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Scope 3: Understanding Upstream and Downstream emissions

Updated: Mar 7

Navigating the sustainability landscape requires a keen understanding of scope 3 emissions. UN Global Compact data underlines the significance, attributing more than 70% of a company's carbon footprint to scope 3. Thoroughly tracking environmental influence across the entire value chain is crucial. Carbon accounting steps in as a practical tool, enabling businesses to measure and mitigate their broader ecological footprint. Yet, the path to calculating scope 3 is no cakewalk, particularly given the intricacies of upstream and downstream emissions sources.


What are scope 1 2 3 emissions?


The concept of greenhouse gas (GHG) emissions is often discussed in the context of environmental impact and sustainability. While the term may sound complex, understanding the different scopes of GHG emissions is crucial for businesses and organizations to assess their carbon footprint and implement effective reduction strategies.


Behind the emission scopes: the GHG Protocol


The Greenhouse Gas Protocol (GHG Protocol) is a widely recognized framework for measuring and managing GHG emissions. It provides a standardized approach for businesses, governments, and other organizations to quantify their GHG emissions and track their progress towards reduction goals. Developed in 1998 by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the GHG Protocol has become a global standard for carbon accounting.


The GHG Protocol classifies a company's greenhouse gas (GHG) emissions into three categories: scope 1, scope 2, and scope 3.


Scope 1, 2 and 3 explained


Scope 1 refers to emissions that originate from sources directly controlled or owned by an organization. These emissions are a direct result of the company's operations in the production of goods or the provision of services.


Scope 2 emissions are indirect emissions from the generation of purchased electricity, steam, heat, or cooling.


Scope 3 spans all other indirect greenhouse gas emissions. This scope extends broadly across the company's value chain, encompassing both upstream factors like purchasing and transportation, and downstream factors such as deliveries, product usage and disposal.


scope-1-2-3


What are scope 3 emissions?


While scope 1 and scope 2 are within direct organizational control, scope 3 often represents the majority of a company's overall carbon footprint. Understanding and addressing scope 3 emissions are crucial to achieving a comprehensive and sustainable approach to environmental stewardship. Bloomberg’s company reported ESG data on 15,000 companies indicates that approximately 20% of them disclosed their scope 3 for the fiscal year 2020, indicating a gap in the disclosure of these emissions.


Scope 3 refers to all indirect emissions occurring both upstream and downstream in the value chain of a company. It's important to note that these emissions exclude those indirectly associated with power generation, which falls under scope 2 emissions.

These emissions can come from a wide range of sources, including the use of products or services provided by the company, transportation of the company's products, disposal or recycling of the company's products, and any other activities related to the company's value chain.


The GHG Protocol includes 15 sub-categories under scope 3 to assist companies in identifying and accounting for both upstream and downstream emissions.


What are downstream and upstream emissions?


The categorization of greenhouse gas (GHG) emissions into scope 3 further breaks down the indirect emissions into two main categories: upstream and downstream emissions. Upstream emissions encompass the emissions generated throughout the supply chain, from raw material extraction and transportation to manufacturing and product delivery. Downstream emissions, on the other hand, refer to the emissions associated with product usage, end-of-life treatment, and waste disposal.


Understanding these two sources is essential to gain a comprehensive view of their environmental impact and identify opportunities for reduction.


What are upstream emissions?


Upstream emissions refer to the indirect emissions generated during the production of goods or services a company purchases or uses before a product or service is delivered to the customer. These emissions are divided into 8 categories:

  • Purchased goods and services: Extraction, production and transportation of goods and services purchased by the company, covering raw materials, components, and packaging.

  • Capital goods: Extraction, production and transportation of capital goods purchased by the company, such as machinery, equipment, and infrastructure.

  • Fuel and energy-related activities: Extraction, production and transportation of fuel and energy purchased by the company (not included in scope 1 or scope 2).

  • Waste generated in operations: Treatment and disposal of waste generated by the company.

  • Business travel: Transportation of employees for business-related activities (flights, driving, or other modes owned or operated by third parties).

  • Employee commuting: Transportation of employees to and from work in vehicles owned or operated by third parties.

  • Upstream leased assets: operation of assets that are leased by the reporting company that are not included in scope 1 and scope 2.

  • Upstream transportation and distribution: Transportation and distribution of goods and services between suppliers and the reporting company.

Upstream emissions are often more manageable for companies as they have greater control over their suppliers and can influence their production processes and energy choices.


What are downstream emissions?


Downstream emissions refer to the indirect emissions generated during the use, end-of-life treatment, and disposal phases of a product or service. These emissions occur after the product has been sold to the consumer. Downstream emissions are divided into 7 categories:

  • Use of sold products: Emissions resulting from the operation and consumption of products (fuel combustion in vehicles, electricity usage in appliances, etc.).

  • End-of-life treatment of sold products: Disposing or recycling products at the end of their lifecycle (emissions from recycling processes, the disposal of products etc.).

  • Leased assets: Operation of leased assets like vehicles or equipment, these emissions are tied to the usage of assets leased to customers.

  • Franchises: Operation of franchises not included in scope 1 or scope 2

  • Investments: Company's financial investments (stocks or bonds in other companies).

  • Downstream transportation and distribution: Transportation of goods and services between the company and the customers.

  • Processing of sold products: Emissions resulting from the processing of intermediate products sold by third parties (e.g., manufacturers) after their sale by the reporting company.

Downstream emissions can be challenging to quantify due to the variability in consumer behaviour and waste management practices. However, understanding and addressing these emissions is crucial for companies to minimize their overall environmental footprint.



Upstream and Downstream examples


Let's take the automotive industry, for instance. Despite strides towards electrification, its complex value chain generates significant upstream and downstream emissions. Here's a breakdown of the key categories to consider when conducting a carbon footprint assessment.


Upstream emissions


  • Purchased goods and services (category 1): Emissions generated from the extraction, production, and transportation of raw materials like steel, aluminium, and plastics used in vehicle manufacturing.

  • Capital goods (category 2): Emissions associated with the production and transportation of machinery and equipment used in vehicle assembly and manufacturing facilities.

  • Transportation and distribution (category 4): Emissions from transporting parts and vehicles throughout the supply chain, from raw material extraction to final delivery to dealerships.


Downstream emissions


  • Use of sold products (category 11): Tailpipe emissions from vehicles sold by the manufacturer.

  • End-of-life treatment of sold products (category 12): Emissions generated during vehicle recycling and disposal.



How companies can effectively manage and calculate both upstream and downstream emissions?


Effectively managing upstream and downstream emissions requires a systematic approach, beginning with accurate measurement through carbon accounting. Using a carbon management platform is more than helpful for gathering, analyzing, and monitoring emission data at various points in the supply chain. This type of platform serves as a centralized hub for tracking carbon footprints, allowing companies to identify areas of high impact and implement targeted reduction strategies.


Supplier engagement plays an essential role in addressing scope 3 emissions and achieving corporate climate targets. Since scope 3 emissions are generated, managed, and controlled directly or indirectly by suppliers and business partners, effective engagement with them is vital for holistic climate management. This approach addresses the scope 3 challenge and helps in efficiently managing emissions across the entire company's supply chain.


Tools such as the Corporate Value Chain (Scope 3) Accounting and Reporting Standard offer guidance on methodologies for measuring and reporting downstream and upstream emissions.


By adopting a comprehensive approach encompassing data-driven carbon management, supplier engagement, and transparent reporting, companies can effectively address both upstream and downstream emissions, mitigating their climate impact and reaping the rewards of a sustainable business model.

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