TL;DR - Scope 3 emissions are the hidden giant in your carbon footprint. They account for up to 95% of total emissions and include everything from supplier operations to customer product use. This guide breaks down what Scope 3 is, why it matters in 2025, and how your business can start managing it for real climate impact—and regulatory compliance.
In 2025, businesses face increasing pressure to account for their entire carbon footprint, not just what happens inside their four walls. While most companies understand Scope 1 and 2 emissions (direct carbon emissions and purchased energy), Scope 3 emissions remain the blind spot for many organizations.
Scope 3 emissions typically represent the majority of a company's total carbon impact, yet they’re emissions you don't see directly. They occur in your supply chain, during product use, and even in how your employees commute.
They're harder to measure, but impossible to ignore.
The challenge with Scope 3 emissions isn't just tracking them — it's knowing where to start and what to do with the information.
- How do you influence emissions that occur outside your direct control?
- What reporting standards should you follow?
- What reduction opportunities exist?
- How do you achieve net zero and slash GHG emissions at the corporate level?
In this guide, we'll answer these questions and more. We'll break down what Scope 3 emissions are, why they matter to your business, and how leading companies are tackling this growing challenge in 2025.
Understanding Scope 3 emissions and climate impact
- Scope 3 emissions typically represent 70-95% of a company's total carbon footprint
- These emissions occur throughout the value chain but aren't directly controlled by the company
- Managing Scope 3 is essential for meaningful action around climate change and is increasingly required by regulations
What are Scope 3 emissions?
Scope 3 emissions are all indirect greenhouse gas emissions that occur in a company's value chain but are not owned or directly controlled by the company.
These emissions happen both upstream and downstream in a company's operations. Scope 3 stands apart from Scope 1 (direct emissions from owned sources) and Scope 2 (indirect emissions from purchased electricity).
The Greenhouse Gas Protocol defines 15 different categories of Scope 3 emissions. These include upstream activities like purchased goods and services, capital goods, and business travel. They also include downstream emissions (those emitted after a company's products or services have been sold), end-of-life treatment of products, and investments.
The difference between Scope 1, 2, and 3 emissions
- Scope emissions form the foundation of carbon accounting, with each category representing different areas of business responsibility
- Accurate categorization helps businesses target their greatest emissions impact points, especially scope 3, which often represents 75-95% of total emissions
Understanding scope emissions is crucial for any business looking to manage its environmental impact. The three-scope framework provides a systematic approach to categorizing, measuring, and reducing greenhouse gas (GHG) emissions.
Scope emissions are categorized based on where they occur in your business operations and how much direct control you have over them. This categorization helps businesses identify responsibility and prioritize reduction efforts.
Scope 1: Direct emissions controlled by the company
Scope 1 emissions come directly from sources owned or controlled by your company. These include:
- Fuel combustion in company-owned or controlled boilers, furnaces, and vehicles
- Direct emissions from chemical production in owned or controlled process equipment
- Fugitive emissions from leaks or other unintentional releases (such as refrigerant leaks)
For example, if your company operates a fleet of delivery trucks, the emissions from the fuel burned in these vehicles count as Scope 1. Similarly, if you have natural gas heating in your office building, the emissions from burning that gas are Scope 1.
HVAC systems present an interesting case—the refrigerant leaks from these systems are considered Scope 1 emissions, but the electricity used to power them falls under Scope 2. This distinction explains why companies often ask, "Is HVAC Scope 1 or 2?" The answer depends on which aspect of the system you're considering.
Calculating Scope 1 emissions typically involves multiplying activity data (like gallons of fuel or cubic feet of natural gas) by emission factors specific to each fuel type or activity. This calculation is relatively straightforward since the data is directly available within company records.
Scope 2: Indirect emissions from purchased electricity
Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the company. These emissions physically occur at the facility where the energy is generated (like a power plant), not at your company's facilities.
There are two main approaches to calculating Scope 2 emissions:
- Location-based method: Uses average emission factors for the geographic region where consumption occurs
- Market-based method: Reflects emissions from electricity that companies have purposefully chosen through contracts or instruments like Renewable Energy Certificates
For a typical office-based business, Scope 2 often represents a significant portion of operational emissions, primarily from electricity consumption for lighting, computing equipment, and climate control.
Scope 3: Other indirect emissions along the supply chain
Scope 3 emissions include all other indirect emissions that occur in a company's value chain, both upstream and downstream. The Greenhouse Gas Protocol divides Scope 3 emissions into 15 categories, listed above, including raw materials.
