Why are emissions divided into scopes?
The division of greenhouse gas emissions into three so-called “scopes” (meaning scope or area of application) dates back to the Greenhouse Gas Protocol (GHG Protocol) of 2001. The standard was developed in the wake of the 1997 Kyoto Protocol, the first multilateral agreement with binding emission reduction targets for countries. In order to make emissions comparable worldwide, a uniform standard for their recording and classification was necessary. This was developed jointly by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) starting in 1998. While the WRI acts as an independent environmental think tank, the WBCSD is a corporate network promoting sustainable development.
The GHG Protocol refers to the greenhouse gases regulated in the Kyoto Protocol, namely carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O). In order to compare their sometimes differing climate impacts, they are assigned a so-called global warming potential (GWP). CO₂ serves as a reference value with a GWP of one.
The GHG Protocol's Corporate Accounting and Reporting Standard of 2001 (updated in 2004 and 2015) defines three emission categories: Scopes 1, 2, and 3. These are used by companies to account for their greenhouse gas emissions and calculate their environmental footprint, the Corporate Carbon Footprint (CCF), as opposed to product-related emissions, the Product Carbon Footprint (PCF). There is also a separate Product Life Cycle Accounting and Reporting Standard for the latter.
The GHG Protocol distinguishes between direct emissions caused by a company itself (Scope 1) and indirect emissions that occur along the value chain (Scopes 2 and 3). The GHG Protocol aims to make it easier for companies to account for their emissions, reduce costs, develop effective reduction strategies, and mitigate climate risks in the value chain through a uniform and transparent standard.
The GHG Protocol corporate standard only requires companies to report their Scope 1 and 2 emissions. In the years that followed, however, the regulatory and technical capabilities for recording greenhouse gases improved significantly, and awareness grew that a large proportion of emissions, and thus also the potential for savings, lie outside a company's direct sphere of influence. Therefore, in 2011, the Corporate Value Chain (Scope 3) Accounting and Reporting Standard was published with further details on Scope 3 accounting. The Scope system was designed to be cross-industry and is suitable for companies of all sizes, but can also be applied to the carbon footprint of public or non-profit organizations.
Scope 1
Scope 1 covers all direct emissions from sources owned or controlled by a company. These include emissions from the combustion of fossil fuels on site, physical or chemical industrial processes or cooling, and the internal transport of materials, products, or waste. It also includes exhaust gases from the vehicle fleet and diffuse emissions, i.e., the unintentional release of gases.
Scope 2
Scope 2 refers to indirect emissions resulting from the consumption of purchased energy, i.e., electricity, district heating and cooling, or steam. Although the emissions are generated outside the company, the energy is consumed directly at the company's site. Upstream emissions from the production and distribution of energy (e.g., gas drilling, power grid losses, etc.) fall under Scope 3. However, emissions from sold energy—i.e., the customer's Scope 2 emissions—are not deducted from the energy producer's Scope 1 emissions.
Scope 2 emissions are therefore a special category of indirect emissions. This distinction was made because the energy consumed is a direct consequence of the company's activities and is easy to measure compared to other indirect emissions. In addition, switching to green electricity offers significant potential for reduction. A separate guide, the GHG Protocol Scope 2 Guidance, has been developed for Scope 2 emissions, providing further explanations.
Scope 3
Scope 3 covers all other indirect emissions that do not fall under Scope 2. They arise along the entire value chain, i.e., upstream and downstream. This means that they are not directly controlled by the company, but are influenced as a customer or supplier. The emissions are divided into a total of 15 categories, eight for upstream and seven for downstream activities.
The upstream categories are:
- purchased goods and services,
- capital goods/machinery,
- energy-related emissions outside Scope 2,
- upstream transport and disposal,
- upstream waste,
- business travel,
- commuting/commuting by employees, and
- upstream leasing.
The downstream emissions come from:
- transport and distribution,
- product processing,
- use by end customers,
- disposal and treatment of sold products,
- downstream leasing,
- franchise operations, and
- investments.
In many companies, Scope 3 emissions account for the majority of total emissions. Estimates by McKinsey (2022) assume an average of 90%, of which around two-thirds are attributable to upstream activities. They therefore contribute significantly to a company's climate risks. However, they are difficult to measure and compare using standard methods. Consequently, the GHG Protocol's corporate standard allows greater discretion as to whether and which Scope 3 emissions a company accounts for, for example, in terms of how many upstream and downstream stages it considers in the value chain. Accounting is voluntary under the Corporate Standard, can be limited to relevant categories, and estimates may be used as long as this is communicated transparently. However, under the GHG Protocol's Scope 3 standard, companies are also required to disclose a portion of their indirect Scope 3 emissions.
