Impacts, Risks, and Opportunities (IRO) for CSRD Reporting
1 min
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In this article, we’ll break down what IROs are, how to identify and assess them, and what CSRD requires in terms of disclosure.
ESG / CSR
Industries
MEASURE
ACT
COMFORM
Downstream vs Upstream Emissions: What You Need to Know
Level
By Kara Anderson, UK Copywriter, on 21/09/2023
Updated by Kara Anderson, on 28/05/2026
For most businesses, the vast majority of their carbon footprint is completely hidden. It isn't generated by the electricity in their offices or the fuel in their delivery trucks, but by a complex web of suppliers, raw materials, and customer product usage.
As climate reporting shifts from a voluntary PR exercise to a legal requirement, understanding this distinction between upstream and downstream emissions has become essential. If you are managing sustainability or leading a business today, knowing where your company's value chain stands is the only way to build a credible strategy toward net zero.
In this article, we'll cover:
The real operational differences between upstream and downstream emissions
How the GHG Protocol breaks these down into 15 distinct categories
Practical steps for gathering accurate data
How to handle the trickiest parts of Scope 3 reporting
What are upstream emissions?
Simply put, upstream emissions are the carbon footprint of your supply chain. They cover everything it takes to produce and deliver the goods or services your company buys and uses to keep the doors open.
The GHG Protocol breaks upstream emissions down into eight specific categories:
Purchased Goods and Services
The emissions from extracting raw materials and manufacturing the items or services you buy—from office paper and cloud software to raw steel and agricultural ingredients.
Capital Goods
The footprint behind your company’s long-term physical assets, such as the manufacturing of your machinery, factory equipment, or office buildings.
Fuel and Energy Activities
The emissions from extracting, refining, and transporting the fuels and energy your company buys (covering the lifecycle impacts that fall outside of Scope 1 and Scope 2).
Upstream Transportation and Distribution
The logistics of getting products and materials from your suppliers to your facilities. (Note: Moving goods between your own facilities is actually handled under Scope 1 or Scope 3 leased assets, not here).
Waste Generated in Operations
The environmental impact of treating and disposing of your company's operational waste, whether it goes to a landfill, recycling center, or incineration plant.
Business Travel
The emissions from employees traveling for work on flights, trains, rental cars, and hotels.
Employee Commuting
The carbon footprint of your team traveling to and from work, including remote work energy usage.
Upstream Leased Assets
The emissions from operating buildings, vehicles, or equipment that your company leases from someone else, if they aren’t already counted in your direct Scopes.
Real-world example
To picture this in the real world: if you are a clothing brand, your upstream emissions include the water and energy used to grow cotton in India, the fabric mill's electricity in China, and the cargo ship that brings the finished t-shirts to your warehouse.
What are downstream emissions?
If upstream emissions are everything it takes to make your product, downstream emissions are everything that happens after it leaves your hands. This covers the entire lifecycle of your product or service once it has been sold to a customer, distributor, or end-user.
The GHG Protocol splits downstream emissions into seven categories:
Downstream Transportation and Distribution
The logistics of moving your finished products from your warehouses to retailers, distributors, or directly to consumers' doorsteps.
Processing of Sold Products
The emissions created if another company buys your product and uses it as an ingredient or component to make something else (e.g., selling flour to a commercial bakery, or microchips to a computer manufacturer).
Use of Sold Products
The emissions generated when a customer actually uses your product. For an electric appliance company, this is the electricity it draws; for a car maker, it's the fuel burned over the vehicle's lifespan.
End-of-Life Treatment of Sold Products
The environmental impact of disposing of your product when a customer is finished with it, including waste management, recycling, or landfill decomposition.
Downstream Leased Assets
The emissions from operating assets (like buildings or vehicles) that your company owns but leases out to other people or organizations.
Franchises
The carbon footprint of businesses operating under your brand name and license, if you don't directly manage their daily operations.
Investments
The emissions associated with your company’s financial investments, loans, and project financing (this is usually the largest category for banks and venture capital firms).
Real-world example
To put this in perspective: if you are an electronics company, your downstream footprint includes the emissions from shipping the smartphones to retail stores, the electricity used by customers charging those phones every night, and the eventual e-waste processing when those phones are recycled or thrown away.
How can you easily tell the difference between the two?
The easiest way to separate upstream from downstream is to look at your company as the center point.
Inputs flowing in
Upstream emissions
Upstream is everything flowing into your business. It is your supply chain. If your operations stopped tomorrow, these are the activities that would have already happened to create the inputs you rely on.
Raw materials
Suppliers
Inbound logistics
Your company
Impacts flowing out
Downstream emissions
Downstream is everything flowing out of your business. It is your product lifecycle. If your operations stopped tomorrow, these are the impacts that would still occur as your existing products are shipped, used, and eventually thrown away by your customers.
