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Lack of reporting on indirect emissions is holding back the development of a low carbon economy. ACCA’s Rachel Jackson looks at how we can push it forward

This article was first published in the April 2011 edition of Accountancy Futures journal

Much has been done in the past 10 years to develop credible methodologies to measure and report greenhouse gas (GHG) emissions. However, there is a noticeable exception to this progress – Scope 3 emissions. These are, in effect, GHG emissions that are not being counted but which are nevertheless crucial to the development of a vibrant low carbon economy.

Scope 1 emissions are direct GHG emissions from sources owned or controlled by a company. Scope 2 emissions result from the generation of purchased electricity. Scope 3 emissions are all other indirect GHG emissions. They could be generated by employee business travel, external distribution and logistics, the use and disposal of the company’s products and services, or its supply chain.

Measuring Scope 3 emissions provides the information needed to understand climate‑related risks and opportunities generated upstream and downstream from operations, beyond operational boundaries and in products and services developed and sold. The information could challenge companies to look at what they are doing, not just how they are doing it, and trigger development of new products and services, rather than just more efficient ways of delivering existing ones.

It could result in decisions to substitute carbon‑intensive materials with ‘greener’ alternatives. It could result in significant changes in the supply chain, or investments in low-carbon transport and waste management solutions. It will almost certainly result in change.

Yet Scope 3 reporting is rare. In 2009, while 409 (82%) of Global 500 companies responded to the Carbon Disclosure Project’s request for GHG information, only 209 (42%) gave any information about their Scope 3 emissions. Just six of those companies reported on all five classes of Scope 3 emissions. Yet carbon emissions have become an important element of risk and opportunity analysis.

If accountants are to do their jobs properly, then they need to understand the implications of Scope 3 emissions.

A new ACCA paper, Delivering Value in the Low Carbon Economy by Dr Alan Knight, looks at why Scope 3 reporting has been so slow to develop and how this is holding back the type of innovation demanded by a low-carbon economy.

None of the many regulatory or voluntary accounting and reporting programmes requires Scope 3 accounting and reporting. At best, they make it optional. The reasons for this are understandable.

First, there is the fear of double counting, with the possibility that the Scope 3 emissions of one organisation could be the Scope 1 emissions of another.

Second, what categories of indirect emissions should be included? How do you draw the boundaries? Should lifecycle methodologies be adopted and, if so, which?

Third, there are difficulties with gathering evidence and quality. If nobody is actually keeping this kind of data, where do you start? Are estimates acceptable and, if so, what methodologies? Are proxy indicators acceptable? What level of uncertainty is reasonable?


ACCA’s paper acknowledges these challenges. It identifies three types of approach being taken to Scope 3 emissions by companies, using case studies – of, among others, ExxonMobil, Walmart and Bayer – to bring the approaches to life.

First is the ‘control approach’, which focuses on operational efficiency in areas over which a company has control, such as technological innovation within operations. Some are going a step further and adopting what ACCA terms the ‘influence approach’. This acknowledges the importance of Scope 3 information as a guide to areas for improvement where the company has high levels of influence, such as upstream in the supply chain. Improvements focus on technology and efficiency, but include innovations in materials, processes, products and ways of doing business.

Finally, the ‘engaged approach’ brings an understanding of Scope 3 emissions into all business decision-making. Companies identify opportunities for innovation not just within their own operations and upstream, but downstream too – across the full value chain in the sectors in which they operate. Companies look not just at how their products are made, but also how they are used and disposed of.


ACCA’s paper is timely given that guidance on a Scope 3 accounting and reporting standard is expected to appear this year. Developed by the World Business Council for Sustainable Development and the World Resources Institute, the standard provides a comprehensive categorisation of Scope 3 emission types and guidance on how to account and report on each category.

More than 60 companies have road-tested the standard, and many believe that a Scope 3 inventory could be completed annually.  With political leadership on building a low‑carbon proving disappointing, businesses need to embrace the new guidance and take the lead in developing their emissions reporting.

ACCA’s paper therefore includes recommendations for government, standard setters and business, as follows: 

  • Governments and standards and policy setters should consider making Scope 3 mandatory.
  • Business should begin to account for and report on Scope 3 emissions.
  • Scope 3 information and analysis should begin to be included in strategy development and in operational decisions and actions. 
  • Scope 3 information and analysis should begin to be brought into the investment appraisal process.

By looking at the full value chain, Scope 3 provides a broader challenge to business. Scope 3 reporting is an essential lever for taking organisations beyond the mere drive for efficiency to real business remodelling.

Rachel Jackson is ACCA’s head of sustainability.

Last updated: 12 Dec 2014