For most companies, Scope 3 emissions represent the largest share of their carbon footprint, typically accounting for 75-95% of total emissions. For example, a computer manufacturer might have relatively low Scope 1 and 2 emissions from its assembly facilities, but enormous Scope 3 emissions from the energy used by consumers to power its products over their lifetimes.
Calculating Scope 3 emissions presents significant challenges due to data availability issues and the need to collaborate with suppliers and customers. Many companies begin by focusing on the most relevant categories where they can have the greatest impact.
The surprising scale of Scope 3 emissions
Most companies are shocked when they first measure their complete carbon footprint. While they might focus on reducing emissions from their offices, factories, and vehicle fleets (Scopes 1 and 2), these often represent a tiny fraction of their total impact.
Scope 3 emissions typically account for 75% of an organization's total greenhouse gas emissions. Supply chain emissions alone are, on average, 11.4 times higher than operational emissions, accounting for about 92% of an organization's total carbon footprint, according to the EPA.
Why Scope 3 emissions matter for businesses
There are compelling business reasons to address Scope 3 emissions beyond environmental concerns.
First, these emissions represent significant risk exposure. As carbon regulations tighten globally, companies with carbon-intensive supply chains face increasing costs and compliance challenges.
Second, investors and financial institutions increasingly evaluate companies based on their climate performance, including Scope 3. Major investment firms like BlackRock now request comprehensive emissions data, and banks are beginning to factor climate risk into lending decisions.
Third, customers — both individual consumers and B2B clients — increasingly demand climate action from their suppliers. Many large companies now ask their suppliers to report emissions data and set reduction targets as a condition of doing business.
Finally, addressing Scope 3 emissions often reveals efficiency opportunities. Companies frequently discover waste, excess energy use, and process inefficiencies when they examine their value chains through a carbon lens. These discoveries can lead to cost savings alongside emissions reductions.
The Greenhouse Gas Protocol framework
The Greenhouse Gas Protocol's Corporate Value Chain (Scope 3) Standard provides the definitive framework for measuring and managing these emissions. Released in 2011, the GHG Protocol has become the global benchmark for Scope 3 accounting.
The framework dictates 15 distinct Scope 3 emissions categories, providing specific guidance on calculating emissions for each. These categories help companies track emissions in a structured way and compare performance across organizations. The categories are:
- Purchased goods and services
- Capital goods
- Fuel and energy-related activities
- Upstream transportation and distribution
- Waste generated in operations
- Business travel
- Employee commuting
- Upstream leased assets
- Downstream transportation and distribution
- Processing of sold products
- Use of sold products
- End-of-life treatment of sold products
- Downstream leased assets
- Franchises
- Investments
Companies are not required to report on all 15 categories — only those that are relevant to their business. For many companies, just a few categories represent the vast majority of their Scope 3 emissions. For example, a software company might find that purchased goods (category 1) and employee commuting (category 7) dominate their Scope 3 footprint.
The regulatory landscape for Scope 3 emissions
The regulatory environment around Scope 3 emissions is evolving rapidly. In 2022, the U.S. Securities and Exchange Commission (SEC) had proposed rules that would require publicly traded companies to disclose Scope 3 emissions if they are material or if the company has set reduction targets that include Scope 3, but they have since rolled back those proposed mandates and have no plans to roll out new ones as part of its current climate disclosure rules.
In Europe, the Corporate Sustainability Reporting Directive (CSRD) will require over 50,000 companies to report detailed sustainability information, including Scope 3 emissions. While the latest EU omnibus directive has since amended some of those reporting requirements, the first wave of mandated reporting is set to happen this year.
Science-based targets, which align corporate climate goals with the Paris Agreement, also drive Scope 3 action. The Science Based Targets initiative (SBTi) requires companies to include Scope 3 in their targets if these emissions represent more than 40% of their total footprint, which they do for most companies.
These regulatory trends point toward increasing pressure for companies to measure, report, and reduce their full value chain emissions. Forward-thinking organizations are getting ahead of these requirements by building their Scope 3 measurement capabilities now.
Key risks of unmanaged Scope 3 emissions
Failing to address Scope 3 emissions exposes companies to several significant risks. Regulatory risk is increasing as more jurisdictions implement carbon pricing and mandatory climate disclosure. Companies with carbon-intensive value chains face rising costs as these regulations expand.
Market risk is also growing as customers — both consumers and B2B buyers — increasingly select products based on climate performance. Companies perceived as climate laggards may lose market share to more sustainable competitors.
Perhaps most important is transition risk—the financial risk associated with the global shift to a low-carbon economy. Companies with business models dependent on carbon-intensive activities face stranded assets and declining markets as the economy decarbonizes.
