1.  Introduction | Value Chain Emissions 

  Why must companies examine carbon emissions from a value chain perspective? 

1.1  Decarbonization Trends and Net Zero 

Global Decarbonization Regulatory Trends and Corporate Net-Zero Responsibility

1. Latest Net-Zero Targets and Carbon Pricing Trends

According to the Founders Forum Group 2025 Report, as of early 2025, 153 countries—representing over 90% of global GDP—have announced or are considering adopting net-zero targets.

Global carbon pricing mechanisms are expanding rapidly. The World Bank’s 2025 Carbon Pricing Report indicates that 80 carbon taxes or emissions trading systems were in operation by the end of 2024, covering 28% of global emissions. China continues to expand the scope of its emissions trading scheme, while the EU promotes global carbon price convergence through the Carbon Border Adjustment Mechanism (CBAM). These policies highlight how governments are increasingly using regulations and economic instruments to drive corporate decarbonization.

2. Importance of Supply Chain Emissions

• CDP’s 2021 Supply Chain Risk Report shows that supply chain GHG emissions are, on average, 11.4 times higher than a company’s operational emissions, accounting for around 90% of total corporate emissions.
  
  

• SBTi, in a 2023 publication, similarly finds that supply chain emissions are 11 times higher than direct (Scope 1) emissions and represent more than 70% of total emissions.
  
  

• MIT Sloan School of Management (2024) reports that Scope 3 (value chain) emissions account for an average of 75% of total corporate emissions, yet remain difficult to track due to supply chain complexity.

Global Carbon Reduction Regulations and Corporate Sustainability Responsibilities 

I. Latest Global Net-Zero and Carbon Pricing Policy Trends

1. According to the Founders Forum Group 2025 Report, as of early 2025, a total of 153 countries (accounting for more than 90% of global GDP) have announced or are considering net-zero emission targets.

2. Global carbon pricing mechanisms are expanding rapidly. The World Bank’s 2025 Carbon Pricing Report indicates that 80 carbon taxes or emissions trading systems were in operation by the end of 2024, covering 28% of global greenhouse gas emissions. Among them, China continues to expand its carbon trading market, while the European Union uses the Carbon Border Adjustment Mechanism (CBAM) to drive the global carbon pricing trend. These policies demonstrate that countries are using legal and economic instruments to promote corporate carbon reduction.

II. The Importance of Supply Chain Emissions

1. According to the CDP Supply Chain Risk Report released in 2021, corporate supply chain greenhouse gas emissions are on average 11.4 times higher than their own operational emissions and account for approximately 90% of total corporate emissions.

2. SBTi also pointed out in its 2023 article that supply chain emissions are on average 11 times higher than direct emissions (Scope 1) and exceed 70% of total corporate emissions.

3. A 2024 report by MIT Sloan School of Management found that Scope 3 (value chain) emissions account for an average of 75% of total corporate emissions, but due to the complexity of supply chains, they remain difficult to track.

III. Key Takeaways

These data indicate that the global policy environment is rapidly shifting toward net-zero, and carbon pricing mechanisms are continuously strengthening corporate emission reduction pressure. At the same time, supply chain emissions are generally much larger than a company’s own operational emissions and account for more than two-thirds of total emissions. Therefore, if companies aim to achieve science-based net-zero commitments, they must not only manage Scope 1 and Scope 2 emissions, but also integrate the entire value chain emissions into inventory management and governance.

1.2 Scope 3 as a Critical Challenge for Enterprises

Why Scope 3 Is a Key Challenge in Corporate Carbon Inventories

1. Broad Coverage but Not Fully Applicable

Scope 3 covers fifteen categories across upstream suppliers and downstream customers. However, official guidelines emphasize that not all categories are applicable to every company, and many emissions occur outside a company’s direct control boundary. In addition, employees without professional training often lack the ability to determine whether a category should be included based on emission risks or business goals. Therefore, companies must first identify which categories are highly relevant to their core operations, rather than indiscriminately including all categories.

2. Difficulty in Data Collection

Suppliers often lack reliable emission measurement tools or professional capabilities. Even when data are provided, calculation methods frequently differ due to varying data sources, resulting in inconsistent data quality. For the numerous value chain activities, converting various raw materials, services, and logistics data into CO₂ equivalents requires companies to master appropriate calculation methods (such as expenditure-based methods and emission factor approaches), which poses a major challenge for inexperienced companies. This is especially true for certain Scope 3 categories, where the variety of value chain emission sources—across different industries, supply models, and material types—is extremely complex. Converting these emissions into CO₂ equivalents can easily become a heavy burden or even remain infeasible.

3. Cross-Border and Cross-Industry Complexity of Supply Chains

Modern corporate supply chains involve multiple layers of suppliers, transportation, and service providers, spanning different countries and industries, which causes fragmentation of activity data and lack of transparency. Experts point out that data sources and calculation methods differ among companies and industries, and the lack of standardized calculation approaches increases the risk of omissions or double counting in Scope 3 inventories.

4. Risk of Double Counting

If emissions from the same activity are included separately by both the supplier and the customer under their respective Scope 3 categories, double counting becomes unavoidable. This makes it particularly difficult to verify the actual effectiveness of emission reductions or carbon offsets, and requires clear rules on emission ownership and responsibility allocation.

5. Requires Significant Coordination and Resource Investment

Studies indicate that collecting and verifying multi-tier supplier Scope 3 data requires a substantial amount of time and human resource costs, posing a particularly heavy burden on small and medium-sized enterprises. Conducting supplier training and data verification is therefore an indispensable process.

6. Ignoring Scope 3 Leads to Distorted Inventories

Many studies show that supply chain emissions often account for 70–90% of a company’s total emissions, far exceeding Scope 1 and Scope 2. If these indirect emissions are not included in the inventory, a company’s carbon inventory will fail to accurately reflect its true climate impact, and it will also be difficult to formulate effective decarbonization strategies.

1.3 Accounting Foundations of the GHG Protocol

SBTi, CDP, and IFRS S2 all adopt the GHG Protocol as their core accounting foundation.

1. CDP Climate Questionnaire

(1) CDP uses the GHG Protocol Corporate Value Chain (Scope 3) Standard as its framework and requires companies to conduct identification, quantification, and disclosure of emissions based on Scope 3 Categories 1–15.

(2) The questionnaire clearly requires companies to disclose the emissions amount, organizational boundaries, and calculation methodologies for each category, and to state whether the inventory is conducted in accordance with the GHG Protocol or equivalent standards.

(3) This consistency ensures that CDP disclosure results are aligned with SBTi target setting and IFRS S2 financial climate-related disclosures, forming an integrated loop of “inventory – targets – disclosure.”

2. IFRS S2 Climate-related Disclosures

(1) The IFRS S2 (Climate-related Disclosures) issued in 2023 explicitly stipulates that companies must adopt the GHG Protocol accounting and reporting standards when measuring and disclosing Scope 1, Scope 2, and Scope 3 greenhouse gas emissions.

(2) The accompanying guidance (Part B) further specifies that companies already conducting inventories based on the GHG Protocol corporate and value chain standards may directly apply the IFRS S2 disclosure requirements, thereby ensuring the comparability and verifiability of climate information in financial reporting.

(3) The ISSB, in its Basis for Conclusions, reiterates that IFRS S2 recognizes the GHG Protocol as the sole internationally accepted reference for emissions measurement methodologies, and that it remains consistent with the recommendations of the TCFD.

3. Science Based Targets initiative (SBTi)

The Science Based Targets initiative (SBTi) is currently the most credible global corporate standard for setting and validating greenhouse gas reduction targets. All targets must be based on quantified results under the GHG Protocol. Except for specific sectors (such as FLAG: Forestry, Land and Agriculture Land Use Change), which must use the Sectoral Decarbonization Approach (SDA), most enterprises must adopt the Absolute Contraction Approach to define their decarbonization pathways.

A. SBTi Requires Enterprises to Set Two Stages of Targets

1. Near-term target (5–10 years): Focuses on establishing concrete decarbonization foundations and action pathways to ensure that enterprises implement science-based reductions within the medium term.

2. Long-term net-zero target (before 2050): Centers on deep decarbonization and final neutralization (offset/removal), requiring enterprises to reduce actual emissions to within 10% of the baseline year.

B. Coverage and Reduction Requirements for Near-Term Targets (5–10 Years)

1. Scope 1 and Scope 2 (Direct and Indirect Energy Emissions)

When setting near-term science-based targets, enterprises must include at least 95% of their Scope 1 and Scope 2 emissions within the target boundary, allowing exclusion of no more than 5%. This ensures that direct fuel combustion, manufacturing emissions, and electricity-related emissions (market-based or location-based) are comprehensively covered.

