eight upstream and seven downstream. The categories are designed so the same emission isn’t counted twice within one company’s inventory.

How to screen categories for relevance

You don’t need to measure all 15 categories in full detail. You need to screen all 15, measure the relevant ones, and explain what you left out and why. The GHG Protocol suggests judging relevance on:

• Size — is the category likely to be a large share of your Scope 3 total?
• Influence — can you or your suppliers actually reduce it?
• Risk — does it expose you to climate-related, regulatory or supply risk?
• Stakeholders — do customers, investors or regulators care about it?
• Outsourcing — is it work you used to do in-house and now contract out?
• Sector guidance — does guidance for your industry treat it as significant?

A professional services firm will usually find categories 1, 6 and 7 dominate. A manufacturer will often find categories 1, 4, 11 and 12 matter most. A fund manager will be dominated by category 15.

How do you measure Scope 3 emissions?

Measuring Scope 3 is a cycle rather than a one-off calculation. Your first inventory gives you coverage; each year after that you replace the biggest assumptions with better data. (For why this is harder than Scopes 1 and 2, see why Scope 3 is the hardest to measure.)

1. Identify the categories that apply

Start from your organisational boundary and screen the 15 categories using the criteria above. Write down the decision for each one, including exclusions. An auditor will ask for this, and next year’s team will need it.

2. Collect the records you already have

Most first inventories are built from data the business already holds:

• Accounts payable and general ledger — every supplier and every dollar, which gives you complete coverage of category 1 and much of categories 2, 4, 5 and 6.
• Travel bookings and expense claims — flights, accommodation and car hire for category 6.
• Freight invoices and carrier reports — category 4, ideally with litres, kilometres or tonne-kilometres.
• Waste contractor reports — tonnes by stream for category 5.
• Staff surveys — commuting patterns for category 7.
• Supplier disclosures — product-level footprints, Environmental Product Declarations (EPDs) or company-level emissions data from your largest suppliers.

3. Choose the method each category can support

The method follows the data. The GHG Protocol’s Scope 3 Calculation Guidance describes several methods; for purchased goods and services, these are:

Transport categories have their own versions of the same ladder: spend-based, distance-based (tonne-kilometres × factor) and fuel-based (litres of fuel × factor).

A practical rule: use spend-based to get complete coverage in year one, then move your largest categories and suppliers up the ladder. Moving the top 10 to 20 suppliers usually covers a large share of category 1 emissions.

4. Review assumptions and gaps

Every Scope 3 inventory contains estimates. What matters is that each one is visible and defensible:

• Log every assumption — fuel economy, load factors, the share of a supplier’s output you bought, the emission factor version.
• Record the data quality of each line, so you know which numbers to improve first.
• Separate measurement changes from activity changes when you compare years. If a better method moves a category by more than your significance threshold, restate the base year.
• Keep the evidence — invoices, supplier responses, factor sources — linked to the figure it supports.

A worked example and what changes with better data

This example shows one category, upstream transportation and distribution (category 4), measured twice: first with an estimate, then with supplier data. It’s illustrative, using a hypothetical business, but the emission factor is the published Australian value.

The situation. A distributor contracts a single carrier to run a dedicated rigid truck between its warehouse and stores. Because the truck carries only the distributor’s goods, all of the carrier’s fuel for this route belongs in the distributor’s category 4.

Emission factor. Diesel used in transport emits 2.7178 kg CO₂-e per litre of combustion emissions (NGA Factors 2025, Table 9). Upstream fuel production adds a further 0.6678 kg CO₂-e per litre; this example leaves it out to keep the comparison simple.

Three things follow from this:

1. The higher number is the better number. It reflects the truck that actually ran, not an average one.
2. It isn’t a performance failure. Reported as “emissions up 11%”, it would mislead the board. Reported as “category 4 restated after moving from estimated to measured fuel data”, it shows a stronger inventory.
3. It creates a real reduction lever. With actual fuel data, route changes, load consolidation or a more efficient vehicle will show up in next year’s result. With the assumption, they would have been invisible.

The same logic applies in reverse. When a supplier’s EPD replaces a spend-based estimate, category 1 often falls, and that’s a measurement change too, not a reduction.

How NetNada handles Scope 3

NetNada is built around the cycle above: get complete coverage quickly, then improve the evidence where it matters most.

• Coverage from the data you already have. Connect accounting software such as Xero, MYOB or QuickBooks, or upload invoices. NetNada’s AI categorises spend into the 15 GHG Protocol categories and applies a matching emission factor to each line. See the Scope 3 emissions calculator.
• Visible, overridable factors. The confidence of each factor selection is shown, and you can override any factor from a global database, filtered by unit, category and region. See emission factor control.
• Supplier data without spreadsheet chasing. Your supplier list builds from your emissions data, so you can see which suppliers matter most, send ready-made or custom forms to many suppliers at once, and collect responses through a secure link with no supplier login. See the supplier engagement portal.
• Primary factors when suppliers provide them. Upload supplier EPDs and LCAs to replace industry averages with product-specific factors. See custom emission factors.
• Human review and an audit trail. Every entry, edit, import and calculation is logged, so each figure can be traced to its source, method and approver, and exported for assurance. See audit trail and evidence management.

The output is a Scope 3 inventory by category that you can take into an AASB S2 climate statement, a CDP response or a board report. It also shows which estimates are carrying the most uncertainty, so you know where better data will pay off next year.

Limitations to plan for. Software doesn’t remove the need for judgement. Spend-based results inherit the age and averaging of their factors. Supplier responses vary in quality and need review before they replace an estimate. Downstream categories such as use of sold products still rely on assumptions you have to own and document.

If you’re preparing your first Scope 3 inventory, start with the Scope 3 emissions calculator.

Sources

• GHG Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard: category definitions, boundaries and relevance criteria.
• GHG Protocol, Technical Guidance for Calculating Scope 3 Emissions: calculation methods by category.
• Australian Government, Department of Climate Change, Energy, the Environment and Water, National Greenhouse Accounts (NGA) Factors 2025, Table 9: transport diesel factor used in the worked example. Summarised on our diesel (transport) emission factor page.
• Australian Accounting Standards Board, AASB S2 Climate-related Disclosures: Scope 3 measurement requirements and first-period relief.
• The perspective on spend-based factor age and “better data can move the footprint up or down” is from Afonso Firmo, NetNada, first published in our AASB S2 carbon accounting software comparison.