Scope 3 Emissions - How do you account for Purchased Goods and Services?

The first category in GHG Protocol’s Scope 3 emissions is "Purchased Goods and Services". This category includes emissions from pretty much every purchase in the value chain that isn't already considered elsewhere in the upstream activities for scope 3 emissions. Examples of what falls into purchased goods and services can vary from purchasing food e.g. milk, eggs, and flour for a bakery, engaging a carbon accounting firm, to hiring a tradie. This is by far the most common category when completing an emissions assessment!

Understanding Scope 3 Emissions

Scope 3 emissions refer to indirect greenhouse gas emissions that occur in a company's value chain, these emissions are a result of activities that are not directly owned or controlled by the company but are associated with its operations. Basically, scope 3 emissions are everything in the value chain other than Scope 1 and 2, meaning most of a company's emissions are related to Scope 3 sources. In fact, it’s often around 80-90%! So it’s important we really look into scope 3 emissions. Need a recap? Visit Understanding Scope 3 Emissions.

Accounting for Scope 3 - Purchased Goods and Services

The GHG Protocol offers guidance on how to account for "Purchased Goods and Services". Let’s take a look at the calculation methods. 

The GHG protocol's four calculation methods:

The GHG Protocol provides 4 methods to calculate the emissions associated with Purchased Goods and Services.

1. Supplier-Specific Method:
   Uses product-level cradle-to-gate GHG inventory data from suppliers (This means the supplier has done their carbon accounting and can provide their specific emission factor!) 
2. Hybrid Method:
   Uses a combination of supplier-specific activity data (where available) and secondary data to fill the gaps.
3. Average Data Method:
   Estimates emissions by using the quantity and multiplying by an industry average emission factor (e.g. average emissions per unit of packaging).
4. Spend-based Method:
   Estimates emissions by taking the dollar spent and multiplying by an industry average emission factor associated with the dollar for that goods or service (e.g. average emissions per dollar spent on packaging).

The first two methods – Supplier-Specific and Hybrid – require the reporting company to collect data from their suppliers, whereas the last two methods – average-data and spend-based – use secondary data (i.e. industry average data).

What are Emission Factors? Learn more here

What’s the difference between ‘Primary Data’ and ‘Secondary Data’? And does it matter?

Primary data includes data provided by suppliers or businesses in the value chain related to the specific activity, goods, or service. 

Secondary data consists of industry averages, financial data, proxy data, and generic data. It’s an average that might not represent exactly the goods and services you’ve purchased.

The quality of a business’ scope 3 emissions will depend on the quality of data used for their emissions calculation. Whether that’s using ‘Primary Data’ from their suppliers, which will be a more accurate representation of the emissions associated with the goods or services purchased from them, or using ‘Secondary Data’ to get a high-level estimate. 

To illustrate in an example - A cafe has chosen to purchase compostable packaging from an eco-friendly supplier as part of their goals to be good to the environment and reduce their emissions. Unless that supplier has done their carbon accounting and figured out the emissions associated with their compostable packaging, the cafe won’t be able to reflect the good deed in their own carbon footprint. Instead, they will have to use a generic industry average emission factor, which currently might not even be linked to compostable packaging! So they’re using one that’s no different to plastic packaging… Do you see the problem? 

About ~90% of a business’s emissions are from scope 3 i.e. from your suppliers, and without primary data, that ~90% is kinda made up! You can't credibly track your progress to net zero without primary data. You can't make procurement or investment decisions based on carbon impact without reliable data from your value chain.

This seems like a lot of work… how do we get there? 

The reality is, getting primary data isn’t super easy right now and there are lots of data gaps. Until every business is accounting for their emissions to the same standards and providing their supplier-specific emission factor, we won’t be able to truly understand the emissions associated with the goods and services we purchase.

…. and that’s why you’re here to change that! 

Sumday is backing accountants and businesses to get started with their carbon accounting. We’re here to support you - leading with education, transparency, and trust, every step of the way. 

🦸🏻 If you’re an accountant, start supporting your clients now with a free trial here

💼 If you’re a business, reach out to a Carbon Accountant here

In order to understand how we can reduce our impact through informed purchasing decisions, we need that primary data. The more businesses that start carbon accounting, the easier this will become.

In the meantime, businesses can use secondary data to fill those data gaps. The decision tree below from the GHG protocol shows the preference in calculation methods. You’re assessing what data is available as you go through the decision tree. Using the spend-based method is really the last resort to fall back on. 

We know this is all new. What’s important is taking that first step to understand our emissions, and then focus on improving the data quality over time, by bringing your suppliers onboard, get them accounting for their emissions, so you can improve your data, and so on.

Keen to learn more? Jump into a free trial now and get started with our Carbon Accounting for Businesses course. Here’s a sneak peek of Chapter 1 for free 🎬