2. Scope 3 (Value Chain Emissions)

If Scope 3 emissions account for more than 40% of total emissions, enterprises must establish supplier or customer engagement targets, or independently set Scope 3 reduction targets, covering at least 67% of Scope 3 emissions. In Figure 1, the dark area represents the mandatory 67% coverage, while the lighter area represents the optional exclusion portion (approximately 33%), applicable to activities where data acquisition is difficult or impact is relatively minor. The 15 categories defined by the GHG Protocol serve as the basis for boundary classification.

C. Principles for Setting Scope 3 Near-Term Targets

(1) Absolute Contraction Approach

1. Applicable entities: Enterprises with quantifiable Scope 3 emissions data.

2. Core requirement: Set absolute reduction targets covering at least 67% of emissions within the boundary.

3. Recommended reduction rate: SBTi does not mandate an absolute 42% reduction, but its official guidance suggests an annual reduction of approximately 2.5%, equivalent to a cumulative reduction of about 25% over 10 years.

4. Timeline requirement: Targets must be set over a 5–10 year period and submitted to SBTi for formal validation.

5. Key feature: This approach emphasizes enterprises’ own direct mitigation capacity and internal performance, strengthening traceability and verifiability of quantified outcomes.

(2) Supplier or Customer Engagement Target

1. Applicable entities: Enterprises whose Scope 3 emissions are highly concentrated in supplier operations or product-use phases.

2. Core requirement: Engage value-chain partners covering at least 67% of emissions (calculable using spend-based methods), and require them to join SBTi and obtain target validation within 5 years.

3. Timeline requirement: Within 5 years from target approval, the required participation coverage must be achieved, meaning that suppliers or customers within the defined boundary must all obtain SBTi-validated targets.

4. Key feature: Emphasizes collaborative decarbonization through the supply chain, suitable for enterprises that have difficulty directly accessing emissions data (such as retailers, brand owners, and financial service providers)

D. Operational Implementation of Scope 3 Targets

1. Near-term Target Coverage (Coverage)

This refers to the proportion of value-chain activities that an enterprise must include under management and tracking when setting its targets. When Scope 3 emissions exceed 40% of total emissions, at least 67% of the emission activities must be covered within the target boundary. This proportion may be calculated using either a spend-based or an emission-based approach.

2. Near-term Target Reduction Rate (Reduction Rate)

A. If the Absolute Contraction Approach is adopted, the reduction pathway should follow the SBTi handbook recommendation of an average annual reduction rate of 2.5%, which is equivalent to an approximate 25% total reduction over 5–10 years.
B. If the Supplier/Customer Engagement Target is adopted, no fixed reduction percentage is required; instead, emphasis is placed on ensuring that, within 5 years, collaborative partners within the coverage boundary pass SBTi target validation to achieve coordinated emission reductions.

3. Coverage and Reduction Requirements for the Long-term Net-zero Target (Year 2050)

A. Scope 3 Coverage: By 2050, enterprises must incorporate at least 90% of value-chain emissions into the reduction boundary, and excluded portions may not exceed 10%.
B. Absolute Reduction: Compared with the 2020 base year, total greenhouse gas emissions must be reduced by 90%, with the remaining 10% only allowed to be neutralized through carbon removal or offsetting to achieve net zero.

Overall Summary,SBTi establishes a three-layer structure based on the GHG Protocol:

• The GHG Protocol provides principles for emission calculation and boundary setting;

• SBTi establishes scientifically grounded emission reduction targets based on these data;

• Verification mechanisms ensure transparency, comparability, and credibility of emission reduction actions.

These standards collectively make the GHG Protocol the globally recognized greenhouse gas accounting foundation, enabling enterprises to adopt consistent methodologies while simultaneously complying with international disclosure and decarbonization requirements such as SBTi, CDP, and IFRS S2, thereby strengthening credibility and competitiveness in the climate transition.

1.4 Value Chain Management

Carbon accounting is not merely for disclosure; it is the starting point of value chain management.

The purpose of Scope 3 carbon accounting is not only to meet disclosure requirements or respond to external evaluations, but to serve as the starting point for enterprises to implement Value Chain Carbon Management. Through systematic carbon accounting, enterprises are able to identify carbon emission hotspots (Carbon Hotspots) across the entire life cycle of their supply chains, products, and services, thereby transforming carbon emission data into a basis for decision-making and a governance tool.

Accurate carbon accounting results can assist enterprises in the following aspects:

1. Optimization of Procurement Strategies (Sustainable Procurement)

Carbon emission intensity is used as a basis for supplier selection and management, promoting low-carbon procurement and green supply chain collaboration.

2. Promotion of Product R&D Innovation (Low-carbon Design & Innovation)

Through life cycle assessment (LCA), high-carbon materials and manufacturing processes are identified, facilitating carbon reduction benefits through product design and material substitution.

3. Improvement of Customer Use and End-of-Life Management (Customer Use & End-of-Life Management)

The emission characteristics during the product use and disposal stages are analyzed to develop low-carbon usage solutions and recycling and reuse mechanisms.

4. Strengthening Corporate Governance and Risk Management (Governance & Climate Risk Management)

Carbon management is integrated into corporate strategy and board-level decision-making processes, and linked with financial performance, operational performance, and sustainability indicators.

Conclusion

Carbon accounting is not the endpoint, but the starting point of action.
Only when enterprises internalize Scope 3 carbon accounting results as the basis for supply chain collaboration, product design, and investment decision-making can they truly move from disclosure to emission reduction, and from regulatory compliance to competitive advantage.

2. Mainstream International Frameworks

The Relationship Between the GHG Protocol and Mainstream International Frameworks

2.1 Global Common Language

GHG Protocol: The Global Common Language for Corporate Carbon Accounting

The GHG Protocol was developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). Since the release of the Corporate Accounting and Reporting Standard in 2004, it has become the common language for corporate greenhouse gas accounting. It categorizes emissions into three scopes and further defines 15 mutually exclusive subcategories under Scope 3, covering all upstream and downstream activities. Thousands of companies and financial institutions worldwide have adopted the GHG Protocol as the foundation for carbon accounting and reporting to ensure the consistency and comparability of emissions data.

It is worth noting that the GHG Protocol is currently promoting a new round of standard updates. According to official announcements, from November 2022 to March 2023, the working groups conducted global public consultations and collected revision proposals on the Corporate Accounting Standard, the Scope 2 Guidance, and the Scope 3 Standard. The objective of this update is to ensure that the GHG Protocol is aligned with net-zero trends, science-based carbon reduction targets, and strengthened climate disclosure requirements. As of mid-2025, technical working groups are scheduled to hold regular meetings. It is expected that the draft revisions will be released by the end of 2025 and that the new standards will be formally issued in 2026–2027. This update is expected to prompt enterprises to review their existing accounting systems in advance and prepare for stricter data quality and boundary-setting requirements in the future.

 2.2 SBTi: Basis for Target Setting

SBTi: Setting emission reduction targets based on the GHG Protocol

SBTi establishes a dual‐framework of near-term and long-term targets. It requires companies to use the GHG Protocol as the baseline for calculating emissions. Near-term targets are to be achieved within 5–10 years and must cover at least 95% of Scope 1 and Scope 2 emissions. If Scope 3 emissions account for more than 40% of total emissions, the target boundary must cover at least 67% of Scope 3 emissions. The long-term net-zero target requires that at least 90% of Scopes 1–3 emissions be reduced by 2050. SBTi also provides multiple pathways such as absolute contraction and intensity-based approaches, and encourages companies to achieve Scope 3 emission reductions through supplier and customer engagement.

As climate policies continue to evolve, SBTi continuously updates its standards. For example, the Science Based Targets initiative (SBTi) Net-Zero Standard Version 2.0 draft released in 2025 requires companies to set separate targets for Scope 1 and Scope 2 instead of combining them; Scope 3 targets must be set based on the materiality and intensity of emissions, and companies are required to disclose category coverage ratios. The draft also introduces indirect mitigation tools, such as sustainable aviation fuels and low-carbon materials, and requires companies to set mid-term carbon removal targets before net-zero is achieved, as well as impose higher requirements on the durability of removals and data traceability. These changes are expected to undergo public consultation and pilot testing during 2024–2025 and officially take effect in 2027. Companies should therefore begin reviewing their target-setting and data systems early to comply with future standards.

2.3 CDP: Disclosure Standards

CDP: Questionnaires use the GHG Protocol as the accounting standard

The CDP (Carbon Disclosure Project) climate change questionnaire adopts the GHG Protocol as the sole accounting and measurement standard. It requires companies to disclose Scope 1, Scope 2, and Scope 3 emissions, their calculation methodologies, and organizational boundaries, and to classify and report emissions according to the 15 categories (Category 1–15) under the GHG Protocol (Corporate Value Chain – Scope 3 Standard). This consistency ensures data comparability and serves as a critical basis for scoring and investor analysis.

