Scope 1, 2 and 3 Emissions: A Clear Guide for ESG Reporting

Last updated 19 September 2026

Scope 1, 2 and 3 emissions are the three categories the GHG Protocol uses to divide a company’s greenhouse gas footprint by where the emissions physically occur: Scope 1 from sources the company owns or controls, Scope 2 from the electricity, heat, steam and cooling it buys, and Scope 3 from everything else in its value chain, upstream and downstream.

Every ESG framework that matters — the ESRS under the CSRD, the ISSB’s IFRS S2, GRI 305, the SBTi’s target-setting rules — reports emissions in these three scopes, and for most companies Scope 3 is the largest and least measured of them. This guide explains what each scope contains, the fifteen Scope 3 categories, the two ways Scope 2 must be calculated, how an inventory is built and where the numbers come from, and the errors that make a footprint unassurable.

Scope 1, 2 and 3 emissions: the three scopes

The boundary rule that decides what is Scope 1 rather than Scope 3 is the consolidation approach: operational control, financial control or equity share, chosen once and applied consistently. A leased vehicle is Scope 1 under operational control and Scope 3 (category 8, upstream leased assets) if the company does not control it. The choice has to be stated in the inventory, because it changes the numbers.

Scope 2: the two methods

The GHG Protocol Scope 2 Guidance of 2015 requires companies with any operations in markets that offer contractual instruments — renewable energy certificates, guarantees of origin, power purchase agreements — to report Scope 2 two ways. The location-based method applies the average emission factor of the grid where the electricity is consumed; it reflects the physical reality of the local grid.

The market-based method applies the emission factor of the electricity the company has contractually chosen — a supplier-specific factor, a certificate, a PPA, or the residual mix where nothing has been chosen; it reflects purchasing decisions. Both figures are reported; a company that publishes only the market-based number, which its renewable purchases make lower, is not following the standard. The ESRS and IFRS S2 both require the dual disclosure.

Scope 3: the fifteen categories

The GHG Protocol’s Corporate Value Chain (Scope 3) Standard of 2011 divides value-chain emissions into fifteen categories, eight upstream and seven downstream.

Not every category applies to every company, but the standard expects each to be assessed and either measured or excluded with a stated reason. “Not measured” is not an exclusion. The categories that dominate depend on the business model: purchased goods for services and retail, use of sold products for manufacturers of energy-using equipment, investments for financial institutions.

Building the Scope 1, 2 and 3 emissions inventory

1. Set the organizational boundary. Operational control, financial control or equity share, documented and applied to every entity.
2. Set the operational boundary. Scope 1 and 2 in full; Scope 3 category by category, with a screening to identify the material ones.
3. Collect activity data. Fuel volumes, kWh, tonne-kilometres, spend, headcount, product sales — from the systems that hold them, with the source recorded.
4. Apply emission factors. Government factor sets (the UK’s DESNZ factors, the US EPA’s), grid factors (IEA, national), supplier-specific factors where available, and for Scope 3 either spend-based factors (environmentally extended input-output databases) or activity-based and supplier-specific data. Record the factor, its source and its year for every line.
5. Calculate and report in tonnes of CO2 equivalent, by scope, by category, by gas where required, with location- and market-based Scope 2 both shown.
6. State the uncertainty and the method. Spend-based Scope 3 estimates carry wide error bars; assurance providers and readers need to know which categories are estimated and which are measured.

Errors that make Scope 1, 2 and 3 emissions unassurable

• Refrigerants ignored. Fugitive emissions from air conditioning and refrigeration are Scope 1 and have high global warming potentials; omitting them understates Scope 1 in any building-heavy business.
• Only market-based Scope 2. Dual reporting is required; a single lower figure reads as selective.
• Scope 3 limited to business travel. The easiest category to measure is rarely the material one. A screening that shows category 1 or 11 dominating and an inventory that reports only category 6 is incomplete on its face.
• Emission factors without provenance. A factor with no source, year or unit cannot be checked; assurance under CSRD tests the process.
• Boundary changes without restatement. Acquisitions, disposals and a switch of consolidation approach change the base year. The standard requires a base-year recalculation policy and its application.
• Offsets netted into the inventory. Purchased credits are reported separately from gross emissions under every major framework; netting them in is the definition of a claim the EU’s greenwashing rules now prohibit. Our guide to the EU greenwashing rules covers the offsetting-claim ban.

Why the scopes matter beyond the footprint

Scope 1, 2 and 3 emissions are the first metric in every ESG framework and the basis of every climate target. The SBTi requires a Scope 3 target where Scope 3 is at least 40% of total emissions; IFRS S2 requires Scope 3 disclosure by category with the measurement approach; the ESRS E1 standard requires all three scopes with the dual Scope 2 methods. They also feed the transition plan, the climate risk assessment and, for suppliers to large companies, the customer’s own category 1. A supplier that cannot report its Scope 1 and 2 is increasingly a supplier that cannot be scored. Our guide to ESG KPIs shows where the emissions figures sit among the metrics boards ask for.

Frequently asked questions

What is the difference between Scope 1, 2 and 3 emissions?
Scope 1 is direct emissions from sources the company owns or controls; Scope 2 is indirect emissions from purchased electricity, heat, steam and cooling; Scope 3 is all other indirect emissions in the value chain, in fifteen categories upstream and downstream, as defined by the GHG Protocol.

Is Scope 3 reporting mandatory?
Under the ESRS for companies in CSRD scope and under IFRS S2 where adopted, yes, by category with the measurement approach stated. The GHG Protocol itself expects each category to be assessed and either measured or excluded with a reason.

Why are there two Scope 2 figures?
The GHG Protocol Scope 2 Guidance requires both a location-based figure (grid average factor) and a market-based figure (contractual instruments such as certificates and PPAs) wherever such instruments exist. Reporting only the lower one does not follow the standard.

Which Scope 3 category is usually the largest?
It depends on the business: purchased goods and services for service and retail companies, use of sold products for makers of energy-using products and fuels, investments for financial institutions.

Can carbon offsets reduce reported emissions?
No. Offsets and credits are disclosed separately from gross Scope 1, 2 and 3 emissions under the GHG Protocol, ESRS and IFRS S2, and claims of neutrality based on offsetting outside the value chain are prohibited in the EU from 27 September 2026.

Where this leaves you

Build the Scope 1, 2 and 3 emissions inventory the way it will be assured: boundary stated, refrigerants in Scope 1, both Scope 2 methods, every Scope 3 category screened and the material ones measured, every factor sourced, the base year policy written, and offsets reported separately. That inventory is the foundation of the targets, the transition plan and the disclosures everything else in ESG rests on.

References

• GHG Protocol Corporate Accounting and Reporting Standard — The definitions of Scope 1 and 2 and the consolidation approaches.
• GHG Protocol Corporate Value Chain (Scope 3) Standard — The fifteen Scope 3 categories.
• GHG Protocol Scope 2 Guidance — The location-based and market-based methods and the dual-reporting requirement.

More on ESG

• Scope 1, 2 and 3 emissions — you are here
• ESG reporting in 2026: what the EU simplification changed
• ESG KPIs: the twelve metrics boards ask for
• ESG vs CSR: four differences
• EU greenwashing rules from 27 September 2026
• Double materiality assessment in six steps

The environmental policy, the environmental aspects and impacts register and the aspects, impacts, risk and opportunity register that an emissions inventory is documented alongside are in the ESG Toolkit, or start with the free templates.