A Complete Guide to Scope 3 Emissions Reporting

For most companies, the bulk of their greenhouse gas emissions sits outside their own walls. It comes from the goods they buy, the way products are transported, how customers use them and what happens when they are thrown away. These are Scope 3 emissions, and they are now firmly on the reporting agenda for Australian businesses.

Under Australia’s mandatory climate-related financial disclosure regime, Scope 3 emissions reporting is moving from voluntary best practice to a legal requirement for large and medium-sized entities. This guide explains what Scope 3 emissions are, how they are categorised under the GHG Protocol, what the regulation requires, and how your company can start measuring its value chain footprint with confidence.

What Are Scope 3 Emissions?

Scope 3 emissions are the indirect greenhouse gas emissions that occur across a company’s value chain, both upstream and downstream, excluding those already counted under Scope 2. They are generated by activities the company relies on but does not directly own or control.

Scope 3 Emissions Definition

The GHG Protocol, the most widely used accounting framework for greenhouse gas emissions, groups a company’s emissions into three scopes:

• Scope 1: direct emissions from sources the company owns or controls, such as fuel burned in company vehicles, boilers or on-site generators.
• Scope 2: indirect emissions from the generation of purchased electricity, steam, heating and cooling the company uses.
• Scope 3: all other indirect emissions that occur in the company’s upstream and downstream activities, from purchased goods and services through to the end-of-life treatment of sold products.

In simple terms, Scope 1 and 2 cover what happens inside your operations and the energy you buy. Scope 3 covers everything else your business is connected to across the value chain.

How Scope 3 Differs From Scope 1 and Scope 2 Emissions

The key difference is control. A company can directly change its Scope 1 emissions by switching fleet fuel, and its Scope 2 emissions by buying renewable electricity. Scope 3 emissions sit with suppliers, logistics partners, customers and investees, so reducing them depends on influence and collaboration rather than direct action.

For a full breakdown of all three scopes, see our guide to Scope 1, 2 and 3 emissions explained.

Why Scope 3 Emissions Matter to Your Carbon Footprint

For most businesses, Scope 3 is the largest part of the total carbon footprint. A 2024 report by CDP and Boston Consulting Group found that companies’ reported supply chain emissions were, on average, 26 times higher than their combined Scope 1 and 2 emissions (CDP). The same research found companies were twice as likely to measure operational emissions as supply chain emissions.

Ignoring Scope 3 means ignoring most of a company’s climate impact. Measuring it helps a business to:

• identify emission hotspots across the value chain and prioritise reduction efforts
• see which suppliers are sustainability leaders and which are lagging
• inform procurement, product design and logistics decisions
• drive product innovation and more energy-efficient products
• meet regulatory, investor and customer expectations for credible climate disclosure

Most cost reduction opportunities linked to emissions also sit outside a company’s own operations, which makes Scope 3 a commercial issue as much as an environmental one.

The 15 Scope 3 Categories Under the GHG Protocol

The GHG Protocol’s Corporate Value Chain (Scope 3) Standard splits Scope 3 emissions into 15 categories. Categories 1 to 8 are upstream (linked to what a company buys and its supply chain). Categories 9 to 15 are downstream (linked to what happens after products and services leave the business).

#	Category	Stream	What it covers
1	Purchased goods and services	Upstream	Production of the goods and services a company buys
2	Capital goods	Upstream	Production of equipment, machinery, buildings and vehicles
3	Fuel- and energy-related activities	Upstream	Extraction and production of purchased fuels and electricity, and transmission losses, not already in Scope 1 or 2
4	Upstream transportation and distribution	Upstream	Transport and storage of purchased products by third parties
5	Waste generated in operations	Upstream	Disposal and treatment of waste from the company’s operations
6	Business travel	Upstream	Employee travel for work in vehicles the company does not own
7	Employee commuting	Upstream	Employee travel between home and work
8	Upstream leased assets	Upstream	Operation of assets the company leases, if not in Scope 1 or 2
9	Downstream transportation and distribution	Downstream	Transport and storage of sold products not paid for by the company
10	Processing of sold products	Downstream	Further processing of intermediate products by other companies
11	Use of sold products	Downstream	Energy and emissions from customers using the products
12	End-of-life treatment of sold products	Downstream	Disposal and treatment of products at end of life
13	Downstream leased assets	Downstream	Operation of assets the company owns and leases to others
14	Franchises	Downstream	Operation of franchises not included in Scope 1 or 2
15	Investments	Downstream	Emissions linked to investments, including equity and debt (financed emissions)

Not every category will be relevant to every company. A professional services firm may have no material emissions from processing of sold products, while a manufacturer’s footprint may be dominated by purchased goods and use of sold products.