1. CDP Questionnaire Requirements for Scope 3 Disclosure

• Disclosure Depth: Companies are required to fully report emissions for each category, including calculation methodologies, data sources, and assumptions.

• Boundary Alignment: Reporting boundaries must be aligned with the GHG Protocol Scopes 1–3 classification to avoid double counting or omissions.

• Data Quality: The questionnaire requires companies to disclose the proportion of primary data and secondary data used, as well as the methods used to assess uncertainty.

• Relevance Assessment: Based on CDP technical guidance, companies must determine the relevance of each of the 15 categories according to industry characteristics and disclose the Scope 3 activities that are most closely related to their own operations.

2. Relationship Between Scope 3 Disclosure and the CDP Scoring System

CDP’s scoring model consists of four progressive levels: Disclosure → Awareness → Management → Leadership, and the depth and quality of Scope 3 disclosure directly affect the scores across these four levels

According to CDP’s Technical Note on Scope 3 Relevance by Sector, in most industries (especially manufacturing, retail, finance, and transportation), Scope 3 emissions on average account for more than 70–90% of total emissions. Therefore, if relevant emissions or targets are not disclosed, the CDP score will drop significantly. 

1. Climate Competency

In 2023, CDP strengthened the assessment dimension of “Climate Competency”, which evaluates whether companies possess the following capabilities:

1. Identification & Quantification:
   The ability to identify and quantify major emission hotspots across the entire value chain in accordance with the GHG Protocol.

2. Governance & Accountability:
   The integration of carbon management into the responsibilities of the board of directors or senior management.

3. Action & Targets:
   The establishment of SBTi-aligned reduction targets covering Scope 3, or the implementation of supplier engagement mechanisms.

4. Transparency & Verification:
   The provision of third-party verification or reasonable explanations of data sources and assumptions.
   
   

Adopting the GHG Protocol as the accounting standard enables companies to simultaneously meet the four major CDP scoring elements of “disclosure completeness, risk awareness, actions, and transparency.”
Comprehensive disclosure of Scope 3 emissions not only helps improve CDP ratings (e.g., from Level C to Level B or A), but also demonstrates to investors, customers, and regulators the maturity of a company’s climate governance and value chain carbon management capabilities.

2.4 IFRS S2: Disclosure Based on Accounting Standards

IFRS S2: Requires Disclosure Based on GHG Protocol Scopes and Categories

The International Sustainability Standards Board (ISSB) issued two global sustainability disclosure standards in 2023:

• IFRS S1 (General Requirements for Sustainability-related Financial Disclosures):
  Standardizes consistency between sustainability disclosures and financial statements;

• IFRS S2 (Climate-related Disclosures):
  Focuses specifically on how companies disclose climate-related risks, opportunities, and greenhouse gas emissions.

I. Consistency Between IFRS S2 and the GHG Protocol

IFRS S2 clearly stipulates that companies must disclose Scope 1 (direct emissions), Scope 2 (indirect energy emissions), and Scope 3 (other indirect emissions) based on the GHG Protocol’s core framework for calculation and measurement.

This means:

1. Companies that have already conducted GHG inventories using the GHG Protocol can directly align with the IFRS S2 disclosure framework, without the need to rebuild calculation methodologies;

2. Using the GHG Protocol as the accounting basis for inventory results allows companies to meet international disclosure consistency requirements of CDP, SBTi, TCFD, and IFRS S2 at the same time;

3. Companies can ensure the consistency and comparability of financial reporting and climate-related information through the GHG Protocol by clearly defining the Organizational Boundary and Operational Boundary.

IFRS S2 extends the TCFD’s four-pillar disclosure framework—
Governance, Strategy, Risk Management, and Metrics & Targets.
Among these, the “Metrics & Targets” section requires companies to disclose complete GHG inventory information and designates the GHG Protocol as the only accounting standard accepted.

II. January 2025 ISSB Amendments:Scope 3 Flexible Disclosure but Still Based on the GHG Protocol

To help companies address the practical challenges of implementing IFRS S2, the ISSB issued amendment proposals in January 2025, introducing more flexible requirements—especially for Scope 3 Category 15 (Investments).
The key provisions are as follows:

1. Allowing the Exclusion of Certain Investment Items

When calculating Scope 3 investment emissions, companies may exclude the following items:

1. Derivative financial products (Derivatives);

2. Facilitated Emissions, such as underwriting services;

3. Insurance-related investment emissions (Insurance-related Emissions).

However, companies must still disclose the amount of the excluded items, along with the reasons for exclusion and their impacts, to maintain transparency of information.

2. Flexibility When Local Regulators Require Different Methods

If local regulations mandate global warming potential (GWP) values or calculation methods that differ from the GHG Protocol
(e.g., requiring IPCC Assessment Report 6 [AR6] or UNFCCC-specific factors),
companies must comply with local requirements but must also disclose and explain the sources of differences.

These amendments indicate that IFRS S2 is evolving toward “GHG Protocol as the core + regional flexibility”.

The GHG Protocol remains the globally accepted common basis for emissions accounting, while IFRS S2 builds its financial comparability and consistency in disclosure on top of this foundation. 

 III. IFRS S2 and Financial Reporting: Linking Emissions to Capital Allocation

IFRS S2 requires companies not only to disclose emissions data but also to explain how these emissions affect financial performance and capital allocation. Specifically, this includes:

• The financial impacts of short- and medium-term climate risks and opportunities;

• The potential profit impacts from emissions costs such as carbon fees or carbon taxes;

• Transition investment and capital requirements associated with low-carbon transformation;

• The alignment of capital expenditure plans with emissions reduction targets such as those set under SBTi.

These disclosure requirements are intended to help investors assess a company’s climate resilience and transition readiness, positioning emissions data as a key financial decision-making indicator rather than merely an environmental metric.

IV. Convergence of IFRS S2 with CDP and SBTi

1. Alignment with CDP:
   Starting 2024, CDP questionnaires will fully adopt the IFRS S2 framework, meaning CDP’s Scope 1, 2, and 3 disclosures can directly correspond to IFRS S2 reporting requirements.
   
   

2. Complementarity with SBTi:
   IFRS S2 requires companies to disclose their emissions reduction targets, while SBTi provides the scientific pathways and validation mechanisms for credible targets. Combined, they form an integrated global carbon accounting and management system centered on the GHG Protocol, creating international consistency across IFRS S2, CDP, and SBTi.
   
   Even though implementation details will continue to evolve, the overall direction is clear:
   Using the GHG Protocol as the foundation allows companies to strengthen Scope 3 management, meet IFRS S2 standards, improve transparency for investors, and enhance competitiveness in capital markets.

2.5 Complementarity and Consistency Among the Three Frameworks

Principles of Complementarity and Consistency Among GHG Protocol, SBTi, CDP, and IFRS S2

Although the world’s major climate disclosure and carbon reduction frameworks were developed by different organizations, they share highly aligned structures and are designed to support a complete corporate management cycle—from “quantification → target-setting → disclosure → evaluation.”
Among them, GHG Protocol, SBTi, CDP, and IFRS S2 each play distinct yet complementary roles, forming a unified global carbon management language.

I. GHG Protocol: The Foundation of Quantification and Accounting

The GHG Protocol is the most widely recognized global standard for greenhouse gas inventory and reporting. It defines how companies should determine organizational boundaries, identify emission sources, and calculate Scope 1 (direct emissions), Scope 2 (energy-related indirect emissions), and Scope 3 (value chain emissions).

Its core principles—comparability, consistency, and transparency—ensure that corporate emissions and targets remain measurable and traceable over time.

Scope 3 is the most significant portion of a company’s climate impact, covering all upstream and downstream value chain activities (Value Chain Emissions), including raw material extraction, capital goods, logistics, product use, end-of-life treatment, and more.

Under the GHG Protocol Corporate Value Chain (Scope 3) Standard, Scope 3 emissions are further divided into 15 categories (Categories 1–15), enabling structured and comprehensive disclosure.

Key characteristics of Scope 3 emissions include:

1. Large scale and high proportion

According to CDP, Scope 3 emissions are on average 11 times higher than operational emissions (Scope 1 + Scope 2).
In industries such as retail, manufacturing, finance, and transportation, Scope 3 accounts for 70–95% of total corporate emissions.

2. Significant data-collection challenges

Since Scope 3 involves suppliers, contractors, distributors, and end users, companies often cannot directly obtain primary data, and thus must rely on secondary data, emission factors, or hybrid estimation methods (e.g., EEIO).

2.5 Complementarity and Consistency Among the Three Frameworks

Principles of Complementarity and Consistency Among GHG Protocol, SBTi, CDP, and IFRS S2

Although the world’s major climate disclosure and carbon reduction frameworks were developed by different organizations, they share highly aligned structures and are designed to support a complete corporate management cycle—from “quantification → target-setting → disclosure → evaluation.”
Among them, GHG Protocol, SBTi, CDP, and IFRS S2 each play distinct yet complementary roles, forming a unified global carbon management language.

