What are Scope 1, 2, 3 emissions and why do they matter?
Many organisations, across industries and around the world, are increasingly focused on monitoring greenhouse gas (GHG) emissions, decarbonisation, and progressing towards a cleaner, more sustainable future.
For company leaders tackling these challenges, reporting progress may be a key priority to meet changing regulatory requirements, including ‘Scope 1, 2 and 3 emissions’. But what does this terminology actually mean?
GHG emissions are measured and assessed using three different ‘scopes’. Scopes are a way of categorising the different kinds of carbon emissions a company creates, within its operations and wider value chain. They are classified in the following ways:
Scope 1 – GHG emissions companies create directly, e.g. through operations.
Scope 2 – GHG emissions a company creates indirectly, via third parties e.g. from the purchase and use of electricity.
Scope 3 – all GHG emissions associated with, but not necessarily created by, a company itself, that it is indirectly responsible for throughout its value chain, e.g. emissions from products purchased from suppliers, emissions created by its products during customers use, transportation, distribution, waste disposal, and beyond.
Reporting Scope 1, 2, and 3 emissions
In the next few years, most large organisations will need to report Scope 1, 2, and 3 emissions in Australia. Legislation proposing mandatory climate-related disclosure was introduced into Australian Parliament in 2024, with the strong potential to become law. According to ASIC, entities are strongly advised to implement the systems, processes, and governance practices now that will be required to meet new climate reporting requirements.
The benefits of measuring and reducing emissions
Of the three scopes, many organisations are focused on Scope 1 emissions. Scope 3 emissions, however, have wider implications and are becoming a growing concern. Consider, for instance, lending institutions, such as banks, that weigh this Scope throughout their decision-making and reporting processes. From this perspective, companies with reduced GHG emissions may gain a competitive advantage.
Other potential benefits include:
aiding decarbonisation commitments and sustainability journey
bringing green company values to life
finding opportunities to reduce costs in supply chain
strengthening relationships with suppliers, customers, and other key stakeholders
securing grants and funding for innovative technology (such as renewable energy)
qualifying to bid and securing more tenders for projects (through reduced carbon impact)
market leadership and brand recognition
mitigating potential increases in operation costs (from anticipated carbon price policies).
While identifying effective mitigation strategies to reduce Scope 1, 2, and 3 can present challenges, it presents powerful opportunities too; especially considering both public and private stakeholders are increasingly demanding greater environmental and social consciousness from businesses.
How can businesses start tackling emissions?
There are many positive actions businesses can take towards reducing GHG emissions. Carbon Trust recommends a valuable action plan to get the ball rolling, which includes:
assessing emission hotspots throughout the value chain
identifying the sustainability performance of suppliers
informing decision making across procurement, product development, logistics, and product development teams
advancing an ESG strategy.
One leading focus for many organisations to reduce emissions is renewable energy.
Reducing emissions with renewable energy
Renewable energy solutions present promising pathways for organisations to reduce the carbon footprint of operations and improve sustainability outcomes.
At Endua, we’re leveraging our extensive experience in hydrogen innovation and renewables to support businesses transition to renewable energy and overcome associated challenges. Our proprietary electrolysis technology facilitates the production of green (sustainable) hydrogen through renewable energy sources. Endua’s systems can help reduce emissions associated with energy and transport.
Consider the transport sector, for instance. With more focus on zero-emission options, there is interest in alternative transportation fuels, including hydrogen, to reduce emissions. Interested to learn more? Check out our 7-Step guide to transition to hydrogen vehicles.
Looking ahead
Of course, reducing emissions throughout major sectors will require a concerted effort across government and industry to secure long-lasting benefits, while managing and minimising the impacts of transitioning to low-carbon, sustainable solutions. The positive news is that government-led policies, frameworks, and strategies are already shifting to support this supply, demand, and infrastructure – particularly in the renewable energy space.
Companies reducing Scope 1, 2, and 3 emissions will create a significant difference in reducing commercial, national, and global carbon footprints over the next two decades.
If you’re motivated to prepare your organisation for the future with renewable energy, get in touch with our team to start a conversation.