The Difference Between Scope 3 and Scope 4 Emissions

Companies around the world are working to measure and reduce their greenhouse gas (GHG) emissions, often categorizing them into Scope 1, 2, and 3 as defined by the GHG Protocol. Scope 3 emissions refer to the indirect emissions across a company’s value chain, and they frequently make up the bulk of an organization’s carbon footprint. Scope 3 carbon emissions often account for around 70–80% of total GHG output. This means focusing solely on direct emissions (Scope 1) and purchased energy (Scope 2) gives an incomplete picture of corporate climate impact.

Understanding Scope 3 (Indirect Emissions)

Scope 3 covers all the indirect emissions from sources that a company does not own or control, but which occur up and down its value chain. These are the emissions associated with the company’s activities that happen outside its own walls. For example, at supplier facilities, during the use of its products, or in the disposal of its products. There are 15 scope 3 emissions categories defined under the GHG Protocol, covering a wide range of indirect emissions sources from both upstream and downstream activities in the value chain. Broadly, this breaks down into emissions from upstream emissions analysis (suppliers, production inputs, business travel, etc.) and downstream emissions tracking (product distribution, product use by customers, end-of-life disposal, investments, etc.).

Measuring and managing these indirect emissions is challenging. Companies often struggle with measuring scope 3 emissions accurately because the required data lies with third parties. Organizations may start with estimates or industry averages when supplier-specific data is unavailable. Despite the complexity, Scope 3 typically represents the majority of a company’s carbon footprint, so ignoring it isn’t an option. Under most carbon reporting standards, businesses are expected to identify which Scope 3 categories are relevant and include those in their emissions inventory. This accounting is crucial for fully understanding a company’s climate impact and identifying where the biggest reduction opportunities lie.

Methods for Measuring and Managing Scope 3 and Scope 4 Emissions

Effectively measuring and managing Scope 3 and Scope 4 emissions is crucial for organizations seeking to comprehend and mitigate their overall climate footprint. Both categories present unique challenges and require tailored strategies, tools, and methodologies. Below is a structured overview of key approaches, tools, and best practices for quantifying, tracking, and managing Scope 3 and Scope 4 emissions:

• Approaches to Measuring Scope 3 Emissions: Quantifying Scope 3 emissions involves mapping out the entire value chain and identifying which of the 15 GHG Protocol categories are relevant. Data collection often relies on supplier surveys, industry averages, and third-party databases, especially when direct data is unavailable. Companies may start with estimates and refine their calculations as better data becomes available. Engaging suppliers and customers early in the process helps improve data quality and completeness over time.
• Tools and Platforms for Emissions Tracking: Organizations increasingly use digital platforms and carbon management software to track, aggregate, and analyze emissions data across their supply chain. These tools streamline data collection, automate reporting, and facilitate collaboration with vendors and partners. Integrating such platforms into procurement and operational workflows enables ongoing monitoring and supports more transparent, auditable emissions reporting.
• Methodologies and Best Practices for Scope 4 (Avoided Emissions): Calculating Scope 4 emissions requires establishing a credible baseline scenario, which includes what emissions would have occurred without the product or service. Companies compare this baseline to the emissions profile enabled by their innovation. Best practices include using recognized emission factors, transparent documentation of assumptions, and, where possible, validation by independent third parties. This ensures credibility and helps avoid overstatement or greenwashing risks.
• Challenges and Considerations in Managing Both Scopes: Both Scope 3 and Scope 4 emissions pose significant challenges, including data availability, lack of standardization, and potential for inconsistent reporting. For Scope 3, the primary challenge is obtaining reliable data from external partners. For Scope 4, the voluntary nature and evolving methodologies can lead to inconsistency. To address these challenges, companies should prioritize transparency, regularly update their methodologies, and seek third-party verification to build trust with stakeholders.

By leveraging the right approaches, tools, and best practices, organizations can more effectively quantify and manage both Scope 3 and Scope 4 emissions. This not only supports robust climate strategies but also demonstrates a commitment to transparency and innovation in the journey toward decarbonization.

Role and Importance in Corporate Sustainability and Climate Strategy

Because value chain emissions loom so large, addressing Scope 3 has become a top priority in corporate climate strategy. Reducing these emissions requires engaging the suppliers, contractors, and customers responsible for them. Many firms are developing a sustainable procurement strategy that factors carbon impact into selecting and managing vendors.

Although a company cannot directly control supplier emissions, it can influence them through collaboration and standards by encouraging suppliers to switch to renewable energy or by choosing vendors with lower-carbon practices. Organizations can often influence their suppliers or choose which vendors to contract with based on sustainability performance. By integrating such criteria into procurement, businesses not only cut emissions but also mitigate third-party risks in their supply chain.

Transparent scope 3 emissions reporting is also critical. Investors and regulators increasingly demand disclosure of these indirect emissions as part of overall climate risk assessments. Suppose a company omits value chain emissions from its disclosures. In that case, its carbon risk reporting will be incomplete, potentially hiding significant exposures. Including Scope 3 in climate targets and reports signals to stakeholders that the company is serious about ESG risk management across its entire footprint. As mentioned, companies are now leveraging technology and data platforms like Certa to track supplier emissions and collaborate on reductions, making Scope 3 management an integral part of business risk strategy.

What is Scope 4?

Scope 4 refers to emission reductions that occur outside of a product’s own life cycle or value chain, but result from the use of that product. These are avoided emissions – the greenhouse gases that were never emitted because something the company provided displaced a higher-emission alternative. People sometimes even use the phrase avoided emissions scope 4 to describe this concept explicitly. If a company manufactures ultra-efficient home insulation, the insulation’s use might reduce consumers’ heating fuel needs. The avoided CO₂ from that saved fuel is attributed to the insulation maker as Scope 4. Or consider a software that enables virtual meetings. It can lead to less business travel and thereby avoid emissions from flights that didn’t happen.