I. GHG Protocol: The Foundation of Quantification and Accounting

The GHG Protocol is the most widely recognized global standard for greenhouse gas inventory and reporting. It defines how companies should determine organizational boundaries, identify emission sources, and calculate Scope 1 (direct emissions), Scope 2 (energy-related indirect emissions), and Scope 3 (value chain emissions).

Its core principles—comparability, consistency, and transparency—ensure that corporate emissions and targets remain measurable and traceable over time.

Scope 3 is the most significant portion of a company’s climate impact, covering all upstream and downstream value chain activities (Value Chain Emissions), including raw material extraction, capital goods, logistics, product use, end-of-life treatment, and more.

Under the GHG Protocol Corporate Value Chain (Scope 3) Standard, Scope 3 emissions are further divided into 15 categories (Categories 1–15), enabling structured and comprehensive disclosure.

Key characteristics of Scope 3 emissions include:

1. Large scale and high proportion

According to CDP, Scope 3 emissions are on average 11 times higher than operational emissions (Scope 1 + Scope 2).
In industries such as retail, manufacturing, finance, and transportation, Scope 3 accounts for 70–95% of total corporate emissions.

2. Significant data-collection challenges

Since Scope 3 involves suppliers, contractors, distributors, and end users, companies often cannot directly obtain primary data, and thus must rely on secondary data, emission factors, or hybrid estimation methods (e.g., EEIO).

 3. Relevance Assessment as a Critical Step

The GHG Protocol emphasizes that companies should determine activity types based on emission magnitude, risk significance, stakeholder relevance, and data availability. This helps ensure that activities with Material Relevance are selected while avoiding omissions or duplication.

4. Value Chain Management Guidance

Scope 3 accounting is not merely a disclosure tool; it is the starting point for managing value chain products and services.
By identifying carbon hotspots, companies can drive low-carbon procurement, influence product design, and encourage customers to shift toward low-carbon behaviors.

Therefore, Scope 3 is not simply an indirect emissions calculation, but a comprehensive management mandate.
It demonstrates how a company extends its boundary of responsibility, manages value chain risks, and transitions toward integrated business-model transformation.

For companies, effectively adopting the GHG Protocol Scope 3 standard enables more robust inventory and disclosure, becoming a key indicator of Climate Governance Maturity and Sustainability Competitiveness.
It also reinforces the use of a common international language for carbon accounting and reporting (Accounting Standard).

II. SBTi: Science-based Pathways for Decarbonization

The Science Based Targets initiative (SBTi) uses GHG Protocol inventory data as the foundation for providing companies with standardized methodologies to set medium- to long-term emission-reduction targets.
Through the Absolute Contraction Approach and Sectoral Decarbonization Approach (SDA), SBTi assists companies in translating scientific decarbonization pathways into practical management goals, supported by a rigorous validation process.

Positioning:
SBTi establishes a data-driven target-setting and validation framework to guide companies toward actionable climate strategies.

III. CDP and IFRS S2: Core Mechanisms of Disclosure and Valuation

1. CDP (Carbon Disclosure Project)

• Uses the GHG Protocol as the disclosure framework, requiring companies to report emissions across all scopes and 15 Scope 3 categories, along with calculation methodologies and management actions.

• The scoring structure includes four tiers: Disclosure → Awareness → Management → Leadership, emphasizing the completeness and quality of Scope 3 data.

• Investors and stakeholders rely heavily on the "Climate Competency" dimension to evaluate a company’s climate-related capabilities.

2. IFRS S2 (Climate-related Disclosures)

• Issued by the International Sustainability Standards Board (ISSB), IFRS S2 requires companies to disclose emissions aligned with GHG Protocol Scopes and Categories, as well as climate-related risks and financial impacts.

• It integrates environmental data into financial materiality, ensuring emission information directly influences capital allocation, investment decisions, and long-term risk disclosures.

Positioning:
IFRS S2 establishes an international Disclosure & Valuation Framework, enabling companies to communicate climate-related financial information in a consistent, decision-useful manner.

IV. Principles of Consistency and Interlinkages 

 V. Integrative Value: Forming a Sustainable Cycle “From Data to Capital”

If companies use the GHG Protocol as the foundation for emissions accounting, then set science-based reduction targets through SBTi, and subsequently disclose results via CDP and IFRS S2, they can avoid duplicated efforts and inconsistent datasets. This approach produces multiple benefits:

• Enhances cross-framework data comparability and improves audit efficiency;

• Strengthens international investors’ and customers’ confidence in the credibility of corporate climate strategies;

• Transforms “carbon management” into tangible financial resilience and market competitiveness.

The GHG Protocol serves as the accounting standard, SBTi provides the action standard, while CDP and IFRS S2 function as disclosure and valuation mechanisms.

Together, these three components form the core architecture of global net-zero governance, enabling companies to assess, reduce, and disclose emissions in a consistent, transparent, and verifiable manner—ultimately completing the sustainable management cycle.

3. Overview of Scope 3 Categories

Scope 3 (Category 1–Category 15) Full Overview

3.1 Upstream and Downstream Activities

Upstream Activities (Category 1–8) and Downstream Activities (Category 9–15) Overview

• Scope 3 covers all indirect emissions occurring in a company’s value chain that are not directly controlled by the company. These emissions reflect the most critical portion of the company’s overall climate impact. According to the GHG Protocol Corporate Value Chain Standard, these activities are positioned into two segments: upstream and downstream. The former focuses on suppliers and supporting services, while the latter covers product use, disposal, and investment stages.

• Upstream activities (Categories 1–8) refer to external emissions occurring before a company’s operations, including the extraction and production of raw materials, outsourced services, fuel- and energy-related activities, logistics and transportation, business travel, employee commuting, and facility energy use. These emissions occur outside of a company’s direct operations but often account for 70–90% of total emissions, making them major carbon hotspots in manufacturing, retail, and service industries. (Refer to Categories 1–8 under Scope 3.)

• Downstream activities (Categories 9–15) involve emissions generated after a product is sold, such as product transportation, energy consumption during the product-use phase, disposal and end-of-life treatment, and emissions related to franchises and investments. This portion usually reflects the actual climate impact caused by end-users, such as energy used while operating equipment or vehicles—emissions that often exceed those produced during manufacturing. (Refer to Categories 9–15 under Scope 3.)

I. Upstream Activities 

II. Downstream Activities 

III. Industry Variations and Importance Explanation [1]

According to the analysis in CDP (Carbon Disclosure Project)’s 2021 technical report, Technical Note on Scope 3 Relevance by Sector, the Scope 3 emissions of most industries are highly concentrated in only a few activity categories. Overall, Category 1 (Purchased Goods and Services), Category 11 (Use of Sold Products), and Category 15 (Investments) are identified as the three most significant sources of Scope 3 emissions globally. These three categories respectively reflect the climate impacts of upstream purchasing, product design and use, and financial activities across the value chain.

In terms of industry differences:

• Chemicals: Upstream emissions are concentrated in Category 1 (Purchased Goods and Services), accounting for about 58% of total Scope 3 emissions. This reflects the dominant impact of raw material procurement and energy-intensive chemical manufacturing.

• Financial Services: A large share of emissions comes from Category 15 (Investments). CDP indicates that “Financed Emissions” are, on average, about 700 times higher than a financial institution’s direct operational emissions (Scope 1) and indirect energy emissions (Scope 2), showing how overlooking investment portfolios can severely distort the climate risk exposure of financial institutions.

Overall, CDP’s research highlights different emission hotspots across industries and suggests corresponding management priorities:

• Manufacturing and consumer goods sectors should focus more on upstream procurement and the use phase of sold products (Categories 1 and 11);

• Financial and investment industries must incorporate financed emissions (Category 15) into core governance and science-based target (SBTi) setting.

IV. Practical Application Considerations

When companies conduct Scope 3 inventory and disclosure, they must follow the classification rules of the GHG Protocol to establish reporting boundaries. They should also follow the three practical principles below to ensure the completeness and reliability of the disclosed information.

1. Relevance Assessment

Among the 15 categories, companies are not required to include all items. Instead, they should select categories based on four relevance criteria: magnitude of emissions, climate risk impact, stakeholder interest, and data availability.

(1) Magnitude:
Prioritize activities with relatively high estimated emissions, such as raw material procurement or product use-phase emissions.

(2)Risk Impact:
Evaluate whether the category involves climate risks or potential cost impacts (such as carbon pricing or supply chain disruptions).

(3)Stakeholder Interest:
Consider the disclosure expectations of investors, customers, or regulatory agencies regarding specific activities.

(4) Data Availability:
If primary data cannot be obtained, reasonable assumptions or industry data should be used as supporting sources and properly documented.

