What are Scopes 1, 2 and 3 Emissions?
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In this article, we define what Scope 1, 2, and 3 emissions are and their significance in managing a company's carbon footprint.
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10 Reasons to Track a Corporate Carbon Footprint
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According to recent research from Harvard Business Review, employees and customers alike now actively seek companies demonstrating measurable carbon accountability in order to reduce greenhouse gas emissions and avoid a significant carbon footprint – with comprehensive studies showing up to 71% of people seeking eco-friendly employers and customers willing to pay a 9.7% sustainability premium, even during periods of economic inflation.
In the midst of climate change, growing interest in sustainability, and the push for stronger environmental legislation – more companies are starting to take their carbon footprint seriously by making an active effort to measure and reduce their emissions.
However, tracking a corporate carbon footprint can sometimes prove more challenging than a household’s or an individual’s carbon footprint.
In this article, we'll examine the technical definition and scope of corporate carbon accounting, explain why it's important for businesses, provide an overview of scientific methodologies for accurate measurement, and present ten research-backed reasons why systematic emissions tracking can add value to your organisation.
What is a corporate carbon footprint?
A Corporate Carbon Footprint, often referred to as (CCF), is the overall amount of GHG emissions that are created either directly or indirectly as a result of a company’s activities.
According to the Greenhouse Gas Protocol, a CCF represents the total quantifiable environmental impact of an organisation's operations, such as the emissions generated through industrial processes, transportation, energy consumption, and waste management activities – all of which are measured, expressed, and reported in metric tons of CO₂ equivalent (CO₂e) across standardised assessment periods (typically annual reporting cycles).
Many companies working towards carbon neutrality will measure their Corporate Carbon Footprint (CCF) as a first step to better understand their current environmental impact, potential carbon reduction targets, and the most effective ways to mitigate further emissions.
According to an independent scientific academy based in the UK, the Royal Society, climate change poses an ongoing threat to human health and economic productivity. As a result, working to better understand the direct and indirect emissions contribute to a company’s carbon footprint is essential.
By accurately measuring emissions in terms of carbon dioxide equivalent (CO₂e) and conducting a carbon footprint calculation, businesses can implement targeted reduction strategies, the use of energy efficient technologies, and more to help mitigate future climate-related risks and impacts.
“ The impact of climate change on employee health will be enormous; one estimate found that the direct health costs alone of climate change already far exceed $800 billion per year in the U.S. – (Harvard Business Review). ”
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Understanding A Company's Carbon Footprint
Here are some of the factors that can contribute to a company’s Corporate Carbon Footprint:
- Energy Usage – Companies, regardless if it’s a massive corporation or a small business, often have office buildings, factories, and data storage centers which use electricity, central heating and air conditioning, and more. All of this power usage increases the amount of carbon dioxide emissions emitted by a company.
- Transportation Emissions – The U.S. Environmental Protection Agency (EPA) has extensively documented the significant greenhouse gas (GHG) emissions associated with the transportation sector and global logistic operations such as Amazon and their delivery infrastructure. This is because Amazon generate substantial emissions through their transportation networks including last-mile delivery vehicles and air freight services. In fact, a study revealed that Amazon's air freight pollution increased by 67% between 2019 and 2023 – demonstrating the alarming trend in transportation emissions. While this extensive transportation network allows for optimal delivery efficiency, comprehensive carbon accounting reveals that vehicle fleet emissions and non-essential business travel account for a significant percentage of many organisations' total greenhouse gas inventories.
Remember, vehicle fleet emissions refer to the emissions created from burning fossil fuels in company-owned vehicles used to transport employees, customers, or materials – highlighting the newfound interest in electric vehicles for companies seeking to reduce their transportation emissions and overall corporate footprint.