It’s essential to note that Scope 4 is not part of the formal GHG Protocol framework. It’s a voluntary concept that companies may opt to report to highlight the positive climate impact of their offerings. Some forward-thinking organizations have started including such metrics in their sustainability reports to showcase these benefits. Sustainability reporting scope 4 data might be presented as a separate figure to illustrate how many emissions the company helped society avoid. While not required, this can provide a more holistic view of a company’s climate impact, beyond just its own footprint.

Opportunities and Risks of Scope 4

Even though it’s voluntary, Scope 4 brings some clear opportunities. It encourages companies to innovate and develop products that are not only profitable but also help solve climate change. By tracking avoided emissions, R&D teams can quantify the real-world impact of new solutions, which can justify investment in clean technology and give environmentally friendly products a competitive edge. Communicating strong Scope 4 results can bolster a company’s reputation, as customers and investors may favor businesses whose offerings are proven to reduce emissions for society.

However, there are significant challenges and caveats. Unlike scopes 1–3, avoided emissions don’t have established rules. Each company might calculate Scope 4 a bit differently, leading to inconsistency. This raises the risk of overstatement or “creative” accounting. This is where third-party risk in scope 4 emissions comes into play: if avoided emission claims can’t be verified by an independent party or are based on shaky assumptions, the company exposes itself to credibility issues. A lack of standardized methodology and transparency can undermine trust, inviting criticism that Scope 4 is just greenwashing. Furthermore, an excessive focus on boasting about avoided emissions could distract from the imperative to reduce the company’s own direct and value chain emissions. Done carefully, it can illustrate how the business contributes to decarbonizing the broader economy; done poorly, it can backfire.

Practical Examples and Real-World Applications

By examining case studies across various industries, we can see how companies implement emissions accounting, collaborate with stakeholders, and leverage innovation to achieve sustainability goals. Here are seven illustrative examples:

• Utility Supplier Engagement: A leading utility company, PG&E, launched supplier training programs and phased reporting goals to improve Scope 3 emissions data. By providing one-on-one coaching and environmental management system training, PG&E enabled even small suppliers to start measuring and reporting their emissions, supporting industry-wide decarbonization efforts.
• Supplier Decarbonization: French multinational Schneider Electric’s “Zero Carbon Project” targeted a 50% cut in supplier emissions by 2025. Schneider engaged over 1,000 suppliers with decarbonization training and collaborative initiatives, demonstrating how large organizations can drive value chain emissions reductions through supplier engagement and capacity building.
• Automotive Innovation: Volvo, a major automotive manufacturer, identified that more than 95% of its total emissions were Scope 3, primarily from vehicle use. The company set ambitious targets for reducing these emissions, focusing on product innovation to improve energy and fuel efficiency, and transparently reported annual progress in sustainability disclosures.
• Tech Sector Leadership: In the tech sector, companies designing energy-efficient devices, such as smartphones with advanced batteries, have quantified Scope 4 (avoided) emissions. By modeling the reduced electricity usage compared to conventional alternatives, these firms demonstrate measurable climate benefits and integrate avoided emissions into their sustainability reporting.
• Consumer Goods Example: The detergent industry provides a clear Scope 4 example: manufacturers of low-temperature detergents calculate the emissions avoided when consumers wash clothes at lower temperatures. These avoided emissions are reported as Scope 4, showing how product innovation can have a significant downstream climate impact.
• Energy Transition: Utilities transitioning customers to renewable energy sources, or retiring coal plants in favor of sustainable alternatives, measure Scope 4 emissions by comparing projected emissions from traditional energy sources to those actually achieved. These calculations are used to highlight the broader environmental benefits of industry transformation.
• Remote Work Enablement: Companies enabling remote work and virtual meetings, such as teleconferencing software providers, report Scope 4 emissions by estimating the travel-related emissions avoided when business trips are replaced with online meetings. This approach is increasingly used to showcase how digital transformation can reduce global carbon footprints.

These examples underscore the variety of strategies and methodologies organizations use to address Scope 3 and Scope 4 emissions.

Scope 3 and Scope 4 serve very different purposes in carbon accounting. Scope 3 represents the often vast, hidden carbon liabilities in a company’s supply chain and product life cycle. Addressing these is critical for any credible net-zero plan. Scope 4, on the other hand, represents potential carbon assets, as the climate benefits a company can enable through innovation. While Scope 3 is an established part of emissions reporting, Scope 4 remains an optional concept that forward-looking companies are experimenting with. However, scope 3 and Scope 4 emissions are integrated into existing greenhouse gas protocols, standards, and regulations, and the evolving landscape of emission reporting requirements. Businesses should continue to prioritize measuring and cutting their Scope 1, 2, and 3 emissions, as these reductions directly decrease the global GHG concentration. But as they do so, it’s worthwhile also to measure and communicate Scope 4 contributions, as long as they use rigorous methods. In a carbon-constrained world, companies will be judged both on reducing their own footprint and on how they help others reduce theirs. Understanding the difference in carbon scopes helps organizations ensure they are doing both. Cutting the emissions they’re responsible for and scaling up the solutions that make emissions avoidance possible.

Sources

• Janus Henderson Investors – “Innovation opportunities: Avoided emissions (Scope 4)” janushenderson.com
• U.S. EPA – “Scope 3 Inventory Guidance” epa.gov