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Governance Authority
Category: Sustainability and ESG

Scope 3 Emissions

Also known as: Value Chain Emissions, Indirect Value Chain Emissions
Simply put

Scope 3 emissions are the greenhouse gas emissions that result from a company's activities but come from sources the company does not own or control. They occur across the wider value chain, both upstream and downstream of the organization, such as through purchased goods, business travel, employee commuting, product use, and waste. These emissions are generally regarded as the most complex to measure because they arise before and after a product is delivered or consumed.

Formal definition

Scope 3 emissions comprise all indirect greenhouse gas (GHG) emissions, other than those captured under Scope 2, that occur in an organization's value chain from sources it does not own or control, spanning both upstream and downstream activities. Under the GHG Protocol's Corporate Value Chain (Scope 3) Standard, organizations may assess emissions across their entire value chain to identify where to focus reduction efforts. Reported categories typically include activities such as delivery/transportation, business travel, employee commuting, and waste, among other upstream and downstream sources. This entry is educational and not legal, audit, or compliance advice; the scope, methodology, and any reporting obligations depend on the applicable framework, jurisdiction, sector, and entity type.

Why it matters

Scope 3 emissions typically represent the largest and most complex portion of an organization's greenhouse gas footprint, precisely because they arise from sources the company does not own or control. As McKinsey notes, these emissions are the most complex to account for because they are released both before and after a product is delivered or consumed. For boards and management, this complexity creates material governance challenges: data quality is often dependent on third parties across the value chain, methodologies vary, and estimates can carry significant uncertainty. Understanding where responsibility for measurement, reporting, and reduction sits within the organization is therefore essential.

The relevance of Scope 3 to governance has grown as climate disclosure expectations evolve, but it is important to distinguish binding obligations from voluntary standards. The GHG Protocol's Corporate Value Chain (Scope 3) Standard is a widely used framework that allows companies to assess their entire value chain emissions and identify where to focus reduction efforts; it is a methodological standard rather than a universal legal mandate. Whether an organization is required to measure or disclose Scope 3 emissions, and to what extent, depends on the applicable framework, jurisdiction, sector, and entity type. Directors and compliance functions should not assume a single global requirement applies.

Because Scope 3 data spans upstream and downstream activities and often relies on suppliers, customers, and other external parties, it presents distinct risks around data reliability, comparability, and potential overstatement or understatement. This makes clear allocation of accountability, between management, which owns the operational task of gathering and calculating the data, and the board or its relevant committee, which exercises oversight, particularly important. This entry is educational and not legal, audit, or compliance advice.

Who it's relevant to

Boards and relevant committees
Directors, often through an audit, risk, or sustainability committee, generally exercise oversight of how the organization identifies, measures, and reports value chain emissions and manages the associated data-quality and disclosure risks. The board's role is typically oversight rather than operational execution; it should understand the limitations and uncertainties inherent in Scope 3 estimates and how management addresses them.
Management and sustainability functions
Management owns the operational task of gathering data, applying an appropriate methodology such as the GHG Protocol's Corporate Value Chain (Scope 3) Standard, and identifying where to focus reduction efforts across upstream and downstream activities. This includes engaging with value chain partners whose activities generate the relevant emissions.
Compliance and legal teams
These functions typically assess whether, and to what extent, Scope 3 measurement or disclosure is a binding requirement or a voluntary standard for the organization, given that obligations vary by framework, jurisdiction, sector, and entity type. They help ensure that any external statements about value chain emissions are accurate and appropriately qualified.
Internal audit and assurance providers
Assurance functions may evaluate the design and operating effectiveness of controls over Scope 3 data collection and reporting. Given the reliance on third-party data and estimation, particular attention is generally paid to data reliability, methodology consistency, and the risk of material misstatement.

Inside Scope 3 Emissions

Value Chain Emissions Scope
Scope 3 refers to indirect greenhouse gas emissions occurring across an organization's value chain, both upstream and downstream, that are not owned or directly controlled by the reporting entity. This distinguishes them from Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased energy).
Upstream and Downstream Categories
Emissions accounting frameworks commonly organize Scope 3 into upstream activities (such as purchased goods and services, transportation, and business travel) and downstream activities (such as use of sold products, end-of-life treatment, and investments). The specific categories applied depend on the framework used and the entity's business model.
Relationship to Disclosure Regimes
Whether Scope 3 reporting is a binding legal requirement or a voluntary practice depends on jurisdiction, sector, and entity type. Some regulatory and listing regimes are moving toward mandatory disclosure for certain entities, while other regions treat it as guidance or best practice. Practitioners should verify the requirements applicable to their entity.
Estimation and Data Dependency
Because Scope 3 emissions sit outside the entity's direct operations, they are typically derived from supplier data, activity data, and estimation methodologies rather than direct measurement. This creates inherent measurement uncertainty and data-quality considerations that governance and assurance functions generally need to address.
Governance and Accountability Interfaces
Responsibility for Scope 3 typically spans management functions that gather and report data, assurance functions that test controls and data integrity, and the board or a designated committee that oversees the adequacy of climate-related disclosure and associated risks. The oversight duty and the operational preparation duty sit with different parties.

Common questions

Answers to the questions practitioners most commonly ask about Scope 3 Emissions.

