Glossary›Emissions accounting and measurement›Capital goods (Scope 3 Category 2)
Glossary term
Cluster D · D39
Tier 2
Capital goods (Scope 3 Category 2)
Definition
Category 2 covers the cradle-to-gate emissions of capital assets a company acquires in the reporting year: buildings, plant, vehicles, IT hardware, fit-out. The full production emissions are recognised in the year of acquisition. They are not depreciated, discounted or amortised across the asset’s useful life, which is the opposite of the financial treatment.
· Appendix B, Scope 3 measured per the GHG Protocol Corporate Value Chain (Scope 3) Standard · first disclosed in the second reporting period
On this page
In practice
This is the single most counter-intuitive rule in Scope 3 accounting for a financial controller, and it is the one that produces the angry phone call. Your company buys a $40 million building in FY27. The embodied emissions of that building land entirely in FY27’s Category 2, not spread over forty years. Category 2 is therefore violently lumpy: near zero in a quiet year, then a spike that can exceed the entire rest of the inventory in a capex year.
The consequence for disclosure is that an emissions trend line containing Category 2 is close to meaningless without commentary. Entities that set a reduction target against a total including Category 2 and then execute a capital programme find themselves reporting a large increase they cannot explain away. The fix is not to exclude the category. It is to disclose the capex spike separately in the narrative and, where the target is a like-for-like measure, to say so in the basis of preparation.
Sourcing follows the asset register, which is the one thing that makes Category 2 easier than Category 1: additions to property, plant and equipment for the year are already a discrete, audited, reconciled population.
What the assurer does with it
The assurer agrees the Category 2 population directly to additions to property, plant and equipment and to right-of-use asset additions in the audited financial statements. That is an unusually clean completeness test and they will use it.
They then test the factor applied to each material addition and, for constructed assets, look for whether an embodied-carbon assessment exists rather than a generic spend factor.
They accept an activity-based figure for a major asset supported by a supplier’s or builder’s embodied-carbon assessment. They reject capital emissions depreciated over the asset life, which is a methodology error and not a presentational one, and they reject an additions population that excludes leased assets capitalised under AASB 16 without an explanation. Expect a direct question about whether the same capital spend also sits in Category 1.
Commonly confused with
Purchased goods and services, and the operation of the asset once acquired. Running the building is Scope 1 and Scope 2, or Category 8 if leased. Category 2 is only the making of it.
Timing and relief
The standard Scope 3 position applies. Scope 3, and therefore this category, may be omitted from an entity’s first annual reporting period under AASB S2 Appendix C paragraph C4(b), and under paragraph C5 the entity may keep relying on that relief when presenting the relieved year as comparative information in later periods. Group 1 first discloses Scope 3 for periods beginning on or after 1 January 2026, Group 2 from 1 July 2027 and Group 3 from 1 July 2028.
Sources
1
Corporate Value Chain (Scope 3) Accounting and Reporting Standard, full text
GHG Protocol
2
3
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 catch-all category Category 2 is carved out of
What a lumpy capex year does to a trend and a target
The audited additions population the category is agreed to
Related questions
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.
How do we tie our emissions data back to the general ledger?
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You reconcile the spend or volume behind each emissions source to the ledger accounts that record it, and you document the differences. It is not a perfect tie and it is not meant to be. The point is completeness: the ledger is the only population in the business already complete and already audited, so it is the natural control total for showing nothing has been left out.
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.
Other terms in this cluster
Capital goods (Scope 3 Category 2)