Greenhouse gas emission scopes explained

As companies, organizations and nations continue to align with the global sustainable development agenda, it has become vital to ensure that Greenhouse Gas (GHG) reduction plans are in place, which first requires an understanding of those emissions. In this article we'll explain how GHG emissions are categorized and show you how to support investments with full emission transparency.

What are Scopes 1, 2 and 3?

Greenhouse gas emissions are categorized into three groups or 'Scopes' by the most widely used international accounting tool, the Greenhouse Gas (GHG) Protocol.

The Scopes 1, 2 and 3 help distinguishing between the different kinds of carbon emissions a company creates in its own operations, and in its wider value chain.

• Scope 1: Direct GHG emissions coming from operations that are owned or controlled by the reporting company, like emissions from company facilities and vehicles.
• Scope 2: Indirect GHG emissions coming from the generation of purchased or acquired electricity, steam, heating, or cooling consumed by the reporting company.
• Scope 3: All indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including 15 categories in both upstream and downstream emissions.

Upstream Examples: purchased capital goods, fuel and energy related activities, transportation and distribution.

Downstream Examples: transportation and distribution, processing of sold products and use of sold products.

How are scope emissions reported and calculated?

GHG Protocol has established the Corporate Accounting and Reporting Standard. It provides requirements and guidance for companies and other organizations preparing a GHG emissions inventory. The protocol has also put together a set of publicly available tools to calculate all Scope Emissions. You can find them here.

For many organizations, Scope 1 and 2 emissions are a mandatory part of reporting. Scope 3 emissions, which are hard to measure, remain mostly voluntary to report. Unfortunately, Scope 3 represent 65–95% of most companies’ broader carbon impact, according to the Carbon Trust, a group that helps companies measure carbon emissions. Companies are being encouraged to report this category of emission to fully capture the extent of their carbon footprint. According to investor sustainability advocate Ceres, over 3,000 companies have reported Scope 3 under the Carbon Disclosure Project.

ETFs with exposure to GHG-transparent companies

Climate-Transition Benchmark (CTB) and the Paris-Aligned Benchmark (PAB) are two European Union (EU) Climate Benchmarks established to help socially responsible investors judge opportunities according to a slate of climate-minded factors.

According to their minimum standards, they include targets that incorporate Scope 1 and 2 emissions and provide up to a four-year grace period for phasing in scope 3 emissions. Therefore, investing in Exchange-Traded-Funds (ETFs) that track indices aligned with PAB or CTB, can support companies with emission transparency, a steppingstone to prevent global warming and climate change.  

You can learn more about the EU Climate benchmarks and find all related ETFs here: ETFs aligned with EU Climate Benchmarks

Keep reading:

Keep reading:

• UN Global Compact: What is it?
• Invest in UN SDG 10: Reduced inequalities with ESG ETFs
• 5 things you should consider when buying ESG ETFs