What is Scope 3 Emissions?

Why It Matters

Here's the uncomfortable truth about corporate carbon footprints: for most companies, the emissions they directly control — their factories, offices, and vehicles (Scope 1), plus their purchased electricity (Scope 2) — represent a small fraction of their total climate impact. The rest sits in Scope 3.

How small? For a typical consumer goods company, Scope 3 can represent 80-95% of total greenhouse gas emissions. For a financial institution, the emissions financed through lending and investment portfolios dwarf anything happening in their office buildings. For a technology company, the manufacturing of devices by contract manufacturers and the energy consumed by users often constitutes the vast majority.

This reality means that any serious climate strategy must grapple with Scope 3. A company can install solar panels on every facility, convert its fleet to electric vehicles, and purchase 100% renewable electricity — and still have barely scratched the surface of its actual carbon footprint if it hasn't addressed its value chain.

The Greenhouse Gas Protocol, the global standard for emissions accounting, established the Scope 1/2/3 framework precisely because understanding where emissions occur is the first step toward reducing them. And increasingly, regulators, investors, and customers are demanding that companies look beyond their own fence line.

How It Works

The GHG Protocol Framework

The GHG Protocol Corporate Value Chain (Scope 3) Standard, published in 2011 and still the definitive guidance, organizes value chain emissions into 15 categories split between upstream and downstream activities.

Upstream categories cover everything that happens before your product or service reaches you:

• Purchased goods and services — typically the largest category for manufacturers and retailers, covering the cradle-to-gate emissions of everything you buy
• Capital goods — emissions from manufacturing the equipment, buildings, and vehicles your company purchases
• Fuel and energy-related activities — emissions from producing the fuels and electricity you consume (beyond what Scope 1 and 2 capture)
• Upstream transportation and distribution — moving goods from suppliers to your facilities
• Waste generated in operations — third-party treatment of your operational waste
• Business travel — flights, hotels, rental cars
• Employee commuting — daily travel between home and work
• Upstream leased assets — emissions from assets you lease but don't own

Downstream categories cover what happens after your product or service leaves your control:

• Downstream transportation and distribution — moving products to customers
• Processing of sold products — further manufacturing by your customers
• Use of sold products — emissions from consumers using what you sell (enormous for automakers, appliance manufacturers, and fossil fuel companies)
• End-of-life treatment — disposal, recycling, or landfilling of sold products
• Downstream leased assets — emissions from assets you own but lease to others
• Franchises — emissions from franchise operations
• Investments — emissions from your equity and debt investments (critical for financial institutions)

Measurement Approaches

Companies typically use a hierarchy of data quality for Scope 3 calculations:

Supplier-specific data is the gold standard — actual emissions data from your suppliers, allocated to your purchases. Few companies have this at scale, but it's increasingly available through platforms like CDP Supply Chain and emerging digital product passports.

Activity-based data uses physical metrics (tons of material purchased, kilometers shipped, nights in hotels) combined with emission factors. More accurate than spend-based methods but requires detailed operational data.

Spend-based data applies emission factors per dollar spent in a given category. It's the most accessible method — you already have procurement data — but also the least precise. Industry averages mask huge variation between suppliers.

Most organizations use a combination, applying higher-quality methods where data allows and spend-based estimates for the long tail of smaller categories.

Key Components of a Strong Scope 3 Program

Screening first. Before investing in detailed measurement across all 15 categories, conduct a screening assessment to identify which categories are most significant. Focus your measurement and reduction efforts where emissions are concentrated.

Supplier engagement. For most companies, purchased goods and services dominate Scope 3. Reducing these emissions requires working with suppliers — not just measuring them. Leading programs combine data collection, target-setting support, capacity building, and procurement incentives.

Product lifecycle thinking. Scope 3 forces you to think about your product's entire life — from raw materials through manufacturing, use, and disposal. This often reveals that design decisions made early in product development have the biggest impact on lifecycle emissions.

Financial sector specifics. Banks, asset managers, and insurers face a unique Scope 3 challenge: their financed emissions. The Partnership for Carbon Accounting Financials (PCAF) provides standardized methods for measuring these, and initiatives like the Net Zero Banking Alliance require members to set targets for their lending portfolios.

Council Fire's Perspective

Scope 3 is where we see the most anxiety — and the most opportunity — among our clients. The anxiety comes from the measurement challenge: the data gaps feel overwhelming, and the uncertainty margins can make the whole exercise seem futile. We get that.

But here's what we've seen work: start imperfect and improve iteratively. Your first Scope 3 inventory won't be precise, and that's fine. What matters is identifying where emissions concentrate, establishing a baseline methodology you can refine, and beginning supplier engagement on your highest-impact categories.

Council Fire helps clients build Scope 3 programs that are practical and strategically valuable — not just compliance artifacts. We bring experience across measurement methodologies, supplier engagement design, and integration with Science Based Targets. The goal isn't a perfect number; it's a clear direction of travel.

Looking Ahead

Scope 3 measurement and reduction will only become more important. Regulatory requirements are expanding. Science Based Targets now require Scope 3 targets for most companies. Investors are increasingly using Scope 3 data to assess transition risk and climate strategy credibility.

The companies that invest in Scope 3 capabilities now — building supplier relationships, improving data systems, and integrating value chain thinking into product design and procurement — will have a meaningful advantage as these pressures intensify. Those that wait will find themselves scrambling to build capabilities under regulatory deadline pressure, with less leverage and less time.