Scope 3 Emissions Examples in Supply Chains

Businesses today widely recognise the need to reduce scope 3 emissions in their supply chains.

This article provides clear examples and practical strategies to help SMEs identify, measure, and mitigate scope 3 emissions across procurement, production, distribution and product end-of-life.

You'll learn exactly what constitutes scope 3, see real-world examples across supply chain activities, and gain actionable frameworks to incorporate scope 3 emissions measurement and reduction into your organisation's net zero strategy.

Unpacking the Significance of Scope 3 Emissions in Supply Chains

Scope 3 emissions refer to indirect greenhouse gas emissions that occur in a company's value chain. According to the Greenhouse Gas (GHG) Protocol, Scope 3 emissions are all indirect emissions not covered in Scope 2 that occur in the value chain of the reporting company, including both upstream and downstream emissions.

For many companies, scope 3 emissions make up the majority of their total emissions footprint. As such, measuring and reducing scope 3 emissions is key for companies looking to comprehensively account for and reduce their climate impact.

Defining Scope 3 Emissions within the GHG Protocol Framework

The GHG Protocol delineates 15 categories of scope 3 emissions that companies should account for if relevant. These encompass emissions both up and down a company's supply chain, including:

Purchased goods and services
Transportation and distribution
Processing of sold products
Use of sold products
End-of-life treatment of sold products
Business travel
Employee commuting
Leased assets

For a small or medium enterprise (SME), the most significant scope 3 emissions often stem from purchased goods and services. This refers to emissions that occur in the production and transportation of products and services purchased by the company.

For example, the emissions resulting from the manufacturing of parts that a company buys from suppliers would qualify as scope 3 emissions under "purchased goods and services".

What are scope 1 2 and 3 emissions examples?

Scope 1, 2, and 3 emissions refer to the classification system companies use to categorise their greenhouse gas (GHG) emissions. Here are some examples across the three scopes:

Scope 1 Emissions Examples

Scope 1 covers direct emissions from sources owned or controlled by a company. Some examples include:

Emissions from fuel burned on-site such as in boilers, furnaces, vehicles, etc.
Fugitive emissions from refrigeration and air conditioning equipment.
Process emissions from chemical production and manufacturing.

Scope 2 Emissions Examples

Scope 2 refers to indirect emissions from purchased electricity, steam, heat, and cooling. For example:

Emissions from purchased electricity used in offices and facilities.
Emissions from purchased steam used in industrial processes.

Scope 3 Emissions Examples

Scope 3 emissions are all other indirect emissions in a company's value chain. Examples include:

Emissions from business travel, employee commuting, and transportation of goods.
Upstream emissions from purchased materials, goods, and services.
Downstream emissions from product use, end-of-life treatment, investments, etc.

Scope 3 is often the largest source of emissions for companies. Addressing scope 3 is key for scope 3 emissions example companies on the path to net zero emissions.

What is an example of upstream emissions scope 3?

Upstream scope 3 emissions refer to indirect greenhouse gas emissions that occur in a company's value chain before their own operations. Here are some common examples of upstream scope 3 emission activities:

Purchased Goods and Services

Emissions from the extraction, production, and transportation of goods and services purchased by the company. For example, the emissions from:
Raw materials like cotton used to manufacture clothing
Parts and components used to assemble products
Office supplies like paper and ink cartridges

Capital Goods

Emissions from the production of capital goods like buildings, machinery, equipment, and tools acquired by the company. For example, emissions from:
Construction materials and activities related to buildings
Manufacturing of vehicles, computers, or heavy machinery
Production of hand tools, power tools, or manufacturing equipment

Emissions from extracting, producing, and transporting fuels purchased by the company that are not directly emitted on-site during combustion. For example:
Extraction, refining, and transportation of fuels like natural gas, diesel, and heating oil

Upstream Transportation and Distribution

Emissions from transportation and distribution of products purchased by the company prior to their own operations. For example:
Rail, ship, plane or truck transport of materials and goods from tier 1 suppliers

Waste Generated in Operations

Emissions from third-party waste disposal and treatment of waste generated from the company's own operations. For example:
Transportation and landfilling of solid office waste
Wastewater treatment of liquid industrial waste

These are just a few examples of emissions sources that companies should account for and report under upstream scope 3 emissions. Identifying major hotspots in the supply chain is an important first step towards achieving net-zero targets.

