6.1 Purpose and Scope | DART – Deloitte Accounting Research Tool

Released in 2011 as a complement to the Corporate Standard, the Scope 3 Standard provides a method of accounting for emissions in a reporting company’s value chain. The Corporate Standard requires companies to account for direct GHG emissions from sources they own or control (Scope 1) as well as indirect GHG emissions associated with the generation of electricity, heating, cooling, or steam purchased for the companies’ own consumption that are a consequence of their operations but occur at sources they do not own or control (Scope 2). While reporting of Scope 1 and Scope 2 emissions is required under the Corporate Standard, reporting of Scope 3 emissions under that standard is voluntary. However, the Scope 3 Standard broadens the scope of reported GHG emission activities to include what the GHG Protocol organization’s Web site describes as “all of the emissions a company is responsible for outside of its own walls — from the goods it purchases to the disposal of the products it sells.”

Capturing Scope 3 emissions is meaningful for stakeholders since Scope 1 and Scope 2 emissions alone may account for only a small portion of a company’s climate impact depending on the nature of its operations. This is especially true for a reporting company that outsources key processes, services, and production activities and therefore has inherently lower Scope 1 and Scope 2 emissions than a more vertically integrated company that is otherwise similar in terms of size and revenue. Under the Scope 3 Standard, the total reportable GHG emissions of the outsourcing company would be more representative of its actual GHG emissions and would more closely match the total GHG emissions reported by the vertically integrated company.

That said, the Scope 3 Standard acknowledges that its goal is not to provide comparability across companies, but to enable comparability of an individual company’s GHG emissions over time (in a manner consistent with the design of the Corporate Standard). Nevertheless, the above example of an outsourcing company demonstrates that Scope 3 emissions are attributable to a reporting company even though the reporting company did not directly produce them. The WRI cites additional evidence of the significance of Scope 3 emissions on its Web site, noting that “Scope 3 emissions account for the largest share of most companies’ GHG emissions” and observing that, according to a technical note issued by CDP, Scope 3 emissions represent 75 percent of a company’s GHG emissions on average.

When companies reflect the impact of their entire value chain, they (1) present a more complete picture of the sources of the GHG emissions for which they are accountable, (2) provide better opportunities to collaborate with downstream and upstream partners, and (3) create transparency to better inform business strategies related to climate risk, deployment of resources, and investment in renewable energy initiatives. Accordingly, the Scope 3 Standard’s stated objectives are:

“To help companies prepare a true and fair scope 3 GHG inventory in a cost-effective manner, through the use of standardized approaches and principles.”
“To help companies develop effective strategies for managing and reducing their scope 3 emissions through an understanding of value chain emissions and associated risks and opportunities.”
“To support consistent and transparent public reporting of corporate value chain emissions according to a standardized set of reporting requirements.”

Reporting companies that wish to be in compliance with the Corporate Standard have two reporting options:

Report all Scope 1 and Scope 2 emissions as required and voluntarily report some, all, or none of their Scope 3 emissions.
Elect to comply with the Scope 3 Standard in its entirety in addition to meeting the Corporate Standard’s requirement to report all Scope 1 and Scope 2 emissions.

Under the first option, reporting companies may choose to report Scope 3 emissions from some sources and activities but not others. Under the second option, reporting companies must meet all GHG reporting requirements under the Scope 3 Standard or justify any exclusions. See Sections 6.2 through 6.4 for discussion of the Scope 3 emissions that must be reported under the Scope 3 Standard if the reporting company elects to comply with that standard in its entirety.

Since Scope 3 emissions are generated at locations of other companies in the reporting company’s supply chain, such GHG emissions would generally be accounted for in Scope 1 or Scope 2 by the other companies. Thus, while a single reporting company cannot include the same GHG emissions in multiple scopes (since doing so would be considered double counting), multiple reporting companies can each include the same GHG emissions in a different scope. For example, GHG emissions from the combustion of fuel by a truck transporting goods from Company A to its end customer would be reported in both the trucking company’s Scope 1 emissions and A’s Scope 3 emissions. See Section 6.6 for discussion of double counting related to Scope 3 emissions generally and individual Scope 3 categories.

As noted in Section 1.1, the GHG Protocol includes the Scope 3 Technical Guidance, which serves as a companion to the Scope 3 Standard. Designed to help preparers implement the Scope 3 Standard, the Scope 3 Technical Guidance provides (1) the calculation methods and formulas for each Scope 3 category, (2) sources that reporting companies can use to obtain primary and secondary data, and (3) practical examples. In addition, the Scope 3 Technical Guidance cites the GHG Protocol organization’s calculation tools, which provide step-by-step guidance to help companies calculate GHG emissions from specific sources or sectors. Further, Appendix D of the Scope 3 Technical Guidance provides tables (reproduced in Appendix A of this Roadmap) that summarize the calculation methods for each of the 15 Scope 3 categories, including the formula, required activity data, and required emission factor.

Although the Scope 3 Technical Guidance provides calculation guidance and examples for the minimum boundary of each Scope 3 category, it does not cover optional boundaries. Therefore, it is important for reporting companies to ensure that they have appropriately disclosed the assumptions, estimates, and data they used in calculating GHG emissions for these optional boundaries.

For details about accounting considerations and technical calculation methods related to Scope 3 emissions as well as practical examples, see Sections 6.3 and 6.4 of this Roadmap.