2. Data Sources and Data Hierarchy

Scope 3 accounting involves a large amount of upstream and downstream activity data across the value chain. To ensure that inventory results are reliable and comparable, companies should establish data-quality hierarchy systems, and progressively improve data quality to meet disclosure requirements such as the Science Based Targets initiative (SBTi), the Carbon Disclosure Project (CDP), and the ISSB’s IFRS S2 “Data Quality” standards.

(1) Tier 1 (Primary Data)

Primary data refers to direct activity data obtained from suppliers or customers, such as fuel consumption, transportation distance, or material weight. This type of data has the highest accuracy and is the most representative.

Source: GHG Protocol, Technical Guidance for Calculating Scope 3 Emissions, p.11 ，“Companies may use either primary or secondary data to calculate scope 3 emissions.”

(2) Tier 2 (Secondary Data)

When primary data cannot be obtained, companies may use industry averages, LCA databases, government statistics, or spend-based estimates. These methods are easier to access but have lower accuracy.
(See related tables: GHG Protocol data quality definitions; examples of data hierarchy classification; emission-calculation methods.)

Source:GHG Protocol, Category 1: Purchased Goods and Services – Chapter 1, “The first two methods – supplier-specific and hybrid – require … the second two methods – average-data and spend-based – use secondary data (i.e. industry average data).”

(3) Model-based / Estimated Data (Model-based / EEIO)

Industries often use “rough estimates,” such as economic input-output models (EEIO) or expenditure × emission-factor estimates. Although frequently categorized as “Tier 3,” these are not listed as an official GHG Protocol data type, and are typically less accurate.

Source: GHG Protocol, Scope 3 Frequently Asked Questions, section “What types of data…”, “Companies may use two types of data: • Primary data … • Secondary data …”

Companies should give priority to using primary data (Tier 1), and continue to improve data quality in subsequent years. When data are estimated using calculation methods, the disclosure should explain the data sources, assumptions, and uncertainties, in order to comply with the transparency and verifiability requirements of IFRS S2, CDP, and other frameworks.

i. The GHG Protocol indicates that there are only two defined types of data: “Primary Data” and “Secondary Data.” For example, the Scope 3 Calculation Guidance states: “Companies may use either primary or secondary data to calculate scope 3 emissions.”

ii. The document does not formally classify “Economic Input–Output (EEIO) models” or benchmark-based estimation methods as “Tier 3 data,” nor as “Model-based Data.”

iii. Therefore, when primary materials or reports refer to conditions involving “model-based estimates” or “investor EEIO models,” they should explain that these are part of the estimation methodology, not one of the official data quality levels defined by the GHG Protocol.

GHG Protocol recommends that companies select among four estimation methods based on data availability and accuracy:

(1) Supplier-Specific: considered the highest-quality method and categorized as primary data;
(2) Hybrid: combines primary and secondary data;
(3) Average-Data and (4) Spend-Based: both categorized as secondary data and have lower accuracy.

In principle, companies should prioritize using supplier-specific data and continue improving data quality over time to meet SBTi and IFRS S2 requirements for data verifiability and transparency.

Source:
GHG Protocol Category 1: Purchased Goods and Services (Chapter 1) document:
“The first two methods – supplier-specific and hybrid – require primary data from suppliers, whereas the second two methods – average-data and spend-based – use secondary data (i.e., industry average data).”

Source:
GHG Protocol Category 1 Guidance, Chapter 1 (p. 3–4)

The term “Data Quality Level” refers to the quality level of activity data, which is used to measure the degree of accuracy and representativeness of the data, rather than the scientific accuracy of the emission factor. 

1. Avoiding Double Counting

When conducting a Scope 3 inventory, emissions from upstream and downstream value chain activities may span multiple stages, which could lead to the same emissions being counted more than once. To avoid this situation, companies should follow these steps:

(1) Clearly define organizational boundaries and value chain mapping:
Identify which emissions fall under the company’s control, which belong to suppliers, customers, or investment portfolios.

(2) Establish processes for data comparison and reconciliation:
Cross-check data such as supplier information, product flows, rental and investment information to ensure emissions are not double counted.

(3) Allocate shared activities (e.g., joint operations or outsourced production):
Apply allocation based on control or economic benefit to prevent multiple counting.

Source: GHG Protocol, Scope 3 Frequently Asked Questions, section “How do I account for double counting?”; also Scope 3 Standard, Table 5.3 (List of Scope 3 categories) p.32

2. Principle Explanation and Integrated Application

Companies should prioritize the use of Tier 1 primary data and gradually replace low-accuracy estimation data. At the same time, they should strengthen data collection, hotspot analysis, supplier/customer engagement, and integrate reduction targets with the disclosure workflow. This forms a complete cycle of “inventory → management → target setting → disclosure.”

Such practice aligns not only with the GHG Protocol’s accounting principles, but also with transparency and verifiability requirements from SBTi, CDP, and IFRS S2, thereby enhancing corporate credibility in climate governance and market competitiveness.

 3.2 Category Definitions and Emission Source Descriptions

Examples of Category Definitions, Boundary Setting, and Emission Sources

According to the GHG Protocol – Corporate Value Chain (Scope 3) Standard and the Scope 3 Calculation Guidance, Scope 3 is divided into 15 categories. Each category has a defined calculation boundary and corresponding emission sources. Companies should select the most appropriate calculation method based on the Activity Boundary Principle and Data Availability.

(1) Category 1 – Purchased Goods and Services

Covers the extraction, production, and processing of raw materials, components, and outsourced/contracted services purchased by the company. Includes cradle-to-gate emissions up to the point of supplier delivery, excluding transportation (which belongs to Category 4).

1. Recommended Methods:
Supplier-specific method, hybrid method, or average-data method.

2. Emission Source Examples:
Raw material extraction, packaging material production, outsourced manufacturing processes.

(2) Category 2 – Capital Goods

Refers to purchased fixed assets (such as machinery, equipment, IT systems, and construction projects). Emissions include cradle-to-gate emissions associated with producing these assets. (Ex: capital equipment delivered and paid for during the reporting year.)

1. Boundary Principle:
Energy use during the operational phase belongs to Scope 1 or Scope 2.

2. Emission Source Examples:
Vehicles, machinery and equipment, and other operational assets.

(3) Category 3 – Fuel and Energy-Related Activities (Not Included in Scope 1 or 2)

Includes upstream emissions from purchased fuels and electricity (fuel extraction, processing, and transport), as well as transmission and distribution losses (not included in Scope 1 or 2).

Reference Sources:
EPA USEEIO and IEA international energy databases.

Emission Source Examples:
Fuel extraction and processing, electricity transmission and distribution loss.

(4) Category 4 – Upstream Transportation and Distribution

Refers to the process in which suppliers transport raw materials, components, or goods to the reporting company during the production stage, as well as the logistics, warehousing, and transshipment activities involved during this stage. These activities are usually carried out by suppliers or third-party logistics providers (3PL). However, if transportation costs are borne or paid by the reporting company, the emissions shall be reported under Scope 3.

A. Boundary and Calculation Methods

1. Boundary Principle:
Includes all upstream supply chain activities. Emissions generated from transporting goods to the reporting company’s operating sites, warehouses, or factories shall be included.

2. Calculation Methods:
(1) Distance-based method:
Calculated using “transported weight × distance × emission factor” (commonly used unit: tonne-kilometer).

(2) Fuel-based method:
Estimated based on actual fuel consumption data provided by third-party logistics providers.

(3) Spend-based method:
Uses transportation expenditure multiplied by the emission factor (applicable when data availability is limited).

B. Emission Source Examples

• Emissions from fuel consumption of third-party logistics (3PL) fleets;
• Upstream transportation by air, rail, marine, or road;
• Electricity consumption during warehouse storage or transshipment activities, and refrigerant leakage from cold-storage systems.

Reference Source

GHG Protocol – Technical Guidance for Calculating Scope 3 Emissions, Chapter 4 (pp. 47–53);
Corporate Value Chain (Scope 3) Standard (Table 5.6, WRI & WBCSD, 2011).

(5) Category 5 – Waste Generated in Operations

Covers the final disposal and treatment of waste generated during company operations, such as recycling, incineration, or landfill.

1. Emission factors:
   Determined according to national waste-management practices and regional emission factors.

2. Examples of emission sources:
   Scrap metal, manufacturing waste, packaging waste, office waste.

(6) Category 6 – Business Travel

Emissions from employee travel and lodging during business-related trips.

1. Calculation methods:
   Distance-based method or spend-based method.

2. Examples of emission sources:
   Air travel, rail travel, private vehicles, and energy consumption in lodging facilities.

(7) Category 7 – Employee Commuting

Refers to emissions from transportation used by employees for commuting to and from work.

1. Data collection:
   Identify commuting modes, conduct employee surveys, review transportation card records or GPS data.

