Why and how to report your Scope 1, 2 and 3 emissions

Know your scopes

Greenhouse gas (GHG) emissions are broken down into direct and indirect emissions known as Scope 1, 2, and 3 emissions. The scopes are defined in the Greenhouse Gas Protocol, an international framework for measuring and managing GHG emissions.

Reporting on Scope 1, 2 and 3 emissions can have a number of advantages including:

• Environmental – understanding and reducing your organisation’s emissions have a direct impact on its contribution to climate change and tackling it.
• Economic – developing your grasp over your operations and use of commodities, products and services can help you spot inefficiencies and opportunities to optimise.
• Brand strength - consumers increasingly make buying decisions that take a company’s environmental credentials into account.
• ESG creditability - Investors are taking a greater interest in a company’s Environmental, social, and governance (ESG) credentials.

Scope 1 – direct emissions

Scope 1 emissions are GHG emissions from sources that comes as a direct result of an organisations activities.

This could include fuel combustion in boilers or furnaces, refrigerants like air-conditioning and freezers, and emissions from manufacturing processes or a fleet of vehicles.

Scope 1 emissions are the most straightforward to measure, report, and act on. As they relate to equipment and processes that are within the organisation’s ownership or control, it’s less complicated to determine what should be measured than in the case of indirect emissions.

That the emission sources are within the company’s control also means it normally has access to the data needed for assessment and reduction.

For some UK quoted companies and large unquoted companies, reporting on Scope 1 emissions is a legal requirement.

Scope 2 – indirect electricity emissions

Scope 2 covers indirect emissions from the generation of energy an organisation uses. This includes electricity, as well as steam, heating, and cooling.

As in the case of Scope 1, quoted and large unquoted companies in the UK are legally required to report their Scope 2 emissions.

Electricity generation often represents a big part of a company’s Scope 2 GHG emissions, making it important to assess, and relatively easy to act on assuming renewable energy sources are available in the area.

Measures to look at include switching to a renewable electricity supplier and enhancing the business’s energy efficiency, which comes with the added benefit of lower operational costs.

Scope 3 – other indirect emissions

Scope 3 is much broader. It’s also the trickiest to report on since it covers indirect emissions from many sources across an organisations supply chain.

This includes emissions related to the production and transportation of goods and services bought by the company; staff commuting in vehicles not owned or operated by the company; and the transportation of purchased fuel and energy. It also includes the emissions of a product’s full lifecycle, even once they are out of a company’s hands.

There are no legal requirements to report on Scope 3 emissions. Identifying and reducing these emissions across the supply and value chains can be difficult for businesses with complex supply lines and global distribution networks. They are also hard for companies to directly influence.

However, for many companies, most emissions are Scope 3. This means it also offers the biggest opportunity for emissions reductions.

How to report emissions

Essential to emissions reporting is setting an inventory boundary: determining what you will measure and where.

This incorporates defining your organisational boundaries, with options including an equity share boundary. Using this, an organisation accounts for GHG emissions from operations according to its share of equity in the operation.

Other options include an operational control boundary or a financial control boundary, reporting on all GHG emissions from operations over which it has operational or financial control.

A combination of approaches may be needed, depending on the activities of the organisation and the reasons for reporting.

Each reporting period should be 12 months, ideally be the same as the financial year, since this makes it easier to track environmental progress alongside financial performance.

To take and monitor action, your organisation will also need to set a base year, giving you a point of comparison.

Once you have GHG data, you’re ready to set targets for emission reductions. Look at establishing targets that are in line with the latest climate science and that will help drive environmental change.

Ready to start reporting

To find out more about understanding and reporting your emissions download our Guide to Carbon Reporting.