Practical guide to greenhouse gas reporting concepts

Scope 1, Scope 2 & Scope 3 — explained for SMEs

Climate action starts with understanding what each emissions scope means and how the number was built. The strongest starting point is a method you can explain, evidence and defend.

A practical guide to Scope 1, Scope 2 and Scope 3, how emissions are calculated, how to avoid black-box estimates, and how SMEs can begin with a credible environmental report without pretending unsupported precision.

Most carbon reporting tools are complex. SMEs usually already have the operational data needed for a simple Scope 1–3 report.

Start report Back to Home See methodology

Operational boundary

Direct

Scope 1

Direct emissions from sources the company owns or controls.

Energy

Scope 2

Indirect emissions from purchased or acquired electricity, steam, heat and cooling.

Indirect

Scope 3

All other indirect value-chain emissions, upstream and downstream.

Section 1

Open each scope in full

Scope 1 — direct emissions

Emissions from sources owned or controlled by the reporting company.

Open details

Scope 1 covers direct greenhouse gas emissions from sources the reporting company owns or controls. Think of combustion and leakage happening inside your operational boundary.

What belongs in Scope 1

Stationary combustion such as natural gas, heating oil, LPG or diesel burned on site
Mobile combustion from company-owned or controlled vehicles
Fugitive emissions such as refrigerant leakage or refill losses
Process emissions where the company directly operates the emitting process

How it is usually calculated

The common formula is operational quantity multiplied by an emissions factor: for example kWh of gas, liters of fuel or kilograms of refrigerant. The defensible part is not only the math, but also the source of the factor, the dataset year and the reporting boundary.

Common mistakes

Mixing personally used vehicles with company-controlled vehicles without a stated boundary
Ignoring refrigerants even when cooling equipment is a real part of operations
Changing the reporting boundary year to year without disclosing the change

Scope 2 — purchased energy emissions

Indirect emissions from purchased or acquired electricity, steam, heat and cooling consumed by the company.

Open details

Scope 2 covers emissions from purchased or acquired electricity, steam, heat and cooling. Electricity is the most common SME case, but the definition is broader than electricity alone.

What belongs in Scope 2

Purchased electricity from the grid or from a supplier contract
Purchased steam, purchased heat and purchased cooling where relevant
Energy consumed by the company but generated outside its direct operational boundary

Why Scope 2 is often misunderstood

Many guides talk only about electricity because that is the most visible SME input. But the formal Scope 2 concept is about purchased or acquired energy. If a company uses purchased heat, steam or cooling, those may also belong in Scope 2.

Method matters

Results depend on the factor basis and the reporting method disclosed
Evidence-backed sourcing claims should stay tied to transparent documentation
On-site renewables should remain visible as a separate operational disclosure, not as a hidden shortcut

Scope 3 — indirect emissions

All other indirect emissions across the value chain, outside Scope 1 and Scope 2.

Open details

Scope 3 covers all other indirect emissions across the value chain. It is usually the broadest and hardest part of carbon reporting, because it can span upstream suppliers and downstream product use.

The 15 GHG Protocol Scope 3 categories

1. Purchased goods and services
2. Capital goods
3. Fuel- and energy-related activities (not included in Scope 1 or Scope 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments

What is realistic for many SMEs

SMEs often begin with measurable operational inputs such as waste, travel or selected supplier-linked data. That does not redefine Scope 3; it is simply a practical starting point. The important thing is to be honest about what is actually evidenced and what is still outside current coverage.

What to avoid

Spend-based proxy models can be useful in some screening contexts, but they can also create fictional precision. Broader value-chain claims should only be made when the underlying method and assumptions can be explained and defended.

Section 2

How emissions are calculated (not black-box)

Core equation

1. Start with a quantity

2. Match the factor basis

CO₂e

1. Start with a quantity

Use kWh, liters, kilograms, m³ or kilometers from bills, logs or meter data.

2. Match the factor basis

The factor must fit the unit, the dataset year and the reporting method.

3. Keep the source visible

A result is stronger when the source and the boundary can be traced later.

Electricity

28,000 kWh

0.334 kgCO₂e/kWh

9,352 kgCO₂e

Natural gas

42,000 kWh

0.184 kgCO₂e/kWh

7,728 kgCO₂e

Diesel

1,800 liters

2.51 kgCO₂e/liter

4,518 kgCO₂e

This electricity row is illustrative only. Scope 2 may be calculated from purchased electricity, steam, heat or cooling, and the result depends on the factor source and the reporting method used.

What makes a calculation defendable?

A useful carbon number is not just a number. It should show the activity data used, the factor source, the dataset year, the units and the reporting boundary.

Activity data should come from a traceable operational source, such as a bill, meter, invoice or log.
Emission factors should match the unit used and should stay tied to a disclosed source and dataset year.
Boundary choices should be explicit, especially when comparing one year to the next.
If you cannot explain where the factor came from or why the boundary was chosen, the result becomes hard to defend.

Illustrative SME example

Illustrative example only.

