reenhouse gas (GHG) emissions are the primary drivers of climate change and are of growing concern to companies and their stakeholders. Organizations today are increasingly focused on managing their carbon footprint and mitigating the risks associated with GHG emissions.
In this article, we’ll introduce GHG emissions and explain the difference between Scope 1, Scope 2, and Scope 3 emissions. We’ll also examine the ESG (Environmental, Social, and Governance) benefits of lowering emissions from a business perspective.
GHG emissions are gasses that trap heat in the Earth's atmosphere, contributing to global warming and climate change. The most common GHG emissions are carbon dioxide (CO2), methane (CH4), and nitrous oxide (N2O). These gases are emitted through a variety of human activities, including the burning of fossil fuels, deforestation, and agriculture. Carbon dioxide (CO2) is the most significant contributor—in 2021, CO2 accounted for 79% of all U.S. GHG emissions from human activities.
GHG emissions are broken into three categories for businesses and organizations—Scopes 1, 2, and 3. The concept was originally developed by the Greenhouse Gas Protocol (GHGP), a widely recognized accounting and reporting standard for GHG emissions that was jointly created by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
The separation between Scopes 1, 2, and 3 helps organizations identify both direct and indirect emissions—enabling companies to understand their complete carbon footprint and develop targeted strategies for emissions reduction. Scopes 1 and 2 are carefully delineated in this standard to avoid risking two or more companies accounting for emissions in the same scope (otherwise known as “double counting”).
Let’s take a closer look at the scope categories and how they’re defined:
Together, all three scopes make up a comprehensive framework for tracking and managing emissions across different sources and activities within an organization. Companies must reduce their emissions across all three categories to meet the global and corporate sustainability goals laid before them.
Understanding the different scopes of GHG emissions is essential for those who want to manage their carbon footprint. Companies can generally easily calculate their Scope 1 and 2 emissions, and manage them by implementing actions like adopting renewable energy or switching to electric vehicles. Scope 3 emissions are the hardest to calculate. Yet they can account for over 70% of a business’ carbon footprint and are often the most significant category.
Despite how challenging cutting Scope 3 emissions can be, a growing number of companies are pledging to do so. Why? Because companies that do so not are not only future-proofing themselves against physical and regulatory risk, they’re also increasing the value of their business in the eyes of investors and stakeholders—especially when being evaluated from an ESG perspective.
From a purely economic perspective, there are even more upsides to tracking and reducing a company’s carbon footprint. Such as:
In conclusion, GHG emissions are a critical issue for businesses and organizations to consider, especially with the increasing expectations for companies to commit to sustainability targets and to prove their impact. Understanding the difference between Scopes 1, 2, and 3 emissions is essential for managing an entity’s carbon footprint and mitigating climate-related risks.
Business leaders who prioritize ESG considerations should carefully evaluate their companies' carbon footprints to strengthen their ESG performance and drive positive environmental and social outcomes. As climate change continues to dominate conversations as a pressing global issue, companies who focus on reducing their carbon footprint and building sustainable businesses will be better positioned for long-term success.