Scope 3 emissions are the indirect greenhouse gases a company creates through its supply chain, customer use, and waste — everything outside its own operations and energy purchases

You already know that Scope 1 covers a company's direct emissions (burning fuel on-site) and Scope 2 covers purchased electricity. Scope 3 is everything else: the emissions baked into the materials a company buys, the shipping that moves products, the way customers use what the company sells, and what happens when those products end up in landfills. For most companies, Scope 3 is the largest piece of their total carbon footprint — often 70 to 90 percent — which is why regulators and investors now require companies to measure and report it.

Scope 3 is harder to measure than Scopes 1 and 2 because a company does not directly control these emissions. A manufacturer does not own the truck that hauls its products, does not own the factory that makes its parts, and does not control how a customer uses the finished good. But the company is still responsible for understanding and reporting these emissions as part of its climate accountability.

Key Takeaways

  • Scope 3 includes 15 distinct categories of indirect emissions, from purchased materials to end-of-life product disposal.
  • Scope 3 typically makes up the majority of a company's total emissions, yet remains the hardest category to measure accurately.
  • Companies estimate Scope 3 using supplier data, industry averages, and calculation methods approved by the Greenhouse Gas Protocol.
  • Regulators and large investors now require public companies to disclose Scope 3 emissions, making measurement a legal and financial necessity.

The 15 categories that make up Scope 3

The Greenhouse Gas Protocol, the standard used worldwide for emissions accounting, breaks Scope 3 into 15 categories. Not every company will have emissions in every category, but understanding the full list shows why Scope 3 is so complex.

The first group covers what a company buys: purchased goods and services (the emissions from making the materials and parts), capital goods (emissions from manufacturing equipment the company buys), and fuel and energy-related activities (emissions from extracting and transporting the coal, oil, or gas the company burns). The second group covers transportation and distribution: upstream transportation (shipping from suppliers to the company), downstream transportation (shipping from the company to customers), and business travel. The third group covers how products are used: emissions from using the product itself, such as driving a car or running an appliance. The final group covers end-of-life: waste disposal, treatment of sold products, and leased assets.

Why Scope 3 is so much larger than Scopes 1 and 2

A company's own operations are only a fraction of its total impact. A car manufacturer's factories and offices might produce 5 percent of the emissions tied to that car over its lifetime; the other 95 percent comes from making the steel and plastic, transporting the car to dealers, and driving it for 10 years. A clothing retailer's stores and warehouses might produce 10 percent of the emissions; the other 90 percent comes from growing cotton, dyeing fabric, manufacturing garments in overseas factories, and shipping containers across oceans.

This is why investors and regulators now focus on Scope 3. A company that reports only Scopes 1 and 2 is hiding most of its climate impact. The Science Based Targets initiative, which helps companies set climate goals aligned with climate science, requires companies to include Scope 3 in their targets. The U.S. Securities and Exchange Commission (SEC) has proposed rules requiring public companies to disclose Scope 3 emissions in their annual filings, though the exact requirements remain in flux as of 2024.

How companies measure Scope 3 when they do not control the emissions

A company cannot install a meter on every supplier's factory or every customer's home, so it uses three main approaches: supplier data, industry averages, and calculation models. The best method is asking suppliers directly for their emissions data — some large suppliers now track and report this. When supplier data is not available, companies use industry averages: published emissions factors that show how much carbon is typically released per unit of material, per mile of shipping, or per dollar spent in a given industry. The Greenhouse Gas Protocol publishes these factors, as do government agencies and research organizations.

For product use, companies often rely on engineering estimates. A car manufacturer calculates the fuel consumption of a typical car over its expected lifespan and multiplies by the emissions per gallon of gasoline. An appliance maker estimates how much electricity a refrigerator will use over 15 years and multiplies by the average carbon intensity of the grid. For end-of-life emissions, companies estimate what fraction of their products end up in landfills, recycling, or incineration, and use published factors for the emissions from each pathway.

