Scope 1 emission sources are direct emissions made by sources a company owns or controls. Scope 2 emissions are indirect emissions as a result of a company’s energy purchases, and scope 3 emissions are all other indirect emissions that result from a company’s activities.

The GHG Protocol Corporate Accounting and Reporting Standard provides companies and other organisations with requirements and guidance to prepare an inventory of emissions across all three scopes.

Why measure scope 1, 2, and 3 emissions?

The harmful impacts of global greenhouse gas emissions are all around us. More frequent and severe natural disasters are causing loss of life, destroying homes, and displacing people and wildlife. Air pollutants related to emissions are causing respiratory and cardiovascular disease in communities worldwide. And less productive farmland and water shortages are causing food scarcity and higher prices.

The United Nations reports that the extraction of materials, fuels, and food contribute to 50% of the world’s greenhouse gas emissions, and over 90% of biodiversity loss as well as water scarcity.

By reducing their own greenhouse gas emissions, companies across industries play a mission-critical role in protecting human and planetary health. Scope 1, 2, and 3 emissions accounting allows companies to understand the full spectrum of their greenhouse gas emissions and meet the transparency demands of external stakeholders.

What do the different scope 1, 2, and 3 emissions mean?

Scope 1, 2, and 3 emissions are defined by the GHG Protocol to measure seven greenhouse gases:

• Carbon dioxide (CO ₂ )

• Methane (CH ₄ )

• Nitrous oxide (N ₂ O)

• Hydrofluorocarbons (HFCs)

• Perfluorocarbons (PFCs)

• Sulphur hexafluoride (SF ₆ )

• Nitrogen trifluoride (NF ₃ )

Companies create greenhouse gas inventories that identify sources and quantify emissions across all three scopes. The protocol provides companies with a comprehensive way for measuring and managing these greenhouse gas emissions, including standardised carbon accounting methods to calculate the amount of emissions generated.

What are Scope 1 emissions?

Scope 1 emissions are direct emissions made by sources a company owns or controls. Scope 1 emissions include fuel consumed by company assets such as boilers or fleet vehicles, as well as on-site production process emissions. Greenhouse gas leaks from office fridges, air conditioners, and other equipment are also included.

For utility companies, scope 1 emissions also encompass combustion of fossil fuels for power grids, especially utilities that generate electricity through coal, natural gas, or oil-fired power stations. These emissions include releases of carbon dioxide (CO₂), methane (CH₄), and nitrous oxide (N₂O) as part of the combustion process.

What are Scope 2 emissions?

Scope 2 emissions are indirect emissions as a result of a company’s energy purchases from utility providers. Scope 2 emissions include all the electricity, heating, cooling, and steam purchased and used by company buildings, assets, and production processes. Even though the actual emissions occur at the utility provider’s facilities, these indirect emissions are still reportable because they are part of a company’s own energy use.

What are Scope 3 emissions?

Scope 3 emissions are all other emissions and usually account for the largest share of a company’s total carbon footprint, as well as the greatest opportunity for carbon reduction. Most larger companies already report on scopes 1 and 2. Scope 3 emissions are much more difficult to measure and track.

These indirect emissions are generated by a company’s entire value chain—both upstream and downstream activities—from purchased goods, business travel, and waste generation to franchises, investments, and the disposal of sold products.

Scope 3 emissions categories

15 different scope 3 categories covering the entire value chain

Is scope 1, 2, and 3 emissions reporting compulsory?

The requirements for scope 1, 2, and 3 emissions reporting differ by country, regulatory jurisdiction, and industry. Reporting of Scope 1 and 2 emissions is often required for certain types and sizes of companies and other entities. Some industries, especially emission-intensive sectors like energy, manufacturing, and aviation, may face stricter reporting requirements dictated by national regulations and international standards.

Requiring scope 3 emissions reporting is less common but is on the horizon in proposed legislation and regulatory changes. And because the landscape for emissions reporting is rapidly changing, companies should stay up to date on the latest regulations in the jurisdictions where they operate.

Here's a breakdown of where different countries and frameworks are in terms of mandating scope 1, 2, and 3 emissions:

United States

The Securities and Exchange Commission (SEC) requires scope 1 and 2 emissions reporting for larger companies, whilst scope 3 emissions remain voluntary for now. The Environmental Protection Agency (EPA) also mandates that certain facilities must report their greenhouse gas emissions, but this mandate primarily focuses on scope 1 emissions.

European Union

The European Commission's Corporate Sustainability Reporting Directive (CSRD) requires detailed sustainability disclosures, including greenhouse gas emissions reporting. This can include all three scopes depending on the company's size and sector.

China

The Environmental Protection Law (EPL) and its associated regulations require companies to report their scope 1 emissions. The National Development and Reform Commission (NDRC) and the Ministry of Ecology and Environment (MEE) provide guidelines for scope 2 emissions reporting—which along with scope 3 emissions reporting—is still voluntary but reporting is highly encouraged.

South Africa

The National Environmental Management: Air Quality Act (NEMAQA) requires a variety of companies to report on their scope 1 and 2 emissions. Companies are also required to pay a carbon tax on the scope 1 emissions they produce. Scope 3 emissions reporting remains voluntary for now based on international and corporate standards.

