What are Scope 1, 2 and 3 carbon emissions?

The scope 1, 2, and 3 emissions classification system was developed in the 1990s to help organisations understand and manage their greenhouse gas emissions. It is now widely accepted and used by governments, investors, and other stakeholders to assess the climate impact of organisations.

Scope 1 emissions are direct emissions from owned or controlled sources.

Scope 2 emissions are indirect emissions from the generation of purchased or acquired electricity, heat, or steam.

Scope 3 emissions are all other indirect emissions that occur in the value chain of the reporting company.

In the UK, scope 1 and 2 emissions reporting are already mandatory for large companies with over 250 employees. Scope 3 reporting is not yet mandatory, but it is expected to become mandatory for large companies in the UK by 2025.

In the EU, scope 1, 2, and 3 emissions reporting will become mandatory for large companies with over 500 employees starting in 2024. This includes companies that are headquartered in the EU, as well as companies that do business in the EU.

Scope 1

Scope 1 are those direct emissions that are owned or controlled by the reporting company, whereas scope 2 and 3 indirect emissions are a consequence of the activities of the reporting company but occur from sources not owned or controlled by it.

Scope 1 emissions (Direct emissions)

Scope 1 of the GHG Protocol refers to direct emissions that are owned or controlled by the organisation. Such emissions are generated by a company’s own sources including but not limited to the combustion of fossil fuels, industrial processes, and transportation. These emissions are associated to an organisation’s activities, making them easier to quantify and manage. Scope 1 emissions can be calculated and divided into four categories:

Stationary combustion is fossil fuel combustion in stationary equipment such as boilers, furnaces, burners, turbines, heaters, engines and similar apparatus. These equipment types are used for heating, cooling, and other industrial processes.
Mobile combustion is generated from the use of transportation vehicles, including aircraft, automobiles, trucks, boats, ships, barges, vessels, and others.
Fugitive emissions refer to the intentional or unintentional emissions from leakage and other irregular releases of gases or vapours from pressure-containing equipment (e.g. appliances, storage tanks, pipelines, wells). Common industrial gases include refrigerants and natural gas.
Process emissions are chemical reactions and emissions that arise from industrial processes and on-site manufacturing. The chemical transformation of raw materials often releases greenhouse gases such as CO2, CH4, and N2O.

Certain emissions, such as CO2 from the combustion of biomass and GHG emissions outside the purview of the Kyoto Protocol (e.g. CFCs, NOx, etc), should be reported separately and not incorporated into Scope 1.

Scope 2

Scope 2 emissions (Indirect emissions)

Scope 2 emissions refer to the indirect emissions associated with the acquisition of energy from external providers, such as a utility company. This includes the consumption of purchased electricity, heat, steam, or cooling by an organisation. Scope 2 emissions physically occur at the site where the energy is generated, while the report company don’t produce these emissions themselves, they’re indirectly responsible for those emissions.

The increasing use of hybrid cars and electric cars may result in some of mobile combustion (Scope 1) falling under Scope 2.

Scope 3

Scope 3 emissions (Indirect emissions)

Scope 3 emissions, also referred to as value chain emissions, refers to all indirect emissions associated with an organisation’s activity include all sources not within an organization’s scope 1 and 2 boundary. The emission sources are divided into fifteen categories, divided by upstream in the supply chain and downstream in the value chain, for measuring and reporting emissions from cradle to grave.

Upstream emissions occur before the organisation receives its goods and services, such as extraction of raw materials, production, transportation, and distribution along with the waste generated by purchased goods and services. The upstream categories are:

Category 1: Purchased goods and services – Cradle-to-gate emissions from the production of goods and services purchased by the company in the reporting year.
Category 2: Capital goods – These are goods used by the company to manufacture products, provide a service, store, sell and deliver merchandise. Capital goods are durable items include buildings, machinery, and equipment used to produce consumer goods or services.
Category 3: Fuel and energy-related activities – Emissions relating to the extraction, production of fuels, and energy purchased and consumed by the company in the reporting year. Scope 1 and 2 are not included.
Category 4: Upstream transportation and distribution – Transportation of materials and products from suppliers to a company’s facilities and from third-party warehousing, by land, sea, and air.
Category 5: Waste generated in operations– Waste generated during company operations, only includes emissions from third-party disposal and treatment. Waste disposal emits such as methane (CH4) and nitrous oxide (N2O).
Category 6: Business travel – Emissions from transporting employees for business-related activities by air travel, public transport, taxis, and business mileage using private vehicles.
Category 7: Employee commuting – Emissions from employees commuting to and from work by automobile, bus, rail, and other modes of transportation.
Category 8: Upstream leased assets – Includes emissions from leased assets such as buildings and equipment of the company in the reporting year that are not already included in the reporting of the companies’ Scope 1 and Scope 2 inventories. It is applicable only to companies that operate leased assets (i.e., lessees).