Scope 3 Emissions Examples

Scope 3 looks different depending on what a business does. Some common examples:

• Retailer: emissions from manufacturing the products it stocks (purchased goods), freight from overseas suppliers (upstream transportation) and packaging waste after customers dispose of products (end-of-life treatment).
• Professional services firm: business travel, employee commuting, purchased IT equipment (capital goods) and outsourced services such as cloud hosting.
• Manufacturer: raw materials and components from suppliers, upstream energy production, and the electricity customers use to run its products over their lifetime.
• Property developer: embodied carbon in concrete, steel and other construction materials, plus emissions from tenants operating buildings it leases out (downstream leased assets).
• Fund manager or bank: financed emissions from the companies and projects it invests in or lends to (investments).

In each case, the emissions occur at another organisation’s sites, but they exist because of the reporting company’s activities. That is what makes them part of its Scope 3 footprint.

Scope 3 Reporting in Australia: What the Climate Regulation Requires

Until recently, Scope 3 disclosure in Australia was voluntary. That changed with the mandatory climate-related financial disclosure regime under the Corporations Act, which applies to financial years starting on or after 1 January 2025. In-scope entities must prepare a sustainability report that complies with AASB S2 Climate-related Disclosures, lodged with ASIC alongside their annual financial report.

It is worth noting that Australia’s national greenhouse accounts and the National Greenhouse and Energy Reporting (NGER) scheme focus on Scope 1 and Scope 2 emissions. Scope 3 is not included in the national accounts (Parliamentary Library), which is why company-level disclosure under AASB S2 is so significant.

Who Must Report and When

The regime is phased in across three groups. An entity is in a group if it meets at least two of the three size thresholds, or meets the NGER or asset-owner criteria, under section 292A of the Corporations Act (ASIC).

Group	First reporting periods starting on or after	Consolidated revenue	Consolidated gross assets	Employees
Group 1	1 January 2025	$500 million+	$1 billion+	500+
Group 2	1 July 2026	$200 million+	$500 million+	250+
Group 3	1 July 2027	$50 million+	$25 million+	100+

Group 2 also captures other NGER reporters and asset owners with $5 billion or more in assets. Group 3 entities only need to make climate disclosures if they have material climate-related risks or opportunities.

Key Scope 3 Rules Under AASB S2

• Year-two start: Scope 3 emissions do not need to be disclosed in an entity’s first reporting period. They become mandatory from the second (CA ANZ).
• GHG Protocol alignment: Scope 3 must be measured in line with the GHG Protocol, with methods, boundaries and estimates disclosed.
• Estimates allowed: AASB S2 accepts estimation methodologies, recognising that direct measurement across a value chain is difficult.
• Modified liability: for an initial transition period, Scope 3 disclosures, scenario analysis and transition plans are protected from private litigation. Only ASIC can take action during this period.
• Phased assurance: assurance over Scope 3 is being phased in, starting with limited assurance. The move to reasonable assurance is currently under review (see below).

Proposed Changes to Watch

The regime is still being refined. The 2026–27 Federal Budget proposed raising the large proprietary company thresholds, which would remove some smaller Group 3 entities from mandatory reporting. In August 2026, Treasury also opened a consultation on adjusting assurance settings and setting clearer boundaries on value chain information requests (ESG Today).

These proposals are not yet law. Treasury has said any changes will be sequenced to avoid disruption, and it is not seeking views on changing Scope 3 reporting requirements (Accounting Times). Check the latest ASIC guidance (Regulatory Guide 280) before finalising your approach.