Scope 3 emissions often make up the largest portion of a company's carbon footprint. For many organizations, Scope 3 accounts for over 70% of total emissions.

Why Scope 3 Matters

Scope 3 covers indirect emissions from across the value chain. This includes:

Raw material extraction and processing
Transportation and distribution
Product use and disposal

For a manufacturer, there can be major emissions from materials and shipping. A software company may see impacts from business travel or purchased cloud services.

Scope 3 emissions examples like these highlight the need to look beyond operations.

Tracking Scope 3 allows companies to:

Identify hotspots to prioritise
Engage suppliers on reductions
Report and act on full value chain impacts

Strategies to Tackle Scope 3

With careful measurement and goal-setting, Scope 3 emissions can be managed. Steps organizations can take include:

Calculating a Scope 3 baseline
Setting intensity or absolute reduction targets
Engaging suppliers through incentives and collaborations
Switching to renewable energy or lower-carbon alternatives
Investing in carbon removal to neutralize stubborn emissions

Small actions across the value chain can make a real dent in Scope 3 impacts. The key is understanding exactly where and how those emissions are generated. Robust scope 3 emissions examples help businesses pinpoint risks, opportunities and priorities for driving down indirect emissions.

Is water a Scope 3 emission?

Water use contributes significantly to scope 3 emissions for many organisations. This is because heating water requires energy, which leads to greenhouse gas emissions.

Specifically, water heating and treatment makes up a large share of scope 3 emissions from fuel and energy-related activities (category 3) and upstream leased assets (category 8).

Category 3 (Fuel and Energy-Related Activities): Emissions from heating water are included here. For example, if you operate a hotel, emissions from heating water for guest rooms would count.
Category 8 (Upstream Leased Assets): If you lease an office building, emissions from heating water used in the restrooms and breakrooms would count here.

Water also leads to emissions in other scope 3 categories:

Category 1 (Purchased Goods and Services): Emissions from extracting, treating, and transporting water purchased.
Category 12 (End-of-Life Treatment): Wastewater treatment at the end of the water's life.

Here are some examples of how water use contributes to scope 3:

A university's emissions from heating water in dorm bathrooms and dining halls.
A hotel chain's emissions from heating water in guest rooms.
An office's emissions from water used in restrooms, breakrooms, and landscaping.

Here are some ways to lower emissions from water:

Install low-flow faucets and showerheads
Switch to tankless water heaters
Improve the efficiency of water heating systems
Reuse greywater for flushing toilets or irrigation

Tracking water use is an important first step. Then reduction targets can be set to lower scope 3 emissions over time.

Scope 3 Emissions Examples: Identifying Indirect Impacts in Supply Chains

Understanding scope 3 emissions sources in supply chains is key for companies aiming to reduce their overall carbon footprint. Scope 3 covers indirect emissions from activities not owned or controlled by the reporting company, but that occur in their value chain.

Upstream Scope 3 Emissions: Procurement and Production

Upstream scope 3 emissions stem from suppliers and vendors in a company's procurement network. Activities like:

Raw material extraction and processing
Component manufacturing and transportation
Waste disposal from production

All of these contribute to a company's scope 3 footprint. For example, an apparel retailer's scope 3 emissions would include textile production, garment assembly, distribution to retail stores, and more.

Strategies like supplier engagement programs, low-carbon procurement policies, and product life-cycle assessments can help identify and mitigate these impacts.

Downstream Scope 3 Emissions: Product Life-Cycle and Usage

Downstream scope 3 emissions occur during the use and end-of-life phases of sold products. A key category here is scope 3, category 15 - emissions from products sold.

For example, electronic products consume energy when used by customers, generating indirect emissions for the manufacturer. Or plastic packaging that ends up in landfills creates downstream methane emissions.

Companies can alter product design, provide efficiency guidance to users, or offer recycling/take-back programs to lower category 15 impacts.

Scope 3 category 3 covers emissions from purchased fuels, electricity, heat, or steam that are not included in scope 1 or 2. This includes activities like:

Extraction, production, and transportation of purchased fuels
Electricity lost during transmission and distribution

For companies that outsource energy generation instead of on-site, category 3 offers a way to account for these external emissions. Regular reporting via platforms like EcoHedge can help identify top-emitting suppliers.

