Scope 3 emissions — indirect emissions in a company's value chain — are often the largest portion of a company's total carbon footprint. For service companies and technology firms, Scope 3 can represent 90%+ of total emissions. Under ESRS E1, Scope 3 reporting is required when climate change is material — and the methodology is more demanding than many companies expect.
The Three Emission Scopes
Scope 1: Direct emissions from sources owned or controlled by the company — fuel combustion in company vehicles, on-site generators, company-owned boilers.
Scope 2: Indirect emissions from purchased electricity, steam, heat, or cooling — the emissions your energy supplier generates to produce the energy you use.
Scope 3: All other indirect emissions in your value chain — upstream (from your suppliers) and downstream (from use of your products).
ESRS E1 Scope 3 Requirements
ESRS E1 requires disclosure of Scope 3 GHG emissions when climate is material. The standard requires:
Total gross Scope 3 emissions (metric tonnes CO₂e) — covering all significant categories.
Disclosure of which GHG Protocol Scope 3 categories are included and which are excluded (with justification).
Base year for Scope 3 emissions with a plan for annual tracking.
ESRS E1 does not require all 15 Scope 3 categories to be calculated with equal precision — it requires material categories to be included and the methodology to be disclosed.
The 15 GHG Protocol Scope 3 Categories
Upstream (Categories 1-8)
Category 1 — Purchased goods and services: Emissions from producing all goods and services you purchase. For most companies this is the largest upstream category — everything you buy has an embedded carbon footprint.
Category 2 — Capital goods: Emissions from producing equipment and assets you purchase (servers, vehicles, machinery, buildings).
Category 3 — Fuel and energy-related activities: Upstream emissions from extraction, production, and transportation of fuels and energy (that are not in Scope 1 or 2).
Category 4 — Upstream transportation and distribution: Emissions from transportation of purchased products to your facilities.
Category 5 — Waste generated in operations: Emissions from disposal and treatment of waste generated by your operations.
Category 6 — Business travel: Emissions from flights, train travel, hotels for employee business travel.
Category 7 — Employee commuting: Emissions from employees' commuting between home and work.
Category 8 — Upstream leased assets: Emissions from assets you lease (office buildings, vehicles not owned).
Downstream (Categories 9-15)
Category 9 — Downstream transportation and distribution: Emissions from transporting your products to customers.
Category 10 — Processing of sold products: Emissions when customers further process your products before use.
Category 11 — Use of sold products: Emissions from customers using your products — the lifetime energy consumption of products you sell.
Category 12 — End-of-life treatment of sold products: Emissions from disposal of products at end of life.
Category 13 — Downstream leased assets: Emissions from assets you own and lease out.
Category 14 — Franchises: Emissions from franchisee operations.
Category 15 — Investments: Emissions from entities you invest in (portfolio emissions for financial institutions).
Which Scope 3 Categories Matter Most by Sector
Technology / SaaS companies:
- Category 1: Cloud infrastructure and software subscriptions (large — all server use is upstream purchased services)
- Category 6: Business travel
- Category 7: Employee commuting
- Category 11: Energy used by customers running your software
Manufacturing:
- Category 1: Raw materials and components (large)
- Category 4: Inbound logistics
- Category 11: End-use energy consumption of manufactured products (often very large)
- Category 12: Product disposal
Financial services:
- Category 15: Financed emissions (investments, loans, insurance underwriting) — typically 95%+ of total footprint
Data centres:
- Category 1: IT equipment manufacture
- Category 11: Emissions from electricity consumed by customers' workloads
Calculation Methods
ESRS E1 requires disclosure of the methodology used. Three approaches are available:
Spend-based method (simplest): Apply emission factors per currency unit spent in each category. High uncertainty but fast to implement. Acceptable as a starting point.
Activity-based method (more accurate): Use actual activity data — kilometres flown, kWh consumed, tonnes of materials. Requires data from suppliers or standard databases (ecoinvent, EPA, IEA).
Supplier-specific method (highest accuracy): Use emissions data directly from suppliers — their product-level carbon footprints. Highest quality but requires supplier engagement.
ESRS E1 does not mandate a specific method but requires the methodology to be disclosed and applied consistently. Progress from spend-based to activity-based is the expected trajectory.
Practical Steps for Scope 3 Calculation
Step 1: Prioritise categories Identify the top 3–5 Scope 3 categories likely to be significant for your business model. For most technology companies: Categories 1, 6, 7, and 11.
Step 2: Gather activity data For priority categories: pull actual data. For Category 6 (travel): flight data from expense management system. For Category 1: spend data by supplier category from finance system.
Step 3: Apply emission factors Use recognised emission factor databases: GHG Protocol's calculation tools, DEFRA (UK), EPA (US), IEA (energy), ecoinvent (products).
Step 4: Calculate and document Calculate totals by category. Document methodology, data sources, emission factors used, and uncertainty assumptions.
Step 5: Disclose and set targets Disclose total Scope 3, category breakdown, methodology. Set reduction targets — ESRS E1 expects targets covering significant emission categories including Scope 3.