A Regulation Example: Scope 3 Reporting in Practice

Consider an illustrative Australian manufacturer with a 30 June year-end, $300 million in revenue and 400 employees. It meets two of the three Group 2 thresholds.

1. FY2026–27 (1 July 2026 to 30 June 2027): its first sustainability report. It must disclose Scope 1 and Scope 2 emissions, but Scope 3 is not yet required.
2. FY2027–28: Scope 3 emissions reporting becomes mandatory. The company must report relevant categories such as purchased goods, upstream transportation and use of sold products.
3. Later years: assurance requirements apply and the modified liability protections expire, so Scope 3 data quality must stand up to scrutiny.

The practical takeaway: the company should use its first reporting year to build its Scope 3 inventory, not wait until disclosure is due.

Why Scope 3 Emissions Reporting Is So Challenging

Scope 3 is widely regarded as the hardest part of corporate carbon accounting. The common obstacles include:

• Data you don’t own: the emissions occur at supplier, customer and partner sites, so the data sits in other companies’ systems.
• Supplier readiness: many suppliers, especially smaller ones, do not yet measure their own emissions.
• Reliance on estimates: without primary data, companies fall back on industry-average or spend-based emission factors, which are less precise.
• Boundary decisions: deciding which of the 15 categories are relevant, and documenting why, takes judgement.
• Double counting: one company’s Scope 3 is another’s Scope 1 or 2, so clear boundaries matter when comparing or aggregating data.

None of these is a reason to delay. Regulators and auditors expect a credible starting point and a clear plan to improve data quality over time.

How to Calculate Scope 3 Emissions Under the GHG Protocol

At its simplest, an emissions estimate multiplies activity data (such as tonnes purchased, kilometres travelled or dollars spent) by an emission factor that represents the emissions per unit of that activity.

The GHG Protocol’s Scope 3 Calculation Guidance sets out methods for each of the 15 categories. For purchased goods and services, the largest category for many companies, there are four main methods:

Method	Data used	Data specificity
Supplier-specific	Product-level emissions data provided by suppliers	Most specific
Hybrid	A mix of supplier-specific data and secondary data to fill gaps	Specific
Average-data	Quantities purchased (such as kg or units) × industry-average emission factors	General
Spend-based	Dollars spent × environmentally extended economic emission factors	Least specific

Most companies begin with spend-based estimates to get a full picture quickly, then move their highest-emitting categories and suppliers to more accurate methods over time. Other categories follow a similar logic. Business travel, for example, can be calculated using fuel, distance or spend data.

How to Start Your Scope 3 Emissions Reporting

1. Confirm your reporting obligations. Work out which group your entity falls into and when Scope 3 disclosure becomes mandatory.
2. Get Scope 1 and 2 right first. A solid operational baseline makes your value chain inventory easier to build and defend.
3. Screen all 15 categories. Use spend data and industry averages to estimate the size of each category and identify which are relevant.
4. Map your value chain. Identify your highest-spend and highest-emitting suppliers, products and activities.
5. Engage key suppliers. Request primary emissions data from the suppliers that matter most, starting with your largest categories.
6. Choose methods and document assumptions. Record the calculation method, data sources and emission factors for each category.
7. Set targets and plan reductions. Use the results to prioritise hotspots and set credible reduction targets.
8. Improve over time. Replace estimates with supplier data year on year and prepare for assurance.

How The Growth Activists Can Help With Your Scope 3 Emissions

Measuring Scope 3 is as much about people and suppliers as it is about data. The Growth Activists, a Certified B Corp sustainability consultancy, works with Australian organisations to turn reporting obligations into practical action.

• Building your baseline: through carbon and climate services, the team helps measure Scope 1, 2 and 3 emissions and develop a credible decarbonisation and net-zero strategy.
• Getting supplier data: supply chain mapping and supplier education helps you identify your highest-impact suppliers and bring them on the journey.
• Meeting your obligations: support with mandatory climate reporting helps your business prepare AASB S2-aligned disclosures with confidence.

Whether you are a Group 2 entity preparing for your first report or a mid-sized business responding to customer data requests, starting early makes Scope 3 far easier to manage.