Scope 3 emissions are the hardest emissions for a company to measure and control, because they happen outside the company's own operations

Scope 3 emissions are greenhouse gases released by activities a company does not directly own or operate. They come from suppliers, customers, waste disposal, employee commutes, and business travel — anywhere money flows in or out. A clothing retailer's Scope 3 includes the emissions from the factories that make its clothes. A software company's Scope 3 includes the emissions from the electricity its customers use to run the software.

The reason companies report Scope 3 is that it often dwarfs Scopes 1 and 2 combined. A car manufacturer's tailpipe emissions (Scope 1) and power plant emissions (Scope 2) matter far less than the emissions from driving the cars customers buy (Scope 3). Ignoring Scope 3 would hide the true climate impact of what the company actually does.

Scope 3 is also the hardest to measure. A company controls its own factory or office, so Scope 1 is straightforward. It can see its electricity bill, so Scope 2 is knowable. But Scope 3 depends on data from suppliers, shipping partners, and customers — many of whom do not track or share emissions carefully. Companies often estimate Scope 3 using industry averages, financial data, or models rather than direct measurement.

Key Takeaways

  • Scope 3 covers emissions from suppliers, customers, waste, and business travel — anything outside the company's direct control.
  • Scope 3 is usually much larger than Scopes 1 and 2 because it includes the full lifecycle of what a company sells.
  • Companies estimate Scope 3 using industry averages and financial data because they cannot measure it directly.
  • Scope 3 reporting is voluntary for most companies, but large corporations and those with climate commitments often disclose it anyway.
  • Reducing Scope 3 requires working with suppliers and customers, which is slower and less certain than cutting Scope 1 or 2.

The five categories of Scope 3 emissions

The Greenhouse Gas Protocol, the standard most companies use, divides Scope 3 into 15 sub-categories. In practice, companies focus on the ones that matter most to their business. A retailer tracks purchased goods and capital goods. A bank tracks investments. A software company tracks employee commuting and customer use.

The largest Scope 3 categories for most companies are purchased goods and services (the emissions embedded in what they buy), capital goods (factories and equipment), and use of sold products (what happens after customers buy). For a food company, purchased goods means the farming and processing emissions in the ingredients. For a car company, use of sold products means the tailpipe emissions from every car it sells over its lifetime.

Other Scope 3 categories include business travel, employee commuting, waste disposal, transportation and distribution, and leased assets. A company reports only the categories that are material — meaning they represent a significant share of total emissions. A tech company might skip purchased goods if it buys little physical material, but track employee commuting if it has large offices.

Why Scope 3 is harder to measure than Scope 1 and 2

Scope 1 emissions come from equipment the company owns: a factory furnace, a delivery truck, a natural gas line. The company has the meter reading or fuel receipt. Scope 2 emissions come from purchased electricity or steam, which appear on a utility bill. Both are direct, documented, and auditable.

Scope 3 requires data from outside parties. A company cannot walk into a supplier's factory and read the meter. It does not know how much fuel a shipping company burned to deliver its goods. It cannot measure the electricity a customer uses to run its software. Instead, companies use emissions factors — standardized numbers that say "one ton of steel production creates X tons of CO2" or "one mile of trucking creates Y tons of CO2." They multiply the emissions factor by the amount of activity (tons of steel purchased, miles shipped) to estimate total emissions.

This approach works reasonably well for large, standardized activities. But it introduces uncertainty. If a supplier switches to renewable energy, the company's emissions factor may not reflect that change for months or years. If a customer uses the product more or less than average, the estimate will be wrong. Companies often disclose this uncertainty in their reports, noting that Scope 3 figures may have a margin of error of 20 to 50 percent or more.

How companies gather Scope 3 data from suppliers

Large companies often send surveys to suppliers asking for emissions data. The survey might ask: "What are your Scope 1 and Scope 2 emissions?" or "How much energy does it take to make one unit of this product?" Suppliers may or may not have this data. Many small suppliers do not track emissions at all and must estimate or decline to answer.

When suppliers do not respond or do not have data, companies fall back on industry averages. A clothing brand might use the average emissions per kilogram of cotton fabric, published by industry groups or research organizations. This is faster and cheaper than surveying every supplier, but it assumes all suppliers perform at average efficiency — which is rarely true.

Some companies use financial data as a proxy. If they know they spent $1 million on steel, they can multiply that by the average emissions per dollar of steel production. This works across many suppliers at once but is less accurate than supplier-specific data. The most rigorous companies combine all three approaches: direct data from major suppliers, financial estimates for smaller ones, and industry averages for gaps.

