Glossary›Emissions accounting and measurement›Scope 3 emissions
Glossary term
Cluster D · D3
Tier 1 · differentiator
Scope 3 emissions
Definition
Scope 3 emissions are all indirect greenhouse gas emissions in an organisation’s value chain that are not Scope 2. They span fifteen defined categories, eight upstream and seven downstream, covering everything from purchased goods and services through to the use and disposal of products sold. For most organisations they are the great majority of the total.
· paragraphs 29(a)(i)(3) and 29(a)(vi), Appendix B paragraph B32, Appendix D definition · first disclosed in the second annual reporting period
On this page
In practice
Scope 3 is where the regime becomes expensive, and it is the part a captured entity is told it can defer. The deferral is real and it is narrower than it sounds.
The scale first, because boards consistently misjudge it. For a professional services firm, a distributor or a retailer, Scope 3 is routinely 80 to 95 per cent of the total inventory and Category 1 alone usually exceeds Scope 1 and Scope 2 combined by a wide margin. For a manufacturer of anything that burns fuel or draws power, Category 11 (use of sold products) can exceed everything else in the inventory put together. An entity whose climate narrative rests on Scope 1 and 2 performance is describing a small fraction of its own position, and an assurer, a lender and a regulator will all read it that way.
The three structural facts a CFO needs, in order of how much money they move.
Scope 3 does not turn on control. This is the objection raised in every first board discussion and it is a misreading. Scope 1 and 2 are drawn by control; Scope 3 is drawn by the value chain. Appendix B paragraph B32 requires an entity to consider its entire value chain, upstream and downstream, and to consider all fifteen categories. The organising idea is influence, not control, and the fact that you cannot direct your supplier does not remove their emissions from your inventory.
Consideration is not measurement. Paragraph B32 requires all fifteen categories to be considered. Paragraph 29(a)(vi) requires disclosure of which categories are included. A category enters measurement only once it is applicable and material. The document that stands between those two states is the screening, and it is itself evidence.
The relief is a disclosure relief, not a data relief. Appendix C paragraph C4(b) permits an entity to omit Scope 3 in its first annual reporting period. Paragraph C5 lets it keep relying on that relief when presenting the relieved year as comparative information later, so the reliefs taper rather than simply expiring. But the year-two disclosure needs a full year of year-two activity data, and that data starts accruing on day one of year two, which falls during the year in which Scope 3 is still relieved. An entity that treats the relief as a year off arrives at the start of year two with no supplier programme, no spend mapping and no freight dataset, and then has to reconstruct twelve months retrospectively from records that were never collected for the purpose. That single misreading is the most expensive mistake available in the whole regime.
Where the work actually sits, in the order a first-time reporter should do it: screen all fifteen categories and write the screen down; map the accounts payable ledger, because for the upstream half the creditors listing is a near-complete population of purchased goods and services by spend; decide the method per material category and write the threshold down; and start supplier engagement on the concentrated top slice of spend, not on everyone.
The measurement method choice is where the number’s credibility is decided. Spend-based measurement covers 100 per cent of spend cheaply and produces a number that moves with prices rather than emissions: negotiate a discount and your reported emissions fall, which is nonsense and an assurer will say so. Activity-based and supplier-specific measurement fixes that and costs an order of magnitude more. The defensible year-two pattern is a hybrid with a written threshold, not a purity position either way.
What the assurer does with it
Scope 3 comes into assurance scope from the second reporting year. ASSA 5010 paragraph 10(b) provides that for the second and third years of reporting the auditor conducts a review of all disclosures in the sustainability report, which includes Scope 3. Paragraph 11(a) qualifies it: comparative information that was not required to be, and was not, assured in the previous year does not become assurable now, so the year-two review covers current-year Scope 3 and not the relieved prior year.
The assurer tests the screening before testing any number, because the screening is the population definition and a gap there invalidates everything below it. They ask the entity to walk all fifteen categories and state for each whether it is included, excluded or assessed immaterial, with the basis and the date the threshold was fixed.
Then completeness, from the entity’s own audited records. The standard procedure is the creditors listing by spend: take the top suppliers by value and confirm each is reflected somewhere in the screening. A supplier in the top twenty by spend appearing nowhere is a direct finding. Downstream, they work from the revenue analysis and the product listing and ask what happens to the product after sale.
Then, per included category, the boundary applied within it, tested against the minimum boundary in the Scope 3 Standard, because that is where under-reporting hides.
They accept an exclusion supported by a quantified or reasoned screen with a threshold fixed before the result was known. They reject an exclusion on the ground that data was unavailable (unavailability is a data problem, not a materiality conclusion) a screen that assesses only the categories the entity happened to have data for, a Scope 3 total netted down because a supplier already reported the same emissions, and a hybrid method with no written threshold separating primary from spend-based suppliers.
One rejection is worth stating on its own because entities argue it. Two or more companies counting the same tonne within Scope 3 is inherent to Scope 3 accounting and is correct. Reducing your Scope 3 to avoid overlapping with your supplier’s Scope 1 produces an understated, non-compliant figure.
Commonly confused with
Scope 2, which is carved out of Scope 3 by definition: the Appendix D definition of Scope 3 reads “not included in Scope 2 greenhouse gas emissions”. Also confused with supply chain emissions, which covers only the upstream half; for a downstream-dominant business model that substitution systematically understates the total.
Timing and relief
Omission is permitted in the first annual reporting period under AASB S2 Appendix C paragraph C4(b), which for an entity participating in asset management, commercial banking or insurance also covers the additional financed emissions information. Paragraph C5 permits continued reliance on that relief for the purpose of presenting the relieved period as comparative information in later periods. The relief is per entity and moves with each group’s start date.
Group
First reporting periods beginning on or after
Scope 3 first disclosed for periods beginning on or after
Group 1
1 January 2025
1 January 2026
Group 2
1 July 2026
1 July 2027
Group 3
1 July 2027
1 July 2028
Sources
1
2
Corporate Value Chain (Scope 3) Accounting and Reporting Standard, full text
GHG Protocol
3
ASSA 5010 Timeline for Audits and Reviews of Information in Sustainability Reports under the Corporations Act 2001
AUASB
Review status
Review required
Last reviewed
15 September 2026
Editorial pass, unsigned
Reviewer required
Carbon accounting specialist and registered company auditor
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 fifteen-category structure that bounds the Scope 3 population
The document that converts consideration of all fifteen into a defensible measured subset
The population definition Scope 3 is drawn from, upstream and downstream
Related questions
Do we have to report Scope 3 in year one?
−
No. AASB S2 gives first-time reporters relief from disclosing Scope 3 greenhouse gas emissions in their first annual reporting period, and Scope 3 is required from the second year. Taking the relief in year one is normal, but the supplier data work needs to start in year one anyway.
How do we work out which Scope 3 categories are material for us?
+
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.
Can we estimate Scope 3 and still pass assurance?
+
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.
Where this sits commercially
Carbonhalo builds the Scope 3 screening and the data programme during the relieved year, so year two is a disclosure exercise rather than a reconstruction.
Other terms in this cluster
Scope 3 emissions