Scope 3 Is Where 80% of Your Emissions Live. It Is Also the Hardest to Measure.
For most companies, Scope 1 and 2 are manageable: direct combustion and bought electricity, from a relatively small number of sources. Scope 3 is a different problem entirely.
Scope 3 covers your entire value chain — everything upstream (suppliers, raw materials, capital goods, business travel) and downstream (product use, end-of-life, franchises, investments). For a typical manufacturing company, Scope 3 represents 70-90% of total GHG emissions. For a financial institution, it can be over 99% (financed emissions, Scope 3 Category 15).
The challenge: this data does not live in your systems. It lives in your suppliers' systems, your logistics providers' databases, your employees' travel booking tools, and your customers' usage patterns.
That is the problem Scope 3 emissions tracking solves.
The Two Methodologies: Spend-Based vs. Activity-Based
The GHG Protocol Corporate Value Chain Standard allows two primary methodologies for Scope 3 calculation, and most companies use a hybrid:
Spend-Based Method
How it works: You take your spend on a category of goods or services and multiply it by an economic emission intensity factor (dollars per tonne CO2e) for that sector.
Emission factor sources: Environmentally Extended Input-Output (EEIO) databases — US EPA USEEIO, UK DEFRA supply chain factors, Exiobase for European spend. These are regularly updated government-published datasets.
Best for: Categories where you have spend data but lack supplier-specific activity data. Practical for getting a complete Scope 3 inventory quickly. All 15 categories can be estimated with spend-based methods.
Limitations: Higher uncertainty. Does not reflect your specific suppliers' efficiency or clean energy use. Will not satisfy SBTi's FLAG or steel/cement sector requirements at advanced stages.
Activity-Based Method
How it works: You collect actual activity data — kilograms of material purchased, kilometers driven, kilowatt-hours consumed — from your supply chain, and apply supplier-specific or process-specific emission factors.
Best for: High-materiality categories where you have supplier relationships to request data, or where the category is large enough that precision matters for your reduction strategy.
Limitations: Data collection burden is significant. Requires supplier cooperation and often supplier portal infrastructure.
Hybrid Approach (What Most Companies Should Do)
Start with spend-based for a complete inventory across all 15 categories. Identify the top 5-10 categories by emission magnitude (typically Category 1 Purchased Goods, Category 11 Use of Sold Products, Category 3 Fuel and Energy, Category 4 Upstream Transportation). Shift those to activity-based as you build supplier data collection capability.
This gives you a defensible complete disclosure quickly, with a roadmap to higher-quality data over time.
Category-by-Category Breakdown
Category 1: Purchased Goods and Services Usually the largest category. Spend-based using EEIO as baseline; shift to supplier-specific factors for top 20 suppliers by spend. Supplier portal approach for primary data collection.
Category 2: Capital Goods Often overlooked. Equipment and infrastructure purchases have significant embedded carbon. Apply economic intensity factors to capex spend by asset class.
Category 3: Fuel and Energy-Related Activities Upstream emissions from fuel extraction and transmission losses — not counted in Scope 1/2. Calculate as a percentage uplift on your Scope 1 fuel and Scope 2 energy consumption.
Category 4: Upstream Transportation and Distribution Connect to freight carrier APIs or use freight broker data. Calculate based on tonne-kilometers and transport mode, applying mode-specific emission factors (road, rail, air, sea).
Category 5: Waste Generated in Operations Waste tonnage by type and disposal method. Connect to waste hauler invoices or management systems.
Category 6: Business Travel Flight and hotel data from your travel booking system (Concur, TravelPerk, Amex GBT). Air travel calculated by distance and cabin class; accommodation by nights and region.
Category 7: Employee Commuting Survey-based. Annual employee survey on commute mode, distance, and days in office. For remote-heavy companies, home office energy use is also part of this category.
Category 11: Use of Sold Products For companies selling energy-consuming products (appliances, vehicles, electronics), this is often the largest category. Requires product usage modeling and customer fleet assumptions.
Category 15: Investments (Financial Institutions) Financed emissions calculated using PCAF methodology. Requires loan book and investment data mapped to sector emission intensities. This is the dominant category for banks, insurers, and asset managers.
Supplier Portal: Getting Primary Data
Spend-based estimates will satisfy initial disclosure requirements, but SBTi FLAG targets, CDP leadership scores, and enterprise customer procurement requirements are pushing toward primary supplier data.
We build supplier engagement portals that:
- Send data requests to suppliers with pre-filled templates based on what you already know (spend category, approximate volume)
- Guide suppliers through what to collect and how — reducing friction and increasing response rates
- Validate submissions with automated plausibility checks (a steel supplier reporting below-average intensity needs verification)
- Track response rates and escalate to procurement teams when key suppliers are non-responsive
- Default gracefully — if a supplier does not respond, the system falls back to spend-based estimates with a data quality flag
A realistic target for an initial supplier engagement program: 60-70% of spend covered by primary data within 12 months, for top-tier suppliers.
SBTi Alignment
The Science Based Targets initiative requires companies to set emission reduction targets aligned with 1.5°C pathways. For Scope 3:
- Companies must set Scope 3 targets if Scope 3 exceeds 40% of total emissions (which it does for almost every company)
- SBTi's near-term corporate standard requires covering at least two-thirds of total Scope 3 emissions in the target boundary
- FLAG (Forest, Land and Agriculture) guidance requires separate targets for land-based emissions
Our tracking system is structured to support SBTi submission:
- Base year establishment: Lock the base year inventory with full audit trail (SBTi requires a fixed base year for target-setting)
- Category-level targets: Set reduction targets by category that roll up to company-level SBTi commitment
- Reduction tracking: Monitor actual emissions vs. SBTi trajectory in real time — are you on track or do you need to accelerate intervention?
- Supplier engagement progress: Track what percentage of Category 1 spend has moved from spend-based to primary data (relevant for FLAG and advanced target types)
What Reduction Tracking Looks Like
Setting a target is the beginning. Knowing whether you will hit it requires ongoing monitoring:
- Monthly emissions vs. SBTi pathway: Are you below or above the required glide path?
- Category performance: Which categories are improving, which are lagging?
- Supplier mix shifts: If you move spend from a high-intensity supplier to a lower-intensity one, the savings should show up in your Category 1 numbers
- Abatement project tracking: Renewable energy procurement, supplier development programs, product efficiency improvements — each project's projected and actual impact tracked against targets
For the underlying data infrastructure, see our ESG Data Pipeline solution.
Related Reading
- ESG Data Pipeline: From Source Systems to Audit-Ready Reports
- CSRD Compliance: ESRS E1 and Scope 3 Requirements
- Manual vs. Automated Scope 3 Tracking
- GRI vs. CSRD vs. TCFD Frameworks
- ESG Reporting Automation: Complete Guide
Start Your Scope 3 Assessment
Most companies have never done a complete Scope 3 inventory. The first step is understanding where your emissions are concentrated — which categories are material, which have reliable data, and where the reduction leverage is.
We run a Scope 3 assessment in week one and have a complete estimated inventory by the end of the sprint.