United Kingdom

The Streamlined Energy and Carbon Reporting (SECR) requirements mandate specific organisations to report on their energy use and carbon emissions, including scope 1 and scope 2 emissions. Reporting of Scope 3 emissions is encouraged but not yet mandatory.

International standards

The Task Force on Climate-related Financial Disclosures (TCFD) encourages companies worldwide to disclose their scope 1, 2, and 3 emissions as part of their climate-related financial disclosures. While TCFD adoption is not mandatory in all jurisdictions, it is becoming a widely recognised framework in many countries.

Voluntary frameworks

Many companies, especially those with an international footprint, voluntarily report their scope 1, 2, and 3 emissions following frameworks like the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP).

Emission categories by scope

What are some ways to reduce scope 1, 2, and 3 emissions?

Applying the principle that you can’t manage what you can’t measure, the first most important step to reduce your scope 1, 2, and 3 emissions is to accurately measure your scope 1, 2, and 3 emissions.

For quantifying scope 1 and 2 emissions, most of the data a company needs can be accessed in their ERP and financial systems. Quantifying a company’s scope 3 emissions is much more complex because most of the required data resides with external supply chain partners, service providers, and even customers.

That’s why companies that can measure and manage scope 1, 2, and 3 emissions using a single, integrated platform are well-positioned to achieve the emission reductions described below.

Reducing scope 1 emissions

Scope 1 emissions are generated directly by the company, so transforming internal operations will have the greatest impact on reducing this emissions scope. A few highly effective ways to reduce scope 1 emissions include:

• Eliminating fossil fuels by switching company vehicles and fleets to electric and converting coal and fuel oil heating systems to geothermal or natural gas

• Improving energy efficiency by eliminating heating and cooling leaks in company facilities and upgrading to high-efficiency appliances and HVAC systems

• Reducing emissions in manufacturing by designing and producing products in line with net zero emissions and a lower carbon footprint

Reducing scope 2 emissions

Practices that reduce scope 1 emissions will also impact scope 2 emissions (such as scope 1 energy efficiency practices which reduce a company’s scope 2 purchased energy costs). Additional scope 2 emissions reduction practices include:

• Switching to renewable energy sources by purchasing exclusively from non-carbon energy providers including wind, solar, and hydropower utilities

• Reducing energy consumption by implementing best practices across the workforce and facilities, such as unplugging computers and appliances when not in use and improving airflow in workspaces to reduce air conditioning and heating use

• Generating renewable energy on site by installing distributed energy resources such as rooftop solar units, wind turbines, or battery storage banks

Reducing scope 3 emissions

Even companies that are struggling to overcome the complexities of measuring scope 3 emissions still have great opportunities to significantly reduce them. Some concrete ways to achieve reductions across different scope 3 categories include:

• Encouraging sustainable employee travel with more hybrid work options, public transport stipends, carpool incentives, and minimal business travel

• Procuring sustainably by using suppliers with a low carbon footprint and helping suppliers reduce their emissions as part of a larger corporate reduction strategy

• Reducing waste in operations by using recycled materials in business processes and making the final products and packaging reusable, recyclable, or compostable

Three best practices for end-to-end carbon management

Many companies today may be overwhelmed by the challenges involved in measuring and reducing scope 1, 2, and 3 emissions, as well as staying ahead in rapidly changing business and regulatory landscapes.

Whatever the challenges, achieving reductions across all three scopes is possible. Here are three best practices to achieve end-to-end carbon management on an accelerated timeline:

1. Adopt an ERP-centric approach for transaction-level monitoring

Deploying an ERP-centric solution helps companies harness all their transactional business data—across every line of business—for carbon reporting and reduction. The approach integrates application and data landscapes, making it much easier to embed sustainability into the full lifecycle of the business.

• Deliver accurate, auditable carbon footprint results at the most granular level

• Enable supply chain modelling for scope 3 emissions reduction

• Integrate emission results back into existing processes such as procurement

2. Build a green ledger connecting emissions and financial data

Bringing emissions data and financial data together in a single green ledger reporting system helps companies better understand the correlation between their emissions reduction and financial performance. This unified approach allows for carbon management decisions that are both environmentally and financially sound.

• Provide CFOs with an actionable, financially integrated view of carbon performance

• Meet current and future emissions requirements using universally accepted carbon accounting practices

• Align with double-entry bookkeeping principles consistent with the GHG Protocol

3. Deploy a carbon calculator engine and AI for improvements at scale

Reducing corporate and product carbon footprints at scale also requires using advanced and highly granular carbon calculations at scale. An AI-enabled carbon calculator engine helps companies of all sizes optimise their internal operations and supply chains with continuous resource monitoring, compliant reporting, and predictive analytics.

• Analyse historical data to predict future emissions and run simulations in real time that evaluate the impact of operational changes

• Continuously monitor and optimise resources to find and eliminate inefficiencies and manage energy loads between sources

• More easily ensure that emissions data and calculations are compliant and standardised across regulatory frameworks and industry standards

Effective, innovative and efficient

Following the three best practices above will lay a strong foundation for effective scope 1, 2, and 3 emissions accounting and reduction. To build and deploy that foundation faster and for less cost, companies across industries are also taking advantage of expert guidance as well as new and innovative technologies.

SAP sustainability customers in action