Downstream activity transpires after the organisation delivers its goods and services. Including the processing and utilisation of purchased products and services, as well as the transportation and distribution of sold products and services. Additionally, it includes the end-of-life treatment of said sold products and services. The downstream categories are:

Category 9: Downstream transportation and distribution – Transportation and distribution of sold products in vehicles and facilities not owned or controlled by the company.
Category 10: Processing of sold products – Emissions from processing sold intermediate products by third parties (e.g. manufacturers). Intermediate products are products that require further processing, or inclusion in another product before use.
Category 11: Use of sold products – Usage, maintenance, and repair of sold products or services by reporting the company to end users.
Category 12: End-of-life treatment of sold products – Disposal or recycling of products sold by the reporting company in the reporting year. It requires assumptions about the end-of-life treatment methods used by consumers which is difficult to measure.
Category 13: Downstream leased assets – Emissions from the operation of assets that are owned by the organisation (i.e., lessors) and leased to other entities that are not already included in Scope 1 and Scope 2.
Category 14: Franchise – Emissions from the operation of franchises not included in scope 1 or scope 2, which companies that grant licenses to other entities to sell or distribute its goods or services in return for payments.
Category 15: Investments – Largely for investors and companies that provide financial services. Investments fall under the following categories: equity investments, debt investments, project finance, managed investments, and client services.

Scope 3 emissions typically make up more than 90% of a company’s carbon footprint. Addressing these emissions is crucial, not just for the company but for the global effort to transition to a low-carbon economy.

What are Scope 1 & 2 Emission Reports?

Reported energy use and related Scope 1 & 2 Greenhouse Gas (GHG) emissions, those emissions are generally easier for a company to control. They are primarily linked to direct purchases of gas and electricity, and companies usually have the necessary data to calculate these emissions in greenhouse gas equivalents (GHGs). This data may be housed in various departments like procurement, finance, facilities management, or sustainability.

UK’s SECR Policy and Compliance

The UK’s Streamlined Energy and Carbon Reporting (SECR) policy was enacted on April 1, 2019. It requires businesses to report their Scope 1 and 2 emissions. Publicly traded companies must continue to disclose these emissions, along with an emissions intensity ratio, and global energy use. They must also provide a year-over-year comparison after the first reporting period.

This sustainability reporting system looks at both greenhouse gas emissions and efforts taken to improve energy efficiency; the methodology used; and the intensity ratio (comparing emissions data with a business model).

Why focus on Scope 3 Emissions?

Various factors are pushing companies to pay more attention to their Scope 3 emissions:

External Drivers:

ESG Reporting Standards: Compliance with ISSB (IFRS) and TCFD frameworks often involves full disclosure of Scope 3 emissions to understand risks in high-emitting sectors.
ESG Ratings: Companies aim to improve their ESG scores, like CDP, to attract investors.
Investor Demands: ESG metrics are increasingly being used in investment decisions, and complete greenhouse gas disclosure, including Scope 3, is a key criterion.
Supply Chain and Clients: Businesses frequently receive requests to disclose their emissions data from suppliers and clients who are also looking to enhance their own Scope 3 visibility.
Consumer Preferences: Companies aim to show environmental responsibility to attract environmentally conscious customers.

Internal Drivers:

Setting Targets: To establish credible net-zero goals, companies need a comprehensive Scope 3 emissions inventory.
Cost and Emissions Management: A detailed Scope 3 review can pinpoint areas for cost and emissions reductions in the supply chain.
Regulatory Preparedness: Companies anticipate that future environmental laws will likely require Scope 3 reporting.

Scope 3 Emissions Reporting Update

The UKs Transition Plan Taskforce (TPT) is emphasizing the increasing need for companies to clarify their carbon emissions and plans for becoming net-zero. Starting in 2023, the UK Government will mandate large companies to be open and precise about their Scope 3 emissions accounting.

Additionally, on July 31, 2023, the European Commission officially put into effect the European Sustainability Reporting Standards (ESRS). These guidelines outline how companies should disclose their sustainability impacts, opportunities, and risks, and are a crucial component of the Corporate Sustainability Reporting Directive (CSRD). The ESRS implementation represents a major move towards comprehensive sustainability reporting. Companies will be required to include Scope 3 emissions in their value chain sustainability reports.

With this in mind and the fact that company which do report their sustainability initiatives at board level fair better than those that don’t, reporting is now becoming a major priority for large organisations.

At Design Conformity we have understood this and we have built a robust and market leading suite of products that help furniture manufacturers report their carbon footprints for their clients and themselves. We focus on scope 1 and 3 and we focus on a number of different sectors where we provide Life Cycle Assessment (LCAs):

Retail

Car showrooms

Banks

Hospitality

Offices

Schools

Hospitals

Hotels

Leisure

Museums

We offer a suite of products to help furniture manufacturers with their Life Cycle Assessment

What our clients say

‘ITAB became dc members because we believe in value of circular design and see it as part of our long-term business strategy. By working with dc team to launch ITAB Sustainable Services we see an opportunity to strengthen our customer offer whilst protecting and growing our market share.’

Jim Murray

Head of Sustainability and Quality ITAB