The difference between measured, calculated, and estimated Scope 3

Not all Scope 3 numbers carry the same weight. Measured Scope 3 comes from actual data — a supplier reports that making 1,000 units of a part released 50 tons of carbon dioxide. Calculated Scope 3 comes from a known formula applied to known inputs — a company knows it shipped 10,000 boxes and uses a published factor of 0.05 tons of carbon per box-mile, so it calculates 500 tons. Estimated Scope 3 comes from assumptions — a company assumes 60 percent of its products end up in landfills and uses an average factor for landfill emissions.

Companies are expected to use measured data where it exists, calculated data where formulas are available, and estimates only as a last resort. Regulators and investors look at how much of a company's Scope 3 is measured versus estimated; a company with 80 percent measured data is more credible than one with 80 percent estimates. Over time, companies are expected to improve their measurement by collecting more supplier data and refining their estimates with actual information.

Why companies now report Scope 3 even though it is not required everywhere yet

Regulation is moving faster than most people realize. The SEC's proposed rule would require large U.S. public companies to disclose Scope 3 starting in 2026 or 2027, depending on company size. The European Union's Corporate Sustainability Reporting Directive already requires large companies to report Scope 3. Investors — pension funds, asset managers, and insurance companies — are demanding Scope 3 data to assess climate risk. A company that waits for a legal requirement to start measuring Scope 3 will be years behind competitors who started early and have better data.

There is also a business case: understanding Scope 3 reveals where a company can cut costs. A manufacturer that discovers its Scope 3 is dominated by shipping can negotiate with logistics providers or redesign products to be lighter. A retailer that finds most emissions come from product use can design more efficient products or help customers use them better. A company that waits until reporting is mandatory misses years of opportunity to reduce emissions and cut expenses at the same time.

Common challenges in Scope 3 measurement

The biggest challenge is data availability. A company with 500 suppliers cannot ask each one for detailed emissions data and expect quick answers. Many suppliers, especially smaller ones, do not track their own emissions. A company might have to choose between spending months collecting data from 10 percent of suppliers or using industry averages for all of them. The Greenhouse Gas Protocol allows this trade-off, but it means the reported number is less precise.

Another challenge is scope creep. Should a software company count the emissions from the data centers that run its cloud services as Scope 2 (purchased electricity) or Scope 3 (purchased services)? Should a bank count the emissions from the companies it finances? Should a retailer count emissions from products customers buy but never use? The Greenhouse Gas Protocol provides guidance, but real-world situations are often ambiguous, and different companies make different choices. This is why comparing Scope 3 numbers across companies requires reading the fine print about what each company included.

Frequently Asked Questions

Is Scope 3 the same as carbon footprint?

No. A carbon footprint is the total greenhouse gas emissions from a product, service, or activity over its entire life. Scope 3 is one part of a company's carbon footprint — the indirect emissions. A company's total carbon footprint includes Scopes 1, 2, and 3 combined.

Do small companies have to report Scope 3?

It depends on where the company operates and who its customers are. The SEC rule, once finalized, will explore only to large public companies. However, if a small company sells to a large corporation that is required to report Scope 3, that large corporation will ask for emissions data from its suppliers, including small ones. Many small companies are already providing this data even though they are not required to report it publicly.

Can a company reduce Scope 3 emissions?

Yes, though it requires working with suppliers and customers. A company can switch to suppliers with lower-emission processes, design products that use less energy or material, help customers use products more efficiently, or work with waste management partners to increase recycling. These changes take time and often cost money upfront, but they reduce both emissions and operating expenses.

Why do different companies report different Scope 3 numbers for similar products?

Companies make different assumptions about product use, end-of-life, and which suppliers to include. One car manufacturer might assume a car is driven 150,000 miles; another assumes 200,000. One assumes 50 percent recycling; another assumes 30 percent. These differences are legitimate, but they make direct comparison difficult. This is why regulators are pushing for standardized methods.