The relevance of individual Scope 3 categories depends heavily on the industry: In the case of industrial and construction companies, a significant proportion of emissions are likely to be caused by energy-intensive intermediate products such as cement, steel, and aluminum, as well as their transport to the production site, i.e., upstream emissions. In contrast, fast-moving consumer goods generate emissions both in the form of intermediate products such as plastic packaging and downstream in disposal and recycling. For service companies, the focus is more on emissions from business travel or IT infrastructure usage.
Companies usually have more control over upstream activities (e.g., supplier selection, use of materials) than downstream activities (e.g., use by end customers). To reduce upstream emissions, companies can select their suppliers based on sustainability criteria (those that have reduced their Scope 1 and 2 emissions), focus on recyclable or low-emission materials in product design, or promote climate-friendly processes and technologies through cooperation. Vertical integration can also help to better control emissions. However, it also means that previously external Scope 3 emissions are transferred to Scope 1 or 2.
A common concern is the potential double counting of emissions. However, the GHG Protocol only prevents double counting of emissions within Scope 1 and 2. For example, the same Scope 2 emissions cannot be attributed to multiple companies, as only one company is the end user of the energy consumed. However, these Scope 2 emissions are also the Scope 1 emissions of an energy producer and the Scope 3 emissions of other parties involved.
Emissions at the national level, on the other hand, are not aggregated bottom-up from company data, but are calculated using national economic data. This means that the respective national emissions continue to be separated, for example within the framework of the Paris Climate Agreement. Legal requirements such as CO₂ certificates usually target direct emission sources (Scope 1) or energy consumption (Scope 2) and therefore generally remain unaffected by possible double counting.
Which scopes are covered by sustainability reporting?
There is no blanket answer to the question of which emission areas, or scopes, must be included in sustainability reporting; it depends on the respective reporting standard and regulatory requirements. In practice, however, there is a clear trend: comprehensive accounting for all three scopes is increasingly becoming standard practice and a regulatory requirement. This applies at least when they are considered material in terms of a company's business model and climate impact.
Mandatory: Scope 1 and Scope 2
In accordance with the requirements of the GHG Protocol and the European requirements of the Corporate Sustainability Reporting Directive (CSRD) in conjunction with the European Sustainability Reporting Standards (ESRS), companies are required to record and disclose all direct (Scope 1) and energy-related indirect emissions (Scope 2). These emissions are usually easy to measure because they are directly linked to operational activities (e.g., heating, vehicle fleet, electricity consumption).
Accounting is carried out in accordance with recognized methods such as the GHG Protocol Corporate Standard or ISO 14064-1 and must be consistent and comparable across several reporting years. Requirements such as double materiality, which must be assessed under the CSRD, also explicitly refer to Scope 1 and 2.
Conditionally mandatory: Scope 3
Scope 3 emissions are the subject of growing regulatory attention. Reporting on them was voluntary under the GHG Protocol for a long time, but the Scope 3 Accounting and Reporting Standard published in 2011 created a comprehensive framework to enable companies to report in a structured manner.
In the EU, reporting on Scope 3 is mandatory under the CSRD and, in particular, under the ESRS E1 standard, provided it is material. Companies must therefore first carry out a materiality analysis and then disclose all relevant Scope 3 categories. The 15 categories of the GHG Protocol (e.g., purchased goods, capital goods, business travel, use of products, etc.) serve as the basis for this.
Companies are therefore required to report if Scope 3 emissions are material, which is almost always the case in practice. Only in justified exceptional cases can reporting be waived, provided that this decision is documented and explained.
Significance for companies
The inclusion of all three scopes enables a holistic representation of a company's climate impact. Complete accounting is particularly crucial in the following contexts:
- For fulfilling CSRD obligations
- For disclosure to investors, especially when applying the EU taxonomy
- For participation in voluntary climate initiatives (e.g., Science Based Targets initiative, CDP)
- For managing climate risks and supply chains within the framework of risk management systems
Some initiatives and standards, such as the Science Based Targets initiative (SBTi), explicitly require that Scope 3 emissions also be included in reduction targets as soon as they account for more than 40% of total emissions – which is almost always the case in practice.
Conclusion
Sustainability reporting is evolving toward a complete emissions picture along the entire value chain. While Scope 1 and 2 are clearly mandatory, Scope 3 is also increasingly becoming the focus of regulatory attention. Companies must therefore systematically review which emissions they need to record, assess, and disclose, both from a legal perspective and in terms of credible climate management.