2. Examples of emission sources:
   Cars, motorcycles, public transportation, bicycles, walking.

(8) Category 8 – Upstream Leased Assets

Refers to emissions from assets owned by a third party but leased and used by the reporting company (such as office buildings, warehouses, or equipment) during the usage period.

1. Boundary principle:
   If the energy consumption of the leased asset is not under the direct control of the reporting company, it is categorized under Scope 3.

2. Examples of emission sources:
   For example, renting an office where electricity consumption is controlled by the landlord; such emissions belong to this category (e.g., electricity controlled by the property owner).

(9) Category 9 – Downstream Transportation and Distribution

Refers to logistics and warehousing emissions generated after the company has sold products and delivered them to distributors, retailers, or end-customers.

A. Boundary explanation:

Refers to activities from the time the company sells its products until they are delivered to distributors, retailers, or end-customers, including all logistics and warehousing activities before the customer receives the goods.

• If transportation or distribution costs are paid by the reporting company
  (including cases where logistics service is contracted through a third-party logistics provider on behalf of the company),
  these emissions shall be included in the reporting company’s Scope 3.

• If customers pay for transportation directly or through their appointed logistics provider,
  then the reporting company does not need to report these emissions.

• If the company sells under CIF / DDP terms, it should include these emissions;
  under FOB terms, the emissions should not be included.

• If a company owns or leases warehouses
  (and the company controls the energy use),
  then emissions from such warehouses belong to Category 9.

B. Examples of emission sources:

• Emissions from fuel combustion during cargo transportation by road, rail, sea, or air.

• Cold-chain transportation (e.g., refrigerated trucks or cold storage) — energy consumption and refrigerant leakage.

• Energy consumption and refrigerant leakage in downstream distribution centers or warehouses.

Reference source:

GHG Protocol – Technical Guidance for Calculating Scope 3 Emissions,
Chapter 9 (pp. 85–91);
Corporate Value Chain (Scope 3) Standard (Table 5.6, WRI & WBCSD, 2011).

(10) Category 10 – Processing of Sold Products

Refers to emissions generated when customers further process, assemble, or manufacture products after purchasing from the reporting company.

1. Calculation boundary:

Covers emissions from the time the reporting company sells products that are not yet final goods and are used as intermediate materials, and are then processed, assembled, or manufactured by downstream customers, until the next life-cycle stage.
This category does not include subsequent use-phase emissions.

2. Example emission sources:

Mainly emissions from electricity and fuel consumption during customer processing and manufacturing activities; estimated emissions often account for 70–90% of total emissions.
If primary data cannot be collected, industry-average emission factors may be applied.

(11) Category 11 – Use of Sold Products

For most industries, this is the largest downstream emission source and refers to energy consumption and emissions generated during product use.

1. Calculation boundary:

Includes all energy consumption and emissions during product use, calculated using emission factors that reflect the use environment and life-cycle energy demand.

2. Example emission sources:

Household appliance electricity use, vehicle fuel combustion, and energy consumption from the use of electronic products.

(12) Category 12 – End-of-Life Treatment of Sold Products

Refers to emissions from the final disposal of products at the end of their life cycle, including collection, transport, waste processing, recycling, incineration, or landfill disposal.

1. Calculation boundary:

1. Includes collection, transport, and final waste treatment (recycling, incineration, landfill).

2. If materials are recycled or reused, “avoided emissions” and other circular economy benefits should be considered simultaneously.

2. Emission factors and typical values:

According to U.S. EPA and EU waste statistics averages, global common waste-treatment percentages are:

1. 22% Recycling – material reuse and recycling reduce some energy emissions but still generate emissions from sorting and reprocessing.

2. 77% Incineration / Landfill – major sources of greenhouse gases (carbon-based waste incineration and landfill methane emissions).

Regional differences depend on each country’s waste-management policy (e.g., recycling rates exceeding 50% in some nations).

3. Example emission sources:

Waste incineration and landfill emissions, vehicle fuel consumption for transporting waste metal components, emissions from dismantling plastic casings and electronic parts, battery and heavy-metal processing, etc.

Reference source:
GHG Protocol – Scope 3 Calculation Guidance, Chapter 12 (pp. 101–108)；
US EPA – Waste Reduction Model (WARM) v15 (2023)；
EU Eurostat – Waste Statistics Database (2022)。

 (13) Category 13 – Downstream Leased Assets

Covers emissions generated during the lease period from equipment or real estate leased out by the reporting company to customers.

A. Boundary principle:

If the reporting company still retains operational control or bears energy responsibility for these assets, they should be included in Scope 3.
Assets that the reporting company owns but leases to others (customers or tenants) belong to this category.

B. Example emission sources:

If the reporting company no longer operates or controls these assets, they belong to Scope 3;
If the reporting company still directly operates them, emissions fall under Scope 1 or Scope 2.
(For example, when a reporting company rents out a building but still controls energy consumption such as electricity, emissions belong to Scope 1 or Scope 2.)

(14) Category 14 – Franchises

Refers to indirect emissions generated during the operation of franchised operations that the reporting company owns or grants rights to.

1. Boundary description:

Boundary is determined according to the legal and contractual relationship between the reporting company and the franchisee.

If the reporting company does not directly operate or control the franchise, then emissions generated by the franchisee are reported under Scope 3, Category 14 (Franchises).

If the reporting company directly operates or controls the franchise (such as headquarters directly managing energy use or equipment operation), then emissions should be reported under:

• Scope 1, or

• Scope 2, depending on the source.

2. Example emission sources:

If franchisees purchase electricity or fuel themselves and operate activities independently, the resulting emissions should be included in the reporting company’s Scope 3, Category 14.

Conversely, if the reporting company (the franchisor) centrally manages or supplies energy (e.g., headquarters purchases electricity and provides it to franchisees), then emissions should be reported by the reporting company under:

• Scope 2 (purchased energy), or

• Scope 1, if the reporting company directly consumes fuel or operates equipment.

(15) Category 15 – Investments

Refers to indirect emissions generated from a company’s investments, financing, or asset-related activities, including equity investments, loans, funds, and insurance services.

1. Calculation method:

Calculated based on the shareholding ratio or investment amount.
Financed emissions = attribution factor × annual emissions of the investee.

2. Supplementary reference:

Financial institutions may refer to PCAF (Global GHG Accounting and Reporting Standard for the Financial Industry).

4. Relevance and the Value Chain

How to identify value chain activities that are relevant

4.1 Relevance Determination Principles

Five Key Principles for Determining Relevance

Before conducting Scope 3 inventorying, companies should first perform a relevance test to determine which value chain activities and emission categories should be included in the inventory boundary.
According to the GHG Protocol Corporate Value Chain (Scope 3) Standard, the core principles for judging relevance include:

1. Size / Magnitude:
   Whether the activity or its associated emissions account for a significant proportion of the total value chain and may have a material impact on the company’s overall emissions.

2. Influence:
   Whether the company has decision-making ability or influence over the activity, such as the ability to implement procurement policies or improve supplier management to influence actual emission levels.

3. Risk and Opportunity:
   Whether the activity involves substantial regulatory, carbon (tax) cost, business, financial, or reputational risks, or whether it brings opportunities related to emissions reduction or innovation.

4. Stakeholder Relevance:
   Whether key stakeholders (such as investors, customers, regulators, or NGOs) are concerned about the emissions of the activity or expect the company to disclose related information.

5. Data Availability and Reliability:
   Whether sufficient reliable data exists for quantifying the emissions associated with the activity. If emissions data are difficult to obtain, companies should still include the category using estimation methods.

In addition to the five major principles above, companies may also refer to the following supplementary factors recommended by the GHG Protocol:

• Outsourced Activities:
  Whether the activity was originally performed within the company but is now carried out by external suppliers. If so, the emissions should still be considered part of the company's value chain emissions.

• Sector Guidance and Peer Practices:
  Referencing standards or industry guidelines to ensure that the inventory boundary and disclosure content remain consistent and comparable within the same industry.

Taking all the above into account, any activity or category that meets multiple principles should be regarded as a relevant value chain activity, and must be included within the Scope 3 inventory boundary and subsequent disclosure.

4.2 Identification Process

Identification process: tracing emission responsibility through financial and physical flows

When determining the relevance of value chain activities, companies may adopt a dual-track analysis using financial flows and physical flows to ensure the completeness and traceability of their inventory boundaries.

1. Financial Flow Analysis

Using the company’s financial expenditures and investment records as a starting point, list all items involving external transactions or capital operations, such as:

• Purchased goods and services

• Capital goods / Investments

• Outsourced services

• Leased assets

• Supplier and contractor payments

By reviewing the payments made to suppliers and contractors, companies can determine the attribution of financial flows and responsibility, which then serves as the basis for subsequent emission identification.

