Understanding Scope 3: The 15 Categories

Upstream Scope 3 (Categories 1–8)

• 1. Purchased Goods and Services: Emissions from manufacturing of goods you buy (highest for manufacturers, retailers)
• 2. Capital Goods: Emissions from construction/manufacturing of equipment you purchase (capex)
• 3. Fuel and Energy-Related Activities: Extraction/production of fuel/electricity you consume (often 2–5% of Scope 3)
• 4. Upstream Transportation and Distribution: Transport of goods before you receive them (supplier responsibility)
• 5. Waste Generated in Operations: Emissions from disposal of waste you generate
• 6. Business Travel: Employee air/train/car travel (typically 3–10% of Scope 3)
• 7. Employee Commuting: Emissions from employee travel to/from work (typically 2–5% of Scope 3)
• 8. Upstream Leased Assets: Emissions from assets you lease (often negligible if Scope 1/2 captured)

Downstream Scope 3 (Categories 9–15)

• 9. Downstream Transportation and Distribution: Transport of products to customers (seller/buyer split, often shared)
• 10. Processing of Sold Products: Further processing of products by customers (e.g., fabric cut/sewn)
• 11. Use of Sold Products: Emissions from end-user product use (e.g., gasoline car driven; furniture used). Often largest category for product companies
• 12. End-of-Life Treatment of Sold Products: Disposal/recycling of products after customer use
• 13. Downstream Leased Assets: Emissions from assets you lease to others
• 14. Franchises: Emissions from franchised operations you don’t operate
• 15. Investments: Emissions from equity investments (primarily for financial institutions)

Which Categories Apply to You?

Not all categories are relevant. Manufacturers focus on Categories 1, 4, 9, 11. Retailers: Categories 1, 6, 7, 9. Finance: Category 15. Professional services: Categories 6, 7. Identify your material categories; prioritise these for detailed measurement.

Scope 3 Measurement Approaches

Approach 1: Spend-Based

Multiply total spend in category × industry-average emission factor (emissions per dollar spent). Easiest, lowest cost (~AUD $5K–$15K), lowest precision. Suitable for: initial assessment, non-material categories, baseline establishment.

Example: Total purchased goods spend AUD $10M × industry average factor 1 kg CO₂e/$ = 10,000 tCO₂e.

Approach 2: Average Data

Use typical emission factors for your sector/product type. More precise than spend-based; requires product/supplier categorisation. Cost AUD $15K–$30K. Suitable for: material categories, where supplier data unavailable, need for precision improvement.

Approach 3: Supplier-Specific Data

Collect actual emissions from suppliers via survey/CDP Supply Chain. Most precise, highest cost and effort (AUD $30K–$100K+). Suitable for: largest, most material suppliers; where supplier engagement is strategic; demonstrating due diligence.

Phased Approach (Recommended)

Year 1: Spend-based for all categories; identify material categories. Year 2–3: Transition material categories to supplier data; maintain spend-based for immaterial. This balances precision and effort, allowing focus where impact is greatest.

Data Collection and Supplier Engagement

Supplier Data Collection Methods

• CDP Supply Chain: Reaches thousands of suppliers globally; captures Scope 1, 2, 3 data. Supplier must respond; low response rate for SMEs
• Custom questionnaire: Simple emissions/energy questions; can be part of RFQ or annual supplier survey. Higher response rate but less standardised
• Emissions management software: Suppliers input data into platform; real-time tracking, alerts for outliers
• Audit/verification: For largest suppliers, consider third-party emissions audit; cost-intensive but highest credibility

Supplier Communication

Frame Scope 3 data request as partnership: “We’re measuring our supply chain emissions to set net-zero targets; your data helps us understand where to focus. We’ll support suppliers in reduction and may prioritise low-emissions suppliers in tendering.” Collaborative tone increases response rate and engagement.

Estimates and Uncertainties

Not all suppliers provide data. For non-respondents: use industry average or peer supplier data. Document assumptions; flag data gaps. Transparency is valued by investors and regulators; “70% data-driven, 30% estimated” is acceptable if clearly disclosed.

Scope 3 Reduction Strategy

Reducing Scope 3 requires more effort than Scopes 1 and 2 (you don’t directly control suppliers), but offers significant opportunity:

• Category 1 (Purchased Goods): Supplier engagement, material substitution, design efficiency (less material), recycled content
• Category 6 (Business Travel): Virtual meetings, no-fly policy, shift from air to rail/video; 30–50% reduction typical
• Category 7 (Commuting): Remote work, EV carpool incentives, transit support; 20–40% reduction typical
• Category 9 (Downstream Transport): Consolidate shipments, shift to lower-carbon modes (rail vs. air), reverse logistics optimisation
• Category 11 (Use Phase): Most impactful for product companies; product design for lower-energy use, customer support for efficient operation

See our sustainable procurement article for detailed Scope 3 supply chain strategy.

AASB S2 Scope 3 Requirements

AASB S2 requires:

• Disclosure of Scope 3 emissions where material
• Clarity on which Scope 3 categories are material and why
• Description of methodology and data quality
• If not disclosed: explanation of why Scope 3 is immaterial

For net-zero targets, AASB S2 and SBTi require Scope 3 reduction targets aligned to 1.5°C pathways (typically 20–30% reduction by 2030). Omitting Scope 3 targets signals insufficient climate ambition.

Frequently Asked Questions