The difference between reported and unreported Scope 3

Scope 3 reporting is voluntary for most companies. The Securities and Exchange Commission (SEC) has proposed rules requiring large U.S. public companies to disclose Scope 1 and Scope 2, but Scope 3 disclosure remains optional in most jurisdictions. The European Union's Corporate Sustainability Reporting Directive requires large EU companies to report Scope 3, but enforcement is still ramping up.

In practice, large corporations and companies with public climate commitments often report Scope 3 anyway. They do this because investors, customers, and regulators increasingly expect it. A company that claims to be carbon-neutral but hides its Scope 3 emissions faces credibility questions. Conversely, a company that reports Scope 3 honestly — including uncertainty and gaps — signals that it takes climate impact seriously.

Many mid-sized and smaller companies do not report Scope 3 at all. They may lack the resources to survey suppliers or the pressure from stakeholders to disclose. This creates a gap: the companies with the most control over their supply chains often report the most, while smaller companies that may have less efficient suppliers report less.

Why reducing Scope 3 is slower than reducing Scope 1 or 2

A company can cut Scope 1 emissions by switching to renewable energy or buying more efficient equipment. It can cut Scope 2 emissions by signing a renewable energy contract. Both are decisions the company makes alone and can implement in months or a few years.

Reducing Scope 3 requires convincing other organizations to change. A retailer cannot cut the emissions from its suppliers' factories unless those suppliers invest in cleaner equipment or processes. A car company cannot cut the emissions from driving its cars unless customers drive less or buy electric vehicles. A bank cannot cut the emissions from its investments unless the companies it funds decarbonize.

This means Scope 3 reduction often takes longer and is less certain. A company can offer incentives — paying a premium for low-carbon materials, financing supplier upgrades, or designing products that use less energy. But the supplier or customer must choose to accept. Progress depends on market conditions, technology availability, and the willingness of others to change. A company might reduce Scope 1 by 50 percent in five years but take 15 years or more to achieve the same reduction in Scope 3.

How Scope 3 fits into carbon accounting standards

The Greenhouse Gas Protocol Corporate Standard, published in 2004 and updated in 2015, is the framework most companies use to define and measure Scope 1, 2, and 3. It divides Scope 3 into 15 categories and provides guidance on which categories explore to different industries. The standard is not legally binding, but it is the de facto global baseline.

Other frameworks exist. The Carbon Trust Standard, used mainly in the UK, has similar categories. The ISO 14064 series provides a more technical approach. But most large companies and most investors reference the Greenhouse Gas Protocol, so companies that want to be compared fairly use it.

The Science Based Targets initiative (SBTi) uses the Greenhouse Gas Protocol to help companies set climate targets. If a company commits to SBTi, it must include Scope 3 in its target, which means it must measure Scope 3 first. This has driven adoption: companies that want to claim their targets are science-based must report Scope 3.

Frequently Asked Questions

Is Scope 3 the same as indirect emissions?

Scope 3 is a type of indirect emissions, but not all indirect emissions are Scope 3. Scope 2 (purchased electricity) is also indirect. Scope 3 is specifically indirect emissions from activities outside the company's control — suppliers, customers, waste, and business travel. Scope 1 is direct emissions from sources the company owns.

Do all companies have to report Scope 3?

No. Scope 3 reporting is voluntary for most companies worldwide. The EU requires large companies to report it, and the SEC has proposed requiring it for large U.S. public companies, but rules are not final. Many companies report Scope 3 anyway because investors and customers expect it, especially if the company has made a climate commitment.

Why is Scope 3 so much bigger than Scope 1 and 2?

Scope 3 includes the full lifecycle of what a company sells. For a car company, Scope 3 includes the emissions from driving the cars — which is far larger than the emissions from making them. For a clothing company, Scope 3 includes farming the cotton and dyeing the fabric. For most companies, what happens after the product leaves the factory matters more than the factory itself.

Can a company reduce Scope 3 without its suppliers' help?

Only partially. A company can design products that use less energy or material, which reduces Scope 3. It can also switch to lower-carbon suppliers. But major reductions require suppliers to invest in cleaner processes, which the company cannot force. Most companies use a mix of design changes, supplier pressure, and incentives to reduce Scope 3.

What happens if a company cannot measure Scope 3 accurately?

Companies disclose the uncertainty in their reports. They may note that Scope 3 estimates have a margin of error of 30 to 50 percent. They explain which categories they measured directly and which they estimated using industry averages. Transparency about uncertainty is better than silence, and most investors and regulators accept reasonable estimates as long as the company explains its methods.