Distribution
Product use
End of life
While you have direct relationships with upstream suppliers (meaning you can choose who to buy from), downstream emissions often depend heavily on consumer behavior and regional waste management systems, making them harder to directly control but equally vital to design for.
Why does the distinction between upstream and downstream matter for your business?
For a sustainability executive or finance leader, separating Scope 3 into upstream and downstream isn’t just about checking boxes for an auditor. It completely changes how you manage your business, mitigate risks, and design products.
Understanding exactly where your emissions sit matters for four critical business reasons:
It Dictates Your Reduction Strategy (Procurement vs. Product Design)
You cannot fix upstream emissions the same way you fix downstream emissions. They require entirely different corporate levers:
Upstream lever
To fix upstream emissions, your lever is Procurement. You have to negotiate with suppliers, switch to low-carbon vendors, or change your raw materials (e.g., switching from virgin plastic to recycled aluminum).
Downstream lever
To fix downstream emissions, your lever is Product Design and R&D. If your software reveals that 80% of your footprint comes from customers using your electronic products (Category 11), you don't need to fire your suppliers—you need to engineer more energy-efficient hardware or write more efficient code.
It Exposes Where Your Real Financial Risks Live
A carbon footprint is ultimately a financial liability. Mapping the split shows you where future regulations or carbon taxes will hurt your bottom line:
Upstream risk
If your emissions are heavily upstream, you are vulnerable to inflation and supply chain shocks. If a carbon tax hits your raw material suppliers, those costs will be passed straight down to you.
Downstream risk
If your emissions are heavily downstream, you face market share risk. If consumers or corporate buyers shift toward eco-friendly products, your high-emission products will quickly lose relevance.
It Changes How You Collect Data (and the Software Features You Need)
The accounting methodology for the two halves of the value chain is fundamentally different, which directly impacts how you use a carbon accounting platform:
Upstream data
Upstream data is relational. It requires specialized software tools like automated supplier portals to send secure, repeatable data requests to vendors, tracking actual invoices and activity data.
Downstream data
Downstream data is modeling-based. Since you cannot track every individual customer after they buy a product, downstream accounting relies on sophisticated lifecycle analysis (LCA) models, assumptions about product lifespans, and regional grid averages.
It Prevents Greenwashing Accusations
Claiming your business is "moving toward net zero" by only referencing your office electricity (Scope 2) while ignoring a massive downstream product footprint is a fast track to regulatory fines and public backlash. Clearly disclosing both halves shows investors, regulators, and customers that your climate strategy is credible, transparent, and legally compliant with modern frameworks like CSRD.
Why does calculating Scope 3 emissions matter so much?
Instead of looking at upstream and downstream accounting as a check-the-box exercise, modern businesses view it through the lens of risk and opportunity. Here is why measuring both sides of the value chain is critical:
The regulatory landscape has shifted
Voluntary reporting is effectively over. Major mandates now legally require audited Scope 3 disclosures for thousands of global companies. This includes Europe's Corporate Sustainability Reporting Directive (CSRD) and California’s Climate Corporate Data Accountability Act (SB 253), which heavily impact any mid-to-large organisation doing business in those regions.
Uncovering supply chain vulnerabilities
Mapping your upstream emissions forces you to look deep into your supply chain. This often exposes hidden operational inefficiencies, heavy reliance on high-carbon materials, or exposure to future carbon taxes, allowing you to diversify suppliers before disruptions happen.
Driving product innovation
When you measure downstream emissions, you often discover that the biggest environmental impact happens during the consumer use phase. This data directly inspires product design changes - like creating concentrated formulas that require less shipping weight, or building electronics that consume less power.
Commercial and investor pressure
Institutional investors and enterprise B2B buyers are increasingly treating poor climate performance as a financial risk. Proactively disclosing clean, verified Scope 3 data gives companies a massive competitive edge when bidding for major corporate contracts or seeking capital.
The Business Case for Value Chain ROI Data from the Boston Consulting Group (BCG) highlights that carbon accounting isn’t just about compliance - it’s a major driver of profitability. Their research found that 40% of organisations actively measuring and reducing their value chain emissions captured annual financial benefits of at least $100 million. These savings were directly unlocked by uncovering operational inefficiencies with suppliers, optimising product-level data, and replacing manual tracking with automated digital solutions.
How do companies actually calculate upstream and downstream emissions?
If you were to open the official GHG Protocol Technical Guidance, you would find that calculating upstream and downstream emissions isn't a guessing game - it follows a specific formula:
A
×
EF
=
GHG
A (Activity Data)
A measurable business activity (e.g., liters of fuel burned, kilowatt-hours of electricity used, dollars spent, or kilograms of material bought).