- Supply Chain Emissions – According to the World Economic Forum, Scope 3 emissions within the supply chain typically account for over 70% of a company's total carbon footprint – which illustrates the need for sustainable procurement and improved supplier engagement to reduce a product's carbon footprint. Therefore, a sustainable supply chain is an essential component to developing a greener business, as accurate measurements of the extraction, processing, and transportation of raw materials by third-party suppliers can help to reveal all the emissions involved in production processes.
- Waste Management – By nature, companies generate a lot of waste – whether it be from trash, recycling, or burning other waste materials created by the company. In fact, the UN Environment Program estimates that by 2050, our lack of sufficient and safe waste disposal could cost up to $640 billion USD – demonstrating the need to identify practical steps to improve waste management.
- Water Usage – Research from the University of Twente reveals that corporate water footprints extend far beyond direct water consumption, as water usage is associated with water treatment, pumping, heating, and processing required for industrial applications and operational requirements. In fact, according to the Water Research Foundation, worldwide water usage accounts for a whopping 10% of global greenhouse gas (GHG) emissions.
- Emissions via Product Life Cycle – Life cycle assessment methodologies established by ISO 14040 standards reveal that products generate emissions throughout their entire existence. Think about buying a bottle of sunscreen at the store, using it, and its inevitable disposal. That sunscreen bottle created emissions during every part of its life – which is why several studies emphasise the need for carbon accounting to incorporate life-cycle emissions sources (LCA) in order to accurately represent organisational climate impact and corporate compliance.
The Science Based Targets initiative demonstrates that seeking to effectively calculate your corporate carbon footprint requires a comprehensive measurement approach addressing all emission sources across all three scopes, meaning that a multifaceted approach to effectively measure and reduce their company’s carbon footprint will be required to address climate change, improve corporate sustainability, and avoid various climate risks.
Why should companies measure their corporate carbon footprint?
The main reason for a company to measure their Corporate Carbon Footprint is that it can provide a baseline standard which extends beyond basic environmental impact assessment – as seeking to understand your organisation's activity data and carbon footprint can allow for improved sustainability goal setting and emissions reductions based on concrete carbon footprint calculations and professional guidance in carbon accounting.
As a whole, this allows improved communication and transparency with other businesses and sustainability vessels
In fact, research from the MIT Sloan Management Review demonstrates that large companies utilising effective carbon accounting systems are bound to significantly improve trust with stakeholders – as data-driven sustainability communications can help to cultivate greater corporate responsibility.
This strategic approach has proven particularly valuable for corporations transitioning to regenerative business models, as verified carbon metrics allow for improved credibility in sustainability leadership claims, annual reports, and general climate communication.
Here are some of the additional benefits for companies that choose to measure their Corporate Carbon Footprint:
| Benefit | Description |
|---|---|
| Identifies Emission Hotspots | Tracking helps pinpoint the main sources of emissions within the company’s operations, such as manufacturing, transportation, or energy use, allowing targeted reduction efforts. |
| Enables Setting of Reduction Targets | Provides a baseline of current emissions, which is essential for setting measurable and achievable carbon reduction goals. |
| Access to Carbon Markets | Enables participation in carbon markets by establishing a verified emission baseline, allowing companies to buy or sell carbon credits and offsets. |
| Regulatory Compliance | Ensures compliance with environmental regulations that require emissions reporting, helping to avoid fines and penalties. |
| Improves Stakeholder Transparency | Enhances transparency with investors, customers, and other stakeholders by demonstrating a commitment to sustainability and climate action. |
| Enhances Corporate Reputation | Positioning as an environmentally responsible company can boost brand image, attract eco-conscious customers, and improve public relations. |
| Drives Operational Efficiency | Identifying emissions often reveals inefficiencies, such as energy wastage, leading to cost-saving opportunities through improved processes and technologies. |
| Facilitates Risk Management | Understanding carbon exposure helps companies manage risks related to carbon pricing, regulation changes, and supply chain disruptions. |
| Unlocks New Revenue Streams | Companies can generate and sell carbon credits through verified reduction projects, creating additional revenue sources. |
| Supports Strategic Planning | Provides data for making informed decisions on investments in sustainability initiatives, such as renewable energy or energy efficiency projects. |
| Increases Investor Confidence | Tracking and reporting emissions align with investor demands for transparency in environmental, social, and governance (ESG) performance, attracting sustainable investments. |
| Promotes Long-Term Sustainability | Helps integrate sustainability into the corporate strategy, supporting long-term business viability and aligning with global climate goals. |
Case Study: Microsoft's Corporate Carbon Footprint Reduction Strategy
In 2020, Microsoft committed to becoming carbon negative by 2030. In order to accomplish this goal, Microsoft first needed clear understanding of their carbon footprint – which required seeking to calculate their scope 1, 2, and 3 emissions.
Microsoft has employed the use of advanced carbon accounting methodologies, which is depicted with their own platform – Microsoft Cloud for Sustainability.
The company has since collected precise emissions data across their global operations, including:
- Scope 1 emissions such as ground or air travel directly owned or leased by Microsoft
- Scope 2 emissions such as electricity consumed in data centers
- Scope 3 emissions such as employee travel and supply chain emissions
Microsoft primarily uses the spend-based method, serving as the default setting Microsoft's Cloud for Sustainability, which is in alignment with standards developed by the Greenhouse Gas Protocol and World Business Council for Sustainable Development (WBCSD).
Microsoft has since been successful in reducing emissions, having achieved the following:
- Reduced Scope 1 and 2 emissions by 17% in just one year
- Purchased 1.4 million metric tons of carbon credits to offset additional emissions
- Invested in in carbon removal technologies and regenerative agriculture to contribute to long-term climate goals
Overall, Microsoft demonstrates how tracking of your corporate carbon footprint can not only help to achieve stringent sustainability goals – but also helps to develop an overall improved business strategy, mitigate climate risks, and boosts ESG performance — all of which are crucial for gaining the investor and stakeholder trust, to further expand business operations, and ensure long-term success.
How to Calculate Your Corporate Carbon Footprint: Methodology for CCF
A Corporate Carbon Footprint (CCF) is measured by systematic data categorisation, collection, and analysis – all of which contribute to an organisation's ability to implement effective carbon reduction strategies.
The following methodological framework and steps is used by organisations looking to measure their Corporate Carbon Footprint (CCF):
- Strategic Recognition of Environmental Impact – The first phase of carbon accounting requires organisational awareness of external environmental factors. This allows companies to posses a fundamental prerequisite for all potential sustainability initiatives, and can enable organisations to employ the most effective and appropriate solutions long-term. For example, think of someone looking to run a marathon – those interested in running this infamous long distance won't achieve their goal without proper, preliminary incentives such as training or healthy eating. The same concept applies for companies looking to address their environmental impact.
- Identify Carbon-Intensive Operations – This phase involves a systematic assessment and categorisation of an organisation's activities to determine which business operations are the most carbon intensive. This includes conducting a materiality assessment to determine which business ventures generate the most emissions, allowing for prioritisation of reduction efforts. This is in the same vein of someone who is trying to lose weight looking to determine the most caloric foods they are eating, as this can facilitate more effective weight loss.
- Systematic Data Acquisition – Rigorous data collection is essential in carbon accounting and for any company looking to better understand their Corporate Carbon Footprint (CCF). This information often includes procurement metrics, investment portfolio composition such as sustainable finance, energy consumption patterns at the office, and other environmental performance indicators that vary depending on the organisation's industry and size.
- Calculating & Quantifying Emissions – Professional services firms and carbon footprint calculator platforms, such as Greenly, will utilise standardised emissions factors to convert operational data into understandable and quantifiable emissions and greenhouse gas measurements for both companies and third parties to understand the environmental impact of the business. These measurements are expressed carbon dioxide equivalents (CO₂e).