Calculating Scope 3 Emissions: Tools and Methodologies

Scope 3 emissions refer to indirect greenhouse gas emissions that occur across a company's value chain. These emissions are challenging to quantify due to their expansive boundary. However, by utilising the right tools and methodologies, businesses can accurately measure their scope 3 footprint.

Utilising the Scope 3 Emissions Calculator for Accurate Estimates

The Greenhouse Gas Protocol and the EPA provide free online tools to help companies calculate emissions from various scope 3 categories like purchased goods, transportation, and product use. These calculators draw on extensive databases of emission factors tailored to specific industries and activities.

SMEs can input business data like spend across procurement categories, supply chain transport modes, and product lifetime estimates. The tools then automatically calculate the associated indirect emissions using the latest global warming potential values. This method provides a rapid, evidence-based assessment to identify hotspots for reduction efforts.

Scope 3 Calculation Guidance: Following Best Practices

In addition to digital tools, published methodologies like the GHG Protocol Scope 3 Standard provide calculation guidance aligned to global reporting frameworks. They include instructions on setting boundaries, collecting activity data, selecting emission factors, and handling uncertainty.

Adhering to such guidance enables SMEs to produce scope 3 inventories that meet stakeholder expectations around accuracy, completeness, and transparency. This builds credibility and trust when disclosing sustainability performance.

Conversion Factors 2023: Implementing the Latest Data

As emission factors get updated annually SMES need to stay current. Resources like the UK Government's Conversion Factors contain the most recent global warming potentials and technology emission benchmarks.

By integrating the latest conversion factors into carbon calculations, businesses ensure alignment to current climate science and policy landscapes. This prevents under or over-reporting.

Incorporating Scope 3 Mitigation in Decarbonisation Strategies

As businesses develop comprehensive decarbonisation strategies to achieve net-zero emissions, addressing scope 3 indirect emissions from their supply chains and value chains becomes critical. Setting clear targets for scope 3 emission reductions, pursuing third-party verification of efforts, and effectively communicating sustainability initiatives to stakeholders can accelerate progress.

Target Setting for Scope 3 Emission Reduction

Conduct a scope 3 screening to identify emissions hotspots across purchasing categories
Prioritise supplier engagement for categories with the largest upstream impacts
Set science-based targets to reduce scope 3 emissions, aligned to 1.5°C pathways
Aim for at least a 2/3rd reduction in supply chain emissions by 2030
Focus on highest-impact scope 3 categories like purchased goods/services, transportation, waste disposal

Example:
A retailer sets a science-based target to reduce upstream scope 3 emissions from purchased goods by 50% per product by 2030.

Climate Change Risks, Opportunities and TCFD Alignment

Identify physical & transition risks for supply chain partners
Develop climate adaptation and resilience strategies
Disclose climate-related risks as per TCFD recommendations
Realise opportunities like incentivising supplier decarbonisation

Example:
A company discloses supply chain disruptions from extreme weather as a key climate-related risk in its TCFD report.

Targeting scope 3 emission reduction is key for credible net-zero goals. Companies can accelerate progress through ambitious target-setting aligned with climate science, third-party verification of efforts, effective stakeholder communication, and proactive management of climate-related risks and opportunities.

Leveraging Technology and Innovation for Scope 3 Emission Reduction

Reducing scope 3 emissions in supply chains requires leveraging technology and innovation across operations. By transitioning to renewable energy, electrifying vehicle fleets, optimising logistics through software, and constructing energy-efficient buildings, SMEs can drive down indirect emissions.

Renewable Energy and Electric Vehicles: Transitioning the Supply Chain

Transportation and logistics account for a major share of scope 3 emissions for many companies. Investing in an electric delivery fleet presents opportunities to lower emissions from purchased transportation services.

Switching to renewable energy sources like solar or wind can reduce the carbon footprint of warehouses and distribution centres also. For example, a small e-commerce company could install solar panels to power its fulfilment centre and transition its delivery vans to electric models.

Sustainable Technology and Digital Solutions for SMEs

Software-as-a-service tools provide SMEs with affordable and accessible opportunities to enhance supply chain efficiency. Scope 3 emissions example: route optimisation software can reduce miles travelled for delivery fleets, lowering emissions from transportation. Digital solutions like blockchain also increase transparency for tracing emissions through complex supply chains. SMEs can leverage these technologies to streamline operations, boost visibility, and reduce carbon outputs.