2. Physical Flow Analysis

Trace the inbound and outbound logistics of products and materials, including upstream raw-material inflows, finished-goods sales, transportation, distribution, and disposal stages.
Through physical-flow information, companies can locate the sources of emissions and identify responsibility boundaries. Examples include: upstream supplier manufacturing emissions, or downstream customer use-phase or end-of-life emissions.

3. Preliminary Emission Screening

When data are still incomplete, companies may first apply the spend-based method or use industry-average emission factors to conduct rough estimations.
This helps determine the scale of emissions and identify high-impact activities early on.

4. Cross-functional Collaboration and Data Alignment

The inventory process requires ongoing coordination led by the sustainability team, together with procurement, finance, logistics, and asset-management departments to ensure data consistency and accuracy.
Cross-functional collaboration also helps avoid double counting and prevents data discrepancies.

Through the above process, companies can use financial flows as pathways and physical flows as logistics routes to trace emission responsibility step by step, ultimately forming a complete value chain emission map that supports subsequent boundary setting and disclosure.

4.3 Scope 3 Reporting Boundary

Determining the Reporting Boundary and Relevance

The reporting boundary refers to the scope within which a company determines which emission-related activities should be included in its greenhouse gas inventory and disclosure.
According to the GHG Protocol Corporate Standard, companies must establish their boundary from two dimensions:

1. Organizational Boundary

Companies should determine whether their subsidiaries, joint ventures, or operating units are included in the inventory using either the equity share approach or the control approach.

• If the company has financial or operational control, the entity’s direct emissions (fuel combustion, manufacturing processes) and indirect emissions (purchased electricity, steam, etc.) shall be reported as Scope 1 and Scope 2, respectively.

• If the company owns only a minority equity share and does not have control, emissions from that unit are not included in Scope 1 or 2. Instead, relevant financed emissions are included in Scope 3 (Category 15: Investments).

2. Operational Boundary

After defining the organizational boundary, the company must further identify all indirect emissions associated with value chain activities, which fall under Scope 3.

• Upstream: Activities carried out by suppliers, contractors, or outsourced service providers, such as raw-material production, transportation, and waste processing.

• Downstream: Activities performed by customers or distributors after the product leaves the company’s control, such as product use, disposal, investment activities, and franchised operations.

If the company has financial, branding, or contractual influence over these activities, and they are relevant, such emissions should also be included in the Scope 3 inventory.

3. Principles for Setting the Reporting Boundary

A clearly defined reporting boundary must ensure consistency in emission attribution, avoid double counting between upstream and downstream entities, and improve the transparency and credibility of the inventory results.

The boundary should adhere to the following principles:

• Consistency

Ensuring alignment with the company’s financial reporting boundary.

• Completeness

Ensuring all significant emission sources are covered.

• Transparency

Clearly explaining any exclusions or data limitations.
Through transparent organizational and operational boundary definitions, companies can accurately determine emission attribution and ensure consistency across Scope 1, 2, and 3 for future decarbonization strategies and disclosure alignment.

4.4 Relevance Assessment Example

Case Explanation: How to Determine Relevant Categories During a First-Time Scope 3 Inventory

Using an electronics manufacturing company as an example, the company conducts its first Scope 3 assessment.
Based on financial expenditures, supply chain structure, and product life-cycle analysis, the relevant emission categories are identified as follows:

1. Major Upstream Emission Sources (Upstream Emissions)

– Category 1: Purchased Goods and Services

Semiconductors, circuit boards, and assembly services together account for approximately 60% of the company’s annual procurement expenses.
The manufacturing of these components is energy-intensive and represents a critical part of the company’s value chain.
Therefore, Category 1 is identified as a key emission category.

– Category 4: Upstream Transportation and Distribution

Logistics activities from suppliers to manufacturing sites involve international and regional transportation with high emission intensity.
The company also has partial decision-making influence (e.g., choosing air or sea transport), and thus this category is included within the assessment boundary.

2. Major Downstream Emission Sources (Downstream Emissions)

– Category 11: Use of Sold Products

The electricity consumption of products during the use phase accounts for a significant share of their total life-cycle emissions.
Since the company has design responsibility for these products, Category 11 is included, with emissions estimated using average energy consumption over the expected lifetime.

3. Low-Relevance or Non-Material Categories (Low-Relevance Categories)

– Category 14: Franchises

– Category 15: Investments

Since the company primarily engages in its own manufacturing and sales operations, and franchise revenue or investment income represents only a minor proportion of total revenue, these categories can be classified as low-relevance.
However, the company should still record their existence and magnitude, and disclose the reasons for exclusion within the report to maintain transparency and support future improvement planning.

Through these steps, a company performing its first Scope 3 assessment can apply magnitude, influence, and data availability as core principles to quickly identify relevant value-chain activities, ensuring the assessment focuses on real emission hotspots while maintaining consistency across reporting years.

5. Operating Models and Emission Sources

From Operating Models to Assigned Emission Scopes: A Reporting Boundary Case Analysis

5.1 Owned Operations and Outsourced Activities

Principle of Attribution Based on Control and Responsibility

A company’s operating activities can be categorized into three types according to the degree of ownership and control: owned operations, outsourced services, and value-chain activities.
The attribution principle is based on whether the company directly controls the activity or bears financial and brand responsibility.

1. Owned Operations

Refers to assets or facilities directly owned or controlled by the company, such as factories, offices, vehicle fleets, power generators, or manufacturing equipment.

Scope Attribution:

• Direct emissions from fuel combustion, manufacturing processes, or refrigerant leakage fall under Scope 1.

• Indirect emissions from purchased electricity, steam, heating, or cooling fall under Scope 2.

These emissions represent the core of a company’s greenhouse gas inventory and typically have the highest data accuracy and availability.

2. Outsourced Services

Refers to tasks originally carried out by the company but delegated to external entities, such as contract manufacturing, packaging, third-party logistics (3PL), maintenance, or cleaning services.

Scope Attribution:

• If the company does not have operational control over the outsourced activity, emissions are not classified under Scope 1 or 2, but instead fall into Scope 3 upstream emissions, specifically Upstream Scope 3.

• If the company retains certain decision-making authority (e.g., specifying energy type, electricity use, or transportation mode), it must evaluate whether some emissions should be partially categorized under Scope 2 or indirectly reflected in operational control.

Outsourced services represent a major source of emissions in modern supply chains and must be assessed through procurement policies and contractual requirements to determine emission boundaries.

3. Value Chain Activities

Value chain activities include all upstream and downstream processes across the company’s entire supply chain, such as supplier production of raw materials, packaging, component manufacturing and transportation, as well as customer use of products and end-of-life treatment.

• Upstream

Includes supplier manufacturing of raw materials, production-phase energy use, raw material transportation, capital goods, and outsourced services.

• Downstream

Includes product sales, energy consumption during the use phase, end-of-life recovery and disposal activities, and related information services.

If the company has financial, brand, design, or contractual influence over these activities—or if stakeholders generally expect the company to bear responsibility for related emissions—such activities should be classified under Scope 3.

Summary of Attribution Principles

• Activities directly controlled by the company → fall under Scope 1 or Scope 2.

• Activities controlled by external entities but for which the company bears financial or brand responsibility → fall under Scope 3.

Clearly distinguishing among these three operating models helps companies establish a consistent emissions attribution logic, avoid overlapping boundaries and double counting, and provides a foundation for developing decarbonization strategies, setting targets, and supporting transparent reporting.

5.2 Mapping Operational Activities to Scope 3

Illustrative Case: Deriving Scope 3 Categories Based on Operational Activities

Using a food processing company as an example, the organization may trace its operational workflow and assign emissions from each activity to the appropriate GHG Protocol category. This helps establish a complete reporting boundary and emission attribution logic.

The company’s main operations include raw material procurement, manufacturing and processing, packaging, transportation, and sales. By analyzing the nature and control of each activity, the Scope 3 categories may be identified as follows:

1. Raw Material Procurement

The company purchases raw agricultural products from farms or agricultural suppliers.
Emissions generated during upstream production activities belong to Scope 3, Category 1 – Purchased Goods and Services.

2. Packaging Materials

If the company outsources packaging processes to external vendors, the related energy consumption and process emissions fall under
Scope 3 Upstream – Outsourced Services.

3. Refrigeration and Storage

If the company owns and directly controls refrigeration equipment, the related emissions shall be attributed to:

• Scope 1 – direct emissions (fuel combustion, refrigerant leakage), and

• Scope 2 – indirect emissions from purchased electricity.

4. Product Transportation and Delivery

If the company is responsible for transporting products to downstream customers, the emissions generated belong to:

Scope 3 Downstream – Category 9 (Downstream Transportation and Distribution).

5. Product End-of-Life Treatment and Recycling / Reuse

If the company takes part in activities such as collecting used packaging materials or managing product recycling programs, emissions from these processes fall under:

Scope 3 Downstream – Category 12 (End-of-Life Treatment of Sold Products).