EF (Emission Factor)
The scientific multiplier that converts that activity into its carbon dioxide equivalent (CO2e).
GHG (Greenhouse Gas Emissions)
The final carbon footprint result.
While the math itself looks simple, the complexity lies in how you gather the activity data (A) and choose your emission factors (EF). The GHG Protocol allows companies to use three distinct calculation methods depending on how accurate their data is.
The Spend-Based Method (The Starting Point)
If you don't have exact environmental data from your supply chain, you start with your financial ledger. You take the total amount of money your company spent on a specific category and multiply it by an industry-average economic emission factor (eg. X kg of CO2e per dollar spent).
When it’s usedExcellent for a rapid initial screening to see which of your 15 categories are your biggest carbon hotspots.
The catchIt’s highly inaccurate. If you negotiate a discount with a supplier and pay 20% less, your calculated emissions artificially drop by 20% - even though the physical footprint didn’t change at all.
The Average-Data Method (The Intermediate Step)
Instead of looking at financial spend, you look at physical weight or volume. For example, if you buy 50 metric tons of steel, you multiply that mass by a global average emission factor for steel production.
When it’s usedIdeal for calculating material-heavy categories (like Category 1: Purchased Goods) or logistics when you know the total shipping distance and weight, but can't get data from the specific truck driver.
The catchIt assumes your suppliers are strictly average. If you intentionally source your steel from an ultra-efficient, solar-powered mill, an average-data calculation won't reflect your actual reduction efforts.
The Supplier-Specific Method (The Gold Standard)
This is the ultimate goal for mandatory reporting compliance. Instead of relying on financial spend or global averages, you request primary activity data directly from your specific vendors - such as their actual facility utility bills or an audited Product Carbon Footprint (PCF) report.
When it’s usedCritical for your top-tier suppliers who make up the bulk of your upstream footprint, and for showing genuine reduction progress year over year.
The catchIt requires an immense amount of manual outreach, relationship building, and verification.
Why a carbon accounting platform is so important
Most companies start out trying to run these exact formulas using manual Excel sheets. They quickly hit a wall because managing thousands of line items, matching them to thousands of constantly updated global emission factor databases, and maintaining a clear audit trail for regulators is nearly impossible manually.
A modern carbon accounting platform like Greenly's automates this entire lifecycle. It connects straight to your financial software to instantly run a spend-based baseline, flags your carbon hotspots, and provides an automated, secure portal to seamlessly collect primary data directly from your suppliers.
Close
Frequently Asked Questions about upstream and downstream emissions
Can one company's downstream emissions be another company's upstream emissions?
Yes, exactly. Value chain emissions are interconnected. For example, when a car company ships a fleet of vehicles to a corporate buyer, the emissions from transporting those cars are downstream (Category 9) for the manufacturer, but they are upstream (Category 4) for the buyer. This is why collaborative data sharing across supply chains is so important.
How does the GHG Protocol Scope 3 revision affect how we calculate these emissions?
The GHG Protocol's Phase 1 updates have introduced much stricter rules around data transparency. Most notably, companies are now required to disaggregate their data - meaning you can no longer hide behind a single estimated number. You must explicitly break down what portion of your Scope 3 footprint uses Primary Data (direct supplier metrics) versus Secondary Data (spend-based estimates or industry averages). What's more is that a new 95% Minimum Boundary Rule has been introduced. Organisations must now account for at least 95% of their relevant Scope 3 categories, completely eliminating the ability to selectively exclude "difficult" upstream or downstream categories.
What is the new "Category 16" in Scope 3 accounting?
As part of the updated accounting standards, the GHG Protocol introduced Category 16 to cover Facilitated or Enabled Emissions. This category is designed to capture the broader environmental impact that a company enables through its professional services, financial advice, or digital infrastructure (such as blockchain and crypto ecosystems) that weren't clearly captured in the original 15 categories.
Are companies legally required to report upstream and downstream emissions?
Historically, Scope 3 reporting was completely voluntary. However, under modern regulations, it is rapidly becoming mandatory. If your business operates within global supply chains or does business in Europe or California, you might already be captured by mandates like Europe’s Corporate Sustainability Reporting Directive (CSRD) or California's SB 253. Furthermore, even if you don't meet the asset thresholds directly, your large enterprise B2B customers are required to report, meaning they will mandate that you provide your upstream data to keep their contracts.
How often do we need to recalculate our upstream and downstream carbon footprint?
To remain compliant with modern financial-grade ESG reporting, value chain emissions should be tracked continuously and reported annually. Because the standard is shifting away from lifetime lifecycle estimations toward annualized, stock-based tracking (especially for downstream product usage), treating carbon accounting as a dynamic, year-round operational process rather than a rushed year-end spreadsheet exercise is critical.
How Greenly Can Help
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