- Strategic Mitigation Planning – Once a comprehensive data analysis has been completed, organisation can then proceed with developing a customised action plan to reduce emissions. This strategic planning could include the use of carbon offsets, operational efficiency improvements, business model innovations, and efforts to improve stakeholder communication.
At Greenly, we help organisations to to assess their situation and develop a personalised emission reduction plan. In addition to this, we can help your business communicate your environmental progress to stakeholders and on social media – allowing for full and effective disclosure of your business activities and their environmental impact.
Review of Scope 1, 2, and 3 Emissions in Carbon Accounting
The GHG Protocol explains that a comprehensive business carbon footprint is measured by categorising emissions into three distinct scopes:
Scope 1 Emissions
Scope 1 emissions encompass all direct greenhouse gas emissions from sources owned or controlled by the company.
These include emissions from:
- On-site combustion of natural gas in boilers or furnaces
- Fuel consumption from company-owned vehicles
- Fugitive emissions from refrigeration or industrial processes
Organisations with manufacturing facilities typically have significant scope 1 emissions, and make up the majority of their carbon footprint calculation in carbon accounting.
Scope 2 Emissions
Scope 2 emissions represents indirect emissions associated with purchased electricity, steam, heating, and cooling that the company consumes but does not produce itself.
These emissions physically occur additional facilities where electricity is generated, but not made in-house. As a result, many companies may transition to energy efficient technologies or the use of renewable energy sources to reduce these emissions.
Scope 3 Emissions
Scope 3 emissions include all other indirect emissions that occur in a company's value chain, spanning both upstream and downstream activities.
- Upstream emissions refer to purchased goods and services, business travel, employee commuting, and waste disposal.
- Downstream emissions refer to the distribution, processing, and use of sold products in addition to end-of-life treatment.
Scope 3 emissions typically account for the majority of a company's carbon footprint, making them crucial yet challenging to measure accurately.
Understanding these scope classifications enables organisations to develop targeted reduction strategies aligned with science-based targets and to provide transparent emissions reporting to stakeholders.
Companies looking to go above and beyond may even consider measuring their scope 4 emissions – which refer to avoided emissions created outside of a product’s life cycle or value chain.
10 Reasons to Track a Corporate Carbon Footprint
Ultimately, there are several reasons to track a Corporate Carbon Footprint – seeing as it can help companies to comply with environmental legislation, increase transparency and trust with stakeholders, and to improve risk management and brand reputation.
In fact, research from World Economic Forum explain how robust carbon accounting protocols allow for greater transparency and improved relationships with an organisation's stakeholders – both of which can allow for long-term business success.
Besides the initial cost and time required to track a corporate carbon footprint, there are no downsides for companies that make an effort to better understand their current environmental impact.
“ By measuring and reporting on aspects of prosperity more holistically, companies and their stakeholders can become better informed to protect and enhance assets that contribute to both long-term value creation and to society and the SDGs, even when there is not yet a direct link to financial performance. – (World Economic Forum in Toward Common Metrics and Consistent Reporting of Sustainable Value Creation). ”
Here 10 evidence-based benefits for companies willing to track their Corporate Carbon Footprint:
1. Enhanced Strategic Environmental Assessment
Taking the time to conduct a systematic carbon measurement provides organisations with precise emissions data across all three scopes, which can help to develop more personalised and science-based reduction strategies aligned with global climate targets – such as with the Paris Agreement working to limit global temperatures from exceeding 1.5°C
This can help your company to come up with personalised solutions and incentives to not only get your employees involved in the fight against climate change, but your customers, too.
2. Reduced Operational Costs
Oftentimes, companies are spending more than they need to be in one specific area that also contributes to excess carbon emissions.
Research published in the Harvard Business Review demonstrates that tracking your corporate carbon footprint can allow for greater insight on operational inefficiencies throughout an organisation's value chain – such as supply chain emissions, resource utilisation, energy usage, and other business inefficiencies. This can help businesses to expand their operations while also reducing their environmental impact and operational costs.
