The Greenhouse Gas (GHG) Protocol categorizes emissions into three distinct scopes, each representing different types of emissions sources. Understanding these scopes is essential for creating a comprehensive GHG reporting strategy and reducing a company's overall carbon footprint.

Scope 1: Direct Emissions

Scope 1 covers direct emissions from sources that a company owns or controls. This includes fuel combustion in company-owned vehicles, emissions from onsite manufacturing, and leaks from equipment like air conditioning units. These emissions are typically the most straightforward for companies to track since they arise directly from activities the company manages.

For example, a manufacturing company would report emissions from its machinery, while a retailer might include emissions from delivery trucks or company cars. Reporting Scope 1 emissions allows companies to take measurable actions toward reducing their environmental impact by improving efficiency and reducing energy consumption.

Scope 2: Indirect Emissions from Energy Use

Scope 2 emissions refer to indirect emissions from the energy a company consumes, such as electricity, heating, or cooling purchased from a utility provider. These emissions are generated off-site but are tied to the company’s operations. Reducing Scope 2 emissions often involves optimizing energy efficiency and transitioning to renewable energy sources.

For instance, installing solar panels or reducing electricity consumption directly decreases Scope 2 emissions. By focusing on energy efficiency, companies can significantly reduce their environmental footprint, making it a manageable first step for businesses of any size.

Scope 3: Indirect Emissions Across the Value Chain

Scope 3 emissions are the most complex to measure, as they include all other indirect emissions from a company’s value chain, both upstream and downstream. These emissions may come from the production of raw materials, the transportation of goods, or even the disposal of products by end-users.

Although Scope 3 emissions often represent the largest portion of a company’s carbon footprint, they are the hardest to track. Companies, particularly startups and small-to-medium enterprises (SMEs), are advised to first focus on Scopes 1 and 2, then gradually incorporate Scope 3 as they build stronger data collection processes.

Building a GHG Reporting Strategy

For companies new to GHG reporting, starting with Scopes 1 and 2 offers a clear, achievable path forward. Over time, as a business gains experience, it can expand its reporting to include Scope 3 emissions. This incremental approach enables companies to establish a solid foundation before tackling the more complex task of tracking indirect emissions across the value chain.

Early efforts might focus on reducing energy usage, improving supply chain efficiency, or adopting cleaner transportation options. By addressing these areas first, businesses can make immediate strides toward reducing their carbon output and eventually incorporate broader reporting practices that include Scope 3.

The Role of GHG Reporting in ESG Strategies

GHG reporting is a critical component of Environmental, Social, and Governance (ESG) reporting, which provides a broader view of a company’s sustainability efforts. While ESG reporting encompasses various factors—such as social responsibility and governance practices—GHG emissions are a key environmental metric. By improving GHG reporting, companies can enhance their overall ESG performance, attracting investors, customers, and partners who prioritize sustainability.

A well-rounded ESG strategy, including detailed GHG reporting, can open up new opportunities for funding, partnerships, and market growth. Investors and regulators increasingly expect businesses to disclose their climate risks and demonstrate efforts toward sustainability.

Overcoming Challenges in Scope 3 Reporting

As companies progress in their GHG reporting journey, Scope 3 emissions become a critical area to address. However, the complexity of tracking emissions across an entire value chain presents challenges, particularly for businesses without robust data collection capabilities. Companies often begin by focusing on the most significant Scope 3 categories, such as transportation and purchased goods, before expanding to cover less material areas like waste disposal or capital goods.

The Benefits of Comprehensive GHG Reporting

Implementing a comprehensive GHG reporting system not only ensures regulatory compliance but also provides long-term business advantages. Companies that track and manage their emissions often find opportunities to reduce costs through improved energy efficiency and optimized supply chains.