Glossary›Emissions accounting and measurement›Activity-based vs spend-based method
Glossary term
Cluster D · D14
Tier 1 · differentiator
Activity-based vs spend-based method
Definition
The activity-based method calculates emissions from physical quantities, such as litres of fuel or tonnes of steel, multiplied by a factor per unit. The spend-based method estimates them from money spent, multiplied by an industry-average factor per dollar. Both are accepted. Activity-based is stronger evidence and is prioritised by the standard where the data exists.
AASB S2 Appendix B
· paragraphs B43 and B47 ·
In force
On this page
In practice
This is the single biggest cost-versus-quality decision in a Scope 3 programme, and it is usually made by default rather than by decision, because spend-based is available immediately from the accounts payable ledger and activity-based is not available at all until somebody asks suppliers for data.
The mechanics differ completely. Activity-based takes a physical quantity (400 tonnes of structural steel) and applies a factor per tonne. Spend-based takes the invoice value ($900,000 of steel) and applies an industry-average factor per dollar of spend in that sector. Same purchase, two numbers, and they will not agree.
Three consequences follow from the spend-based construction, and every one of them turns up in a board conversation eventually.
Consequence
What it means
Spend-based figures move with prices
If your steel supplier raises prices ten per cent and you buy the same tonnage, your spend-based emissions rise ten per cent. Nothing physical changed. The reverse is equally true and more dangerous: negotiating a better price shows up as an emissions reduction you did not achieve.
Spend-based figures cannot show procurement improvement
Switching to a lower-carbon supplier at the same price produces no change in a spend-based figure, because the method cannot see the supplier, only the sector. An entity with a decarbonisation programme in its supply chain and a spend-based Scope 3 has built a measurement system that is structurally incapable of registering its own progress.
Spend-based factors are sector averages, often built on foreign economic data
They are a screening tool. They tell you which categories are large enough to matter. They are weak support for a target.
The sequence that works is spend-based first for screening across all fifteen categories, then activity-based for the categories the screening shows are material, then hold the rest on spend-based with that stated. That is a defensible, disclosed hybrid, and it is what most credible Australian Scope 3 disclosures actually are.
AASB S2 supports that direction rather than mandating it. Appendix B paragraph B43 requires an entity to prioritise direct measurement over estimation, all else being equal. Paragraph B47 requires prioritisation of primary data over secondary. Neither prohibits spend-based; both make it the fallback rather than the starting point where better data is obtainable.
What the assurer does with it
The assurer tests the method choice before the numbers, because the choice determines what evidence can possibly exist. They ask which method applies per category, and they expect the answer to differ across categories.
For an activity-based figure they vouch the physical quantity to a source document and re-perform with the cited factor. For a spend-based figure that route does not exist, so they test three things instead: that the spend figure ties to the general ledger, that the sector mapping of each spend line is reasonable, and that the factor set is cited by source and edition.
The mapping is where spend-based fails most often. An accounts payable ledger is coded for financial reporting, not for emissions, so a single supplier account routinely contains several sector classifications and a general “consulting” or “other” bucket absorbs a large slice of spend. The assurer samples the mapping, and a material quantum of spend mapped to a default category is a finding.
They accept spend-based where it is disclosed as spend-based, the spend ties to the ledger, the sector mapping is documented, and the factor source is cited. They reject a spend-based figure presented without disclosure of the method, a mapping that has never been reviewed, a category held on spend-based where the entity demonstrably has physical data available, and a year-on-year reduction claimed from a spend-based figure with no price adjustment.
The question to expect at the committee, not from the assurer: if this figure fell, did emissions fall or did prices fall. A spend-based inventory cannot answer it.
Commonly confused with
Primary versus secondary data. They correlate but are not the same axis. A supplier’s own physical activity figure is activity-based and primary. A published average tonne-per-unit factor applied to your own measured tonnage is activity-based and secondary. Spend-based is always secondary; activity-based can be either.
Sources
1
2
3
Corporate Value Chain (Scope 3) Accounting and Reporting Standard, full text
GHG Protocol
Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Carbon accounting specialist
Next scheduled review
1 July 2027
Part of
Cluster D, Emissions accounting and measurement
49 terms from the head term carbon accounting down to individual Scope 3 categories and the mechanics of factors, boundaries and data quality. The largest cluster in the glossary.
Related terms
The adjacent axis, and why the two are not the same question
The four characteristics the method choice is traded off against
The physical quantity the activity-based method needs
Related questions
What is the difference between spend-based and activity-based, and which does the auditor prefer?
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Activity-based uses physical quantities such as litres or kilowatt hours, while spend-based applies a factor to dollars spent. Activity-based is more accurate and easier to evidence. An assurance practitioner has no preference in principle: they test whether the method you chose is appropriate, disclosed, and applied consistently.
Can we estimate Scope 3 and still pass assurance?
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Yes. Estimates are expected in Scope 3 and are not a problem for assurance in themselves, because what fails is an undocumented estimate. The practitioner tests whether the method is appropriate and disclosed, the inputs are traceable, the application is consistent, and the estimation uncertainty is described honestly.
How do we work out which Scope 3 categories are material for us?
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You screen all fifteen GHG Protocol categories, estimate each roughly off accounts payable spend, and document why you included or excluded each one. The screen is the deliverable as much as the answer, because the practitioner will test the reasoning behind an exclusion at least as hard as the numbers behind an inclusion. Expect the answer to be concentrated in a handful of categories.
Where this sits commercially
Carbonhalo writes the hybrid threshold down before the calculation runs, so the assurer can tell a deliberate method choice from an oversight.
Other terms in this cluster
Activity-based vs spend-based method