Finally, there's reputational risk. As climate awareness grows, companies face increasing scrutiny of their full carbon footprint. Those that focus only on their direct emissions while ignoring their larger Scope 3 impact risk accusations of greenwashing.
The business case for Scope 3 management
Companies managing Scope 3 emissions gain competitive advantages beyond environmental benefits. Research from McKinsey & Company shows that effective carbon management correlates with improved financial performance, with companies reducing emissions by 3% annually outperforming their industry peers by 3.7% in terms of total returns to shareholders.
The benefits extend to risk management as well. As climate regulations tighten globally, companies with well-established emissions management systems face fewer compliance challenges. The EU Corporate Sustainability Reporting Directive (CSRD) and proposed SEC climate disclosure rules in the US both push for greater transparency around Scope 3 emissions. Companies that already track these emissions will face less disruption when these rules take full effect.
However, identifying hotspots within your supply chain or other areas of your business can help manage both downstream and upstream emissions, giving way to better procurement practices. By taking stock of your emissions inventory, you can find more economical ways to expand your financial and regulatory practices.
Customer and investor demands represent another key driver. A 2024 PwC survey states that 76% of investors consider a company's climate strategy in their investment decisions, with particular attention to Scope 3 management as a sign of comprehensive climate action. Similarly, B2B customers increasingly request carbon footprint data from suppliers, making Scope 3 management a potential market differentiator.
Measuring and tracking Scope 3 emissions requires specialized tools that can handle complex data across organizational boundaries. The market for these tools has grown substantially, with options ranging from simple carbon calculators to comprehensive carbon accounting platforms.
Enterprise carbon management software has emerged as the leading solution for large organizations. Platforms like Pulsora provide end-to-end capabilities for collecting, calculating, and reporting emissions across all scopes. These systems typically include features for supplier data collection, scenario analysis, and integration with financial reporting systems. According to a 2024 Verdantix report, the market for these platforms grew by 38% in 2024, reflecting their increasing importance.
Transparency in reporting
Transparent reporting builds trust with external stakeholders while driving internal accountability. The most effective reporting goes beyond basic emissions numbers to provide context, methodology, and progress against targets. In a 2024 analysis by KPMG, 73% of the world's largest companies now report on Scope 3 emissions, but only 46% provide comprehensive disclosure of methodology, boundaries, and data quality.
Reporting frameworks like the Task Force on Climate-related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) standards help companies structure their climate disclosures. These frameworks emphasize the importance of explaining how climate risks and opportunities affect business strategy and financial planning. This connection between carbon accounting and business strategy helps stakeholders understand the company's climate resilience.
Digital reporting tools are enhancing transparency through more frequent and granular disclosures. Pulsora, for example, enables you to create high-quality reports that meet the precise needs of every unique framework and prepare audit-ready data at the drop of a hat. These approaches signal a shift toward treating carbon data more like financial data, subject to regular reporting and scrutiny.
Make Scope 3 your superpower with Pulsora
Scope 3 emissions represent the largest portion of most companies' carbon footprints, yet they remain the most challenging to measure and address. As we've seen throughout this guide, managing these indirect emissions is no longer optional but essential for businesses committed to true sustainability.
Companies that take control of their scope 3 emissions gain competitive advantages through cost savings, risk reduction, and stronger stakeholder relationships, and it’s possible to achieve all of these benefits with a platform like Pulsora.
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FAQ: Scope 3 Emissions
1. What are Scope 3 emissions?
Scope 3 emissions are indirect greenhouse gas emissions that occur throughout a company’s value chain—both upstream (e.g., supplier manufacturing) and downstream (e.g., product use).
2. Why are Scope 3 emissions so important?
They typically represent 70–95% of a company’s total carbon footprint. Ignoring them means missing the bulk of your emissions—and your climate risk.
3. Are companies required to report Scope 3 emissions?
Yes, in many cases. Frameworks like the EU CSRD and SBTi require Scope 3 disclosures if they’re material. Some U.S. SEC proposals have included Scope 3, though they’ve recently been scaled back.
4. How are Scope 3 emissions calculated?
Calculation involves identifying relevant activities across 15 categories defined by the Greenhouse Gas Protocol and using supplier data, spend-based estimations, or industry averages.
5. What’s the difference between Scope 1, 2, and 3 emissions?
- Scope 1 = Direct emissions from company-owned sources
- Scope 2 = Indirect emissions from purchased electricity
- Scope 3 = All other indirect emissions across the value chain
6. How can I start managing Scope 3 emissions?
Start by identifying your highest-impact categories (like purchased goods or business travel), collecting supplier data, and using carbon accounting software to standardize reporting and action planning.