For instance, companies could discover through corporate carbon footprint tracking that the majority of their emissions are coming from old lighting or electrical equipment in the office – and upgrade these appliances or light fixtures to reduce emissions and in turn also cut down on utility costs.
3. Regulatory Compliance Assurance
Contemporary corporate governance frameworks are working tirelessly to ensure that mandated climate-related disclosures are becoming the new worldwide standard.
Regulations such as the CSRD or the SEC Climate Disclosure Rule are establishing more formal carbon reporting requirements. Therefore, organisations that work to to track their corporate carbon footprint with carbon accounting can avoiding potential penalties and damage to their brand reputation.
Overall, carbon accounting can help your organisation to stay one-step-ahead and proactively ensure compliance.
4. Improve Brand Reputation
As businesses and consumers alike become more aware of the global threat of climate change, it’s more important than ever before to put your best “green” foot forward and show your commitment to environmental reform.
One of the easiest ways for organisations to accomplish this is to remain committed to tracking your corporate carbon footprint, as it demonstrates a genuine effort to better understand and reduce your company’s environmental impact.
In fact, MIT Sloan Management Review explained how carbon accounting practices experience can help to boost brand perception metrics – as greater transparency allows for improved brand reputation, increased customer loyalty, and sustainable success in the midst of climate change.
5. Attract New Talent & Customers
Research from Deloitte indicates that 70% of Gen Zs and 62% of millennials would choose an employer committed to environmental improvement.
In addition to this, customers are growing more environmentally conscious as well – with 62% of people saying they try to seek out exclusively sustainable products.
Therefore, tracking your corporate carbon footprint is a great way to show to both employees and customers alike that your business takes sustainability seriously.
6. Access to the Carbon Market
A scientifically validated baseline of emissions allows companies to understand and develop suitable emission reduction plans, such as by strategically engaging with voluntary carbon markets, informing investment decisions regarding high-quality carbon offsets and carbon credits.
This can help companies to address residual emissions and contribute to global initiatives such as carbon neutrality and net-zero.
7. Improved Risk Management
Tracking your company’s carbon footprint can help to bring potential risks to light and provide the opportunity to fix those risk hazards, such as discrepancies in your supply chain or inefficient project organisation.
The Task Force on Climate-related Financial Disclosures (TCFD) has established that organisations that utilise carbon accounting systems can demonstrate exceptional efforts to mitigate climate-related transition risks, physical risks, and liability risks – all of which allow for greater stability in an organisation's supply chain and optimal emissions reductions.
8. Optimise Energy Efficiency
A report from the International Energy Agency (IEA) demonstrates that tracking your corporate carbon footprint with carbon accounting protocols frequently help to reveal business equipment, cars, office buildings, and more could be optimised or replaced to improve energy efficiency and reduce emissions from outdated technologies.
This can help to improve facility management, various manufacturing processes, and digital infrastructure.
9. Sustainability Networking & Strategic Partnership Development
Research from PwC confirms that organisations committed to tracking their corporate carbon footprint will be able to establish strategic business and sustainability partnerships, which can allow for new procurement opportunities and verifiable climate performance.
This illustrates how tracking your corporate carbon footprint can help your company to gain trust in stakeholders and expand your network in sustainability.
10. Raise Awareness on Corporate Carbon Footprint
According to the World Business Council for Sustainable Development, organisations that choose to take the lead and track their corporate carbon footprint will demonstrate greater accountability, which can help to influence other organisations in other sectors to do the same and curate more sustainable business practices beyond their individual organisational efforts.
Essentially, demonstrating our self-awareness towards our own ecological challenges can provide other organisations with the courage to do the same – helping to drive a global movement towards more ethical business practices.
Furthermore, sustainability research from McKinsey explains how carbon accounting allows for several strategic benefits – illustrating how tracking your corporate carbon footprint can allow for the development for more forward-thinking, long-term business strategies.