Example company: Light industrial SME

Scope 1

9.6 t

Gas, company vehicles, refrigerants

Scope 2

6.4 t

Purchased energy emissions (illustrative electricity-only case)

Scope 3

3.1 t

Waste, water and simple travel disclosures

Electricity: 28,000 kWh

Natural gas: 42,000 kWh

Vehicles: 4,800 liters fuel

Waste: 1,200 kg

Water: 540 m³

Travel: 6,000 reimbursed km

Scope 19.6 tCO₂e

Scope 26.4 tCO₂e

Scope 33.1 tCO₂e

Section 3

Scope 3 — broad by definition, practical by evidence

What Scope 3 can include

Purchased goods and services, transport, waste, business travel and other upstream or downstream categories
Not every category is equally material or equally measurable for every SME
Some operational quantities can be disclosed clearly even when a CO₂e factor is not applied
The accounting question is not only what exists, but what can be evidenced well enough to report responsibly

Where SMEs usually start, and where they get into trouble

Many SME reports jump too quickly into spend-based proxies. That can create fictional precision: a detailed-looking number derived from generic spending categories rather than real operational evidence. A more credible starting point is measured operational data first, then broader Scope 3 only where the method is clear enough to explain.

The practical rule

Report what you can evidence. Scope 3 is real and often material, but the cleanest starting point for an SME is usually measurable data first, then broader indirect categories only where the assumptions are transparent enough to defend.

Section 4

Who calculates it (and what ESG consultants do)

Who usually does the work

In practice, carbon reporting is often assembled by operations, finance, procurement or facility teams, with ESG consultants supporting methodology, materiality, category selection and review where needed.

Typical workflow

1. Define the reporting boundary and reporting year.
2. Gather operational inputs: energy, fuels, fleet, refrigerants, travel, waste and other relevant activity data.
3. Select documented emission factors and record their source, year and method basis.
4. Review calculations, assumptions, exclusions and gaps.
5. Prepare a stakeholder-ready summary and keep the evidence pack behind it.

When consultants matter most

ESG consultants add the most value when the reporting boundary is complex, when broader Scope 3 is required, when investor-grade documentation is needed, or when the report must be ready for assurance. For many SMEs, though, the first useful step is a simpler operational report that is transparent and defensible.

Section 5

What is a black-box calculation (and why it is risky)

Definition

A black-box calculation is a result where the user cannot clearly see which factors, assumptions or dataset years were used.

Risk

If you cannot explain the method, the number becomes vulnerable in financing, procurement, green claims or audit conversations.

How to avoid it

Use transparent factors, disclose the source, keep the dataset year visible and export a report that can be explained by a real person, not only by a tool.

Section 6

How to reduce emissions (practical SME actions)

Reduce purchased electricity demand before chasing offsets: lighting, HVAC tuning, compressor discipline, controls.
Review procurement contracts and supplier disclosures before claiming cleaner electricity.
Measure gas and heat losses first: boiler settings, insulation, maintenance and heating schedules matter.
Prioritize vehicle efficiency, routing and avoidable trips before fleet replacement narratives.
Track refrigerant leakage events carefully; small leaks can create outsized CO₂e impacts.
Cut waste upstream through purchasing, packaging and process discipline, not only through disposal choices.
Use water tracking as an operational signal even when it is disclosed separately from CO₂e.
Make one responsible owner for energy and carbon data quality inside the business.
Document actions year to year so reductions can be explained, not just claimed.
Start with the biggest drivers first instead of spreading effort thinly across every category.

Section 7

Reporting & year-on-year

Why trend matters

A single number is only a snapshot. Year-on-year comparison is where reporting becomes useful: it shows if operational changes, procurement decisions or efficiency actions actually moved the footprint.

What to track

Scope shares (what is driving the total)
Main emission lines and factor changes
Operational quantity changes (kWh, liters, kg, m³, km)
Reduction actions and what changed in reality
Any boundary, methodology or factor changes that affect comparability

Section 8

When you need independent audit / assurance

Internal report

Useful for baselining, prioritization and first discussions. Formal assurance is often not the first requirement, but internal review and evidence discipline still matter.

Stakeholder report

For banks, investors or supply-chain discussions, the need for a clearer evidence trail and review rises quickly.

Compliance / regulated context

If you are moving toward assurance, CSRD-linked supply chains or formal disclosures, independent review starts to matter materially. The exact assurance need depends on the reporting context and applicable rules.

Section 9

Climate contributions (parallel view, no netting)

What good disclosure looks like

Use recognized standards and transparent references for Carbon contribution and Removal credits.
Keep evidence records (retirement, issuance, serials, project references) for review.
Present contributions in parallel view, not as hidden adjustments to operational emissions.

Important boundary

In this methodology, climate contributions are not used to net down or “erase” reported operational emissions. Carbon contribution and Removal credits are disclosed separately, while the Scope 1–3 inventory remains visible on its own.

Final CTA

Create your first defendable environmental report →

Start with measurable operational data, disclosed factors and a report you can actually explain to a bank, investor, customer or consultant.

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