Are Scope 3 emissions the company's direct responsibility to reduce, like its own operations?
Not in the same way. Scope 3 emissions arise across an organization's value chain, from purchased goods and services, upstream and downstream transportation, use of sold products, and other categories, rather than from sources the entity owns or directly controls (which fall under Scope 1) or from purchased energy (Scope 2). Because these emissions typically sit with suppliers, customers, and other third parties, the reporting entity generally has influence rather than direct control over them. Framing Scope 3 as directly reducible in the same manner as owned operations can overstate what an organization can unilaterally achieve, and accountability for the underlying activity often rests with other parties. Whether disclosure or reduction of Scope 3 is required at all depends on the applicable reporting regime, jurisdiction, and entity type.
Is reporting Scope 3 emissions a universal legal requirement for all companies?
No. Whether Scope 3 disclosure is mandatory depends on the jurisdiction, the applicable reporting or listing regime, the sector, and the size and type of entity. Some frameworks and regulatory regimes require or phase in Scope 3 reporting under specified conditions, often subject to materiality, feasibility, or estimation provisions, while others treat it as voluntary or encouraged rather than binding. Some regimes are principles-based and rely on the entity's judgment about what is material; others are more prescriptive. Organizations should confirm the specific requirements that apply to them and treat this entry as educational rather than as legal or compliance advice.
Which function should own the collection and reporting of Scope 3 data?
Ownership generally varies by organization, but responsibility for data collection, methodology selection, and preparation of disclosures typically sits with management, often sustainability, finance, procurement, or operations functions working together, rather than with the board. The board or a designated committee generally provides oversight of the reporting process and the adequacy of related controls, without performing the operational data-gathering itself. Where an organization applies a three-lines model, the function that gathers and estimates the data operates in the first line, with second-line functions supporting policy and monitoring, and internal audit or external assurance providing independent evaluation. The precise allocation depends on the entity's structure and its own judgment.
How should an organization handle the incompleteness and estimation inherent in Scope 3 data?
Because Scope 3 data often relies on supplier-provided information, industry averages, and modeled estimates rather than measured figures, organizations generally document their methodology, the categories included and excluded, and the basis for any estimates. Many reporting frameworks acknowledge that Scope 3 figures may be estimated and permit disclosure of assumptions and data limitations. Being explicit about what is out of scope, where estimation is used, and the degree of uncertainty supports transparency and helps users interpret the figures. The appropriate level of detail depends on the applicable framework, materiality considerations, and professional judgment; this entry does not prescribe a specific methodology.
What controls are relevant to the reliability of Scope 3 disclosures?
Relevant controls typically address the completeness and accuracy of inputs, the appropriateness and consistent application of estimation methodologies, the review of supplier-supplied data, and the governance of any changes to method or scope between reporting periods. It is useful to distinguish control design (whether a control is capable of achieving its objective) from operating effectiveness (whether it functioned as intended over the period). Given the reliance on third-party data, controls over the sourcing and validation of that data are often a focus. The specific control environment depends on the entity's processes, the assurance sought, and the applicable framework, and organizations should apply their own judgment.
What role does assurance play for Scope 3 emissions, and how does it differ from internal review?
Independent assurance, whether limited or reasonable in scope, may be obtained over emissions disclosures where required or sought voluntarily, and is generally provided by a party independent of the function that prepared the data. This differs from management's own internal review, which is part of the preparation and first- or second-line monitoring process rather than independent evaluation. Given the estimation and third-party data challenges associated with Scope 3, the level of assurance available or required may differ from that for Scope 1 and Scope 2. Whether assurance is mandatory, and at what level, depends on the applicable regime and jurisdiction; this entry is educational and not audit or assurance advice.

Common misconceptions

Scope 3 emissions are always mandatory to disclose.
Whether Scope 3 reporting is legally required generally depends on jurisdiction, sector, and entity type. In some regimes it is becoming a requirement for certain entities; in others it remains voluntary guidance or best practice. Entities should confirm which binding rules and non-binding frameworks apply to them.
Scope 3 figures are as reliable and directly measured as Scope 1 emissions.
Scope 3 emissions typically fall outside the entity's direct control and are often estimated using supplier inputs, activity data, and modeling assumptions. This introduces measurement uncertainty that generally calls for documented methodologies, data-quality controls, and appropriate assurance considerations rather than treating the numbers as precise.
The board is responsible for compiling and calculating Scope 3 data.
Compiling, calculating, and reporting emissions data is typically a management responsibility, while the board or a designated committee generally holds an oversight duty over the adequacy of disclosure processes and related risks. Conflating these blurs the distinction between operational execution and governance oversight.

Best practices

Confirm which disclosure obligations are binding for your entity based on jurisdiction, sector, and entity type before treating Scope 3 reporting as either mandatory or optional, and document the basis for that determination.
Clearly assign roles so that management owns data collection and calculation, assurance functions test data integrity and control effectiveness, and the board or a designated committee retains oversight of the disclosure and related risks.
Document the estimation methodologies, category boundaries, and data sources used, distinguishing directly obtained supplier data from modeled or estimated figures so users understand the data-quality basis.
Assess both the design and the operating effectiveness of controls over Scope 3 data, recognizing that a well-designed process still requires evidence it is functioning as intended.
Address the inherent measurement uncertainty explicitly, treating residual data-quality risk as a matter for ongoing monitoring rather than assuming inherent risk has been fully eliminated.
Engage qualified professional and legal advice on applicable requirements, since the correct approach often depends on specific facts, jurisdiction, and professional judgment, and these entries are educational rather than legal, audit, or compliance advice.