6. Activity Data Collection and Data Quality

6.1 Primary Data and Secondary Data

Definition and Strategies for Classifying Primary Data and Secondary Data

When conducting value chain Scope 3 emission accounting, the source and quality of data are crucial for accuracy and reliability. According to the Greenhouse Gas Protocol (GHG Protocol) Corporate Value Chain (Scope 3) Standard and Technical Guidance for Calculating Scope 3 Emissions, companies should classify activity data and design application strategies based on data quality and materiality.

1. Definition of Data Quality Levels

(1) Primary Data

Primary data refers to activity data directly obtained from the company itself or from its value chain partners/suppliers, such as actual operational records including energy consumption (electricity, fuel), material weight, transport distance, vehicle mileage, processing duration, etc.
Such data generally represent higher accuracy and precision.

(2) Secondary Data

Secondary data refers to industry averages, input–output models (EEIO), government or research database estimates, or model-derived data when primary data cannot be obtained.
Although relatively easy to access, secondary data are typically less accurate and less representative.

2. Recommended Application Strategies

(1) Prioritize the Collection of Primary Data

Companies should prioritize primary data collection for activities that are emission-intensive, economically material, or exposed to significant risks (e.g., key suppliers, bulk procurement, long-distance logistics).
Where feasible, companies should replace secondary data with primary data to improve the accuracy of inventory results and enhance decision-making effectiveness.

(2) Use Secondary Data When Primary Data Are Unavailable

When primary data cannot be obtained due to excessive cost or supplier data gaps, companies may temporarily adopt secondary data as the calculation basis.
However, the company must clearly disclose in its report the scope of secondary data used and the assumptions applied.

(3) Gradually Increase Primary Data Coverage

Although standards do not mandate a fixed percentage target, companies are encouraged to adopt a “materiality-first, progressive expansion” approach to gradually increase the proportion of primary data and establish long-term improvement goals.

(4) Maintain Data Quality Control

Regardless of whether primary or secondary data are used, companies should evaluate data quality based on the principles of:

• Representativeness

• Accuracy

• Timeliness

• Consistency

• Transparency

and disclose the corresponding quality assessment and explanation.

3. Reporting Requirements

When reporting Scope 3 inventory results, beyond disclosing total emissions and category breakdowns, companies should at minimum include:

(1) The ratio or explanation of primary versus secondary data used for each activity.

(2) If secondary data were applied, the associated assumptions, limitations, and potential uncertainties must be disclosed.

(3) For key high-impact activities, disclose the plan to increase primary data coverage (e.g., timelines for transitioning from secondary to primary data).

 6.2 Data Tiers and Quality Levels

Tier 1–Tier 3 Data Classification and Quality Enhancement

When conducting GHG inventories for value-chain activities, companies typically categorize activity data into different tiers based on their data source and quality, enabling prioritization of improvement actions and enhancing data reliability.
Although the GHG Protocol does not explicitly use the terms Tier 1 / Tier 2 / Tier 3, its concepts of “primary data,” “secondary data,” and “modelled / estimated data” correspond to these tiered levels and form the foundation of data quality management.

Below are the definitions of each tier, as well as guidance on practical application and strategies for upgrading data quality.

I. Tier Definitions

1. Tier 1: Primary Data

Refers to actual activity records directly provided by the reporting company or its suppliers/partners, such as energy consumption, raw material mass, transportation distances, or equipment operating hours.
These data exhibit the highest representativeness and accuracy.

2. Tier 2: Mixed or Industry-Average Data (Mixed / Industry-Average Data)

Refers to datasets that combine primary and secondary data, or rely partially on industry averages or calculation factors.
Data accuracy and representativeness are moderate.

3. Tier 3: Modelled or Estimated Data (Modelling / Estimated Data)

Refers to situations where primary or mixed data cannot be obtained, and companies must rely entirely on estimation methods such as:

• EEIO models

• Spend-based method

• Industry emission factors

These data exhibit lower representativeness and higher uncertainty.

II. Why Does the GHG Protocol Not Explicitly Define “Tier 3,” Yet It Is Still Emphasized?

1. In the GHG Protocol’s Corporate Value Chain (Scope 3) Standard and Technical Guidance for Calculating Scope 3 Emissions, data is clearly divided into primary data and secondary data.
   For example, the FAQ states:
   “Primary data: Data from specific activities within a company’s value chain. Secondary data: Data that is not from specific activities within a company’s value chain.”

2. Although the Protocol does not further split “secondary data” into “mixed data” or “modelled/estimated data,” companies, verification bodies, and research institutions often adopt modelled/estimated or industry-average data in practice to enhance transparency and identify improvement pathways.
   For instance, a discussion on Scope 3 data quality suggests:
   “…companies may be required to disaggregate their Scope 3 inventory quality based on whether the data is (i) specific, (ii) average, or (iii) spend-based.”

3. Therefore, although “Tier 3” is not an official term, it serves as a practical data-quality tiering tool, helping companies internally assess “which activities are still estimated (lower data quality)” and “which activities already use supplier-specific data (higher data quality)”, thereby supporting target setting and improvement planning.

III. Strategies for Upgrading Data Tiers

1. Initial Stage:

Companies may face difficulty obtaining supplier data or lack established systems; thus, they primarily rely on Tier 2 and Tier 3 data.
Key actions include:

i. Identifying high-emission or high-impact activities related to key suppliers and prioritizing Tier 1 primary data collection.
ii. Disclosing the current share of primary data and clarifying assumptions or boundaries used in calculations.

2. Intermediate Stage:

Once companies improve their ability to obtain supplier data and build data-collection systems, they should aim to increase the share of Tier 1 data annually.
Specific measures include:

i. Signing data-sharing requirements with key suppliers to regularly obtain primary data.
ii. Categorizing activities (e.g., use phase) and setting annual targets for secondary-data replacement.
iii. Identifying activities that still rely on Tier 3 methods and gradually replacing them with Tier 2 or Tier 1 data.

3. Continuous Improvement and Disclosure:

Companies should track the share of different data types for major activities, and disclose in sustainability or GHG reports:

• The proportion of primary vs. secondary data used.

• Estimation methods and calculation assumptions.

Such transparency strengthens credibility and facilitates continuous improvement of the inventory.

4. Proposed Phased Roadmap (Reporting Boundary Example)

For the first year of inventory, our company primarily relies on mixed data (Tier 2) and modelled/estimated data (Tier 3).
To enhance the accuracy of emission calculations, we have set a target to increase the proportion of primary data (Tier 1) for key emission activities to X% within the next three years.

For activities that still require estimation methods (Tier 3), we will establish a supplier data improvement plan, signing data-sharing agreements with major suppliers to regularly obtain primary activity data, with the aim of gradually converting Tier 3 data into Tier 2 or Tier 1 data.

6.3 Data Application and Accuracy

Comparison of Spend-based, Activity-based, and EEIO Methods in Terms of Applicability and Accuracy

I. Three Common Emission Calculation Methods and Their Appropriate Use Cases

1. Spend-based Method

Definition:

Uses the amount of money spent by a company on purchased goods or services, multiplied by the average emission factor of a given industry or region
(e.g., kg CO₂e per thousand dollars spent) to estimate emissions.

When to Apply:

• When activity data is difficult to obtain;

• When suppliers cannot provide actual operational data;

• When a company has a large variety of purchased items and complexity requires rapid estimation.

Advantages:

• Easy to use (requires only procurement expenses);

• Low cost;

• Rapid calculation.

Limitations:

• Lowest accuracy, because spending does not reflect the true circumstances of production processes, manufacturing technologies, regional differences, and supplier efficiency.

2. Material-based method

• Definition: Using the weight, quantity, or composition of actual materials or products as the basis, multiplied by appropriate emission factors to estimate emissions; also known as the “activity-based method.”

• When to use: When companies have detailed information on raw material weight, the number of components, or material specifications, and are willing to invest more resources in data collection.

• Advantages: More accurate because it better reflects differences in logistics flows and manufacturing processes.

• Limitations: Requires a large amount of data (e.g., weight, quantity, model, place of manufacture), making data collection and processing costs relatively high.

3. Environmentally-Extended Input-Output method

• Definition: Using macroeconomic input-output models (Input-Output Model) combined with environmental data (emissions per economic sector) to estimate emissions from supply chain activities.

• When to use: When supply chain data is extremely limited, activity or quantity data cannot be obtained, or when companies want a quick overall estimation.

• Advantages: Applicable across a wide range and fast to implement; suitable for early-stage corporate inventories or industry benchmarking.

• Limitations: Lower accuracy because it uses sector-average or macro-level model data, which cannot reflect variations in supplier efficiency or environmental performance.

6.4 GZA Calculator

Application of the GZA Calculator in Scope 3 Boundary Setting

I. Tool Overview

The GZA Scope 3 Calculator is an Excel-based tool developed by GZA GