Scope 1, Scope 2, and Scope 3 Emissions Explained With Simple Examples

Scope 1, Scope 2, and Scope 3 Emissions Explained With Simple Examples

Scope 1, Scope 2, and Scope 3 emissions are the three main categories companies use to measure and report greenhouse gas emissions. They come from the GHG Protocol, one of the most widely used official frameworks for corporate greenhouse gas accounting. The basic idea is simple: emissions are grouped based on where they come from and how directly they are connected to the company.

Understanding these three scopes is essential for ESG reporting, climate-related financial disclosures, carbon accounting, and sustainability strategy. It is also becoming more important because standards such as IFRS S2 require companies to disclose greenhouse gas emissions information when it is relevant to climate-related risks and opportunities. In December 2025, the ISSB issued targeted amendments to IFRS S2 to support implementation of greenhouse gas emissions disclosures, including Scope 3 Category 15 financed emissions.

What Are Greenhouse Gas Emissions?

Greenhouse gas emissions are gases released into the atmosphere that contribute to climate change. The GHG Protocol covers major greenhouse gases such as carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, sulphur hexafluoride, and nitrogen trifluoride. Companies usually express these emissions in carbon dioxide equivalent, often written as CO₂e, so different gases can be compared using one common unit.

For beginners, the easiest way to think about emissions is this: a company creates or influences emissions through its own operations, the energy it buys, and the wider value chain connected to its products and services.

What Are Scope 1 Emissions?

Scope 1 emissions are direct emissions from sources that a company owns or controls. These are usually the easiest emissions to understand because they happen inside the company’s own operations.

Simple examples include fuel burned in company vehicles, natural gas used in a company boiler, diesel used in generators, or emissions from manufacturing equipment owned by the company. If the company controls the source that releases the emissions, it is usually Scope 1.

For example, if a delivery company owns trucks that burn diesel, the emissions from those trucks are Scope 1. If a factory burns natural gas on-site to produce heat, those emissions are also Scope 1.

What Are Scope 2 Emissions?

Scope 2 emissions are indirect emissions from purchased or acquired electricity, steam, heat, or cooling consumed by the company. The emissions do not usually happen physically at the company’s building. They happen where the electricity or energy is generated, but they are counted because the company uses that energy.

For example, if an office buys electricity from the grid, the power plant may produce emissions to generate that electricity. Those emissions are Scope 2 for the office.

The GHG Protocol Scope 2 Guidance explains two main methods: the location-based method and the market-based method. The location-based method reflects the average emissions intensity of the grids where energy consumption occurs. The market-based method reflects emissions from electricity that companies have purposefully chosen through contracts or energy attribute instruments.

In simple terms: location-based shows the grid average; market-based shows the effect of the company’s electricity purchasing choices.

What Are Scope 3 Emissions?

Scope 3 emissions are all other indirect emissions that happen in a company’s value chain. They are not Scope 1 and not Scope 2, but they occur because of the company’s activities. The GHG Protocol Scope 3 Standard covers 15 categories of upstream and downstream value-chain emissions.

Examples include emissions from purchased goods and services, business travel, employee commuting, transportation and distribution, waste, use of sold products, end-of-life treatment of sold products, leased assets, franchises, and investments. The GHG Protocol also provides technical guidance for calculating emissions across these 15 categories.

For example, for a clothing company, Scope 3 may include emissions from cotton production, fabric manufacturing, shipping, customer washing and drying, and disposal of garments. For a bank or asset manager, Scope 3 can include financed emissions linked to investments or lending activities.

Why Scope 3 Is Usually the Hardest

Scope 3 is often the most difficult because it depends on suppliers, customers, transport providers, investments, and product use. A company may not directly control these emissions, but they can still be important for understanding the company’s real climate footprint.

For many companies, Scope 3 can be much larger than Scope 1 and Scope 2. This is why Scope 3 is important for climate strategy, supplier engagement, product design, transition planning, and investor analysis.

Simple Company Example

Imagine a coffee company.

Its Scope 1 emissions may come from gas burned in company-owned roasting machines and fuel used in company delivery vans.

Its Scope 2 emissions may come from electricity purchased to power offices, warehouses, and cafés.

Its Scope 3 emissions may come from coffee farming, fertilizer use, packaging production, shipping, customer travel, waste disposal, and the use of sold products.

This example shows why carbon accounting is not only about what happens inside the company. It also looks at the wider chain of activities connected to the company’s business model.

Why These Scopes Matter for ESG and Sustainability Reporting

Scope 1, Scope 2, and Scope 3 emissions help companies measure climate impact, set targets, manage transition risk, and explain progress to investors and stakeholders. They also help users compare companies more consistently.

For ESG professionals, the key is not only to memorize the definitions. The real skill is understanding where emissions happen, who controls them, how reliable the data is, and how emissions connect to business risk.

Conclusion

Scope 1, Scope 2, and Scope 3 emissions are the foundation of corporate carbon accounting. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from purchased electricity, steam, heat, or cooling. Scope 3 covers other indirect emissions across the value chain.

In simple terms: Scope 1 is what the company directly emits, Scope 2 is what it indirectly emits through purchased energy, and Scope 3 is what happens across the wider value chain.