Policy and Regulatory Considerations for Scope 3 Reporting

Scope 3 emissions refer to indirect greenhouse gas emissions that occur across a company's value chain. As climate change regulations evolve, more companies face requirements to measure, report, and reduce these emissions. Understanding the policy landscape is key for transparent and compliant scope 3 accounting.

Navigating SEC Climate Disclosures for Transparent Reporting

The Securities and Exchange Commission (SEC) recently proposed rules requiring public companies to disclose scope 1, 2, and 3 emissions. While these disclosures are not yet finalised, they signal a regulatory shift towards more robust climate-related reporting.

To prepare for SEC disclosures, SMEs should:

Catalogue all scope 3 emissions sources across their value chain
Collect emissions data and methodologies to calculate scope 3 footprint
Assess data availability and gaps for material scope 3 categories
Develop plans to improve data collection processes over time
Disclose scope 3 emissions, data quality, and reduction strategies

Robust scope 3 measurement and reporting builds trust with investors and regulators seeking climate transparency.

The Impact of the Inflation Reduction Act on Supply Chain Emissions

The Inflation Reduction Act provides tax credits and grants to accelerate America's transition to clean energy. These incentives target scope 3 emissions examples like:

Commercial electric vehicles and charging infrastructure
Energy efficiency upgrades for commercial buildings
Clean energy manufacturing equipment

SMEs can leverage these incentives across their supply chain to reduce the costs of decarbonisation. For example, a manufacturer can get tax breaks for procuring renewable energy or electric fleet vehicles. Or a software firm can access grants for retrofitting offices to cut energy consumption.

As more sectors adopt clean technologies, their Scope 3 emissions should decrease over time. SMEs must factor these trends into their net zero roadmaps.

Reaching Net Zero: Incentives for Supply Chain Decarbonisation

Achieving net zero requires most emissions reductions to happen across complex supply chains. SMEs have four strategies for incentivising suppliers:

Financial incentives like discounts, preferential payment terms, access to green loans with lower interest rates
Technical assistance through audits, training programs, or free software to calculate supplier emissions
Public recognition via sustainability reports, case studies, and supplier awards
Preferred status for net zero suppliers in procurement selection processes

This combination of carrots and sticks can effectively motivate upstream partners. As leaders, SMEs should kickstart collective decarbonisation efforts.

Conclusion and Key Takeaways: Charting the Path Forward for Scope 3 Emission Management

As we have seen, scope 3 emissions encompass a wide range of indirect impacts from an organisation's value chain. While measuring and reporting scope 3 emissions can be complex, it is an essential part of understanding and reducing an enterprise's overall climate impact.

Here are some key takeaways for SMEs looking to get started on managing scope 3 emissions:

Conduct a screening to identify your largest scope 3 categories. This will help focus your efforts on the areas with the most significant impacts. For many companies, purchased goods and services and transportation are among the largest contributors.
Engage suppliers in emissions reduction efforts. Work collaboratively with suppliers to set science-based targets, improve data collection, and implement decarbonisation solutions. Financial incentives and long-term contracts can help motivate supplier participation.
Leverage existing tools and resources. Standards like the GHG Protocol provide methodologies, emission factors, and guidance for calculating emissions. Industry associations may also have sector-specific tools available.
Start small, then expand. You don't need to tackle your entire value chain all at once. Begin by measuring emissions from one or two key categories, then gradually broaden the scope over time as capabilities mature.
Integrate scope 3 management into business strategy. Incorporate scope 3 considerations into procurement policies, product design processes, logistics operations, and other core business functions. This facilitates a comprehensive approach to driving down value chain impacts over the long term.

Addressing scope 3 is a complex but necessary process on the path to true environmental sustainability and meeting net zero climate commitments. By taking a strategic approach focused on the most material impacts, SMEs can begin building robust value chain decarbonisation programs. Consistent measurement, supplier engagement, and integration into business processes will yield compounding emissions reductions over time.

Scope 3 Emissions Examples in Supply Chains

Unpacking the Significance of Scope 3 Emissions in Supply Chains

Defining Scope 3 Emissions within the GHG Protocol Framework