All in all, carbon tracking can prove indispensable for all companies regardless of their size and sector –and the best part is, you can get started with carbon accounting today with help from Greenly.
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What About Greenly?
If reading this article on 10 reasons to track a corporate carbon footprint has made you interested in reducing your carbon emissions to further fight against climate change – Greenly can help you!
It can be overwhelming to figure out how to effectively reduce your corporate carbon emissions, but don’t worry – Greenly is here to help. Click here to schedule a demo to see how Greenly can help you find ways to ensure your company is complying with all current and future environmental regulations.
Greenly can help you make an environmental change for the better, starting with a carbon footprint assessment to know how much carbon emissions your company produces.
Click here to learn more about Greenly and how we can help you reduce your carbon footprint.
Sources
Harvard Business Review https://hbr.org/2024/07/the-hidden-costs-of-climate-change-on-the-workforce and https://hbr.org/2022/04/we-need-better-carbon-accounting-heres-how-to-get-there
Future Business https://future-business.org/is-sustainability-in-demand-with-prospective-employees/
PwC https://www.pwc.com/gx/en/news-room/press-releases/2024/pwc-2024-voice-of-consumer-survey.html and https://www.pwc.com/my/en/assets/publications/2024/pwc-my-sustainability-finance-function-role.pdf
GHG Protocol https://ghgprotocol.org/sites/default/files/standards/ghg-protocol-revised.pdf
Royal Society https://royalsociety.org/~/media/policy/projects/resilience-climate-change/parts1-20.pdf
Pacific Environment https://www.pacificenvironment.org/press-releases/amazons-u-s-transportation-pollution-surges-since-company-announced-climate-pledge-five-years-ago/
World Economic Forum https://www.weforum.org/stories/2023/09/scope-3-emissions-are-key-to-decarbonization-but-what-are-they-and-how-do-we-tackle-them/ and https://www.weforum.org/publications/toward-common-metrics-and-consistent-reporting-of-sustainable-value-creation/
UN Environment Programme https://www.unep.org/resources/global-waste-management-outlook-2024
University of Twente https://www.waterfootprint.org/resources/Report28-WaterNeutral.pdf
The Water Research Foundation https://www.waterrf.org/resource/greenhouse-gas-emissions-water-sector-lets-uncover-basics
The Royal Society of Chemistry https://pubs.rsc.org/en/content/articlehtml/2023/ee/d3ee01138k
SBTi https://sciencebasedtargets.org/news/the-sbti-technical-response-corporate-climate-responsibility-monitor-2023-report
MIT https://sloanreview.mit.edu/projects/investing-for-a-sustainable-future/
Microsoft https://blogs.microsoft.com/blog/2020/01/16/microsoft-will-be-carbon-negative-by-2030/ and https://cdn-dynmedia-1.microsoft.com/is/content/microsoftcorp/microsoft/msc/documents/presentations/CSR/2024-Environmental-Sustainability-Report-Data-Fact.pdf
Reuters https://www.reuters.com/business/environment/microsoft-inks-carbon-removal-deal-with-offsets-startup-chestnut-2023-12-20/
SGS Institut Fresenius https://sgs-institut-fresenius.de/en/sustainability-solutions/environmental-and-climate-protection/corporate-carbon-footprint-ccf
Deloitte https://www.deloitte.com/be/en/about/press-room/gen-z-and-millennial-survey-2023.html
The Roundup https://theroundup.org/environmentally-conscious-consumer-statistics/
International Energy Agency https://www.iea.org/reports/digitalisation-and-energy
World Business Council for Sustainable Development https://www.wbcsd.org/news/wbcsd-and-leading-companies-enhancing-transparency/
McKinsey https://www.mckinsey.com/~/media/mckinsey/business%20functions/strategy%20and%20corporate%20finance/our%20insights/mckinsey%20on%20finance%20number%2077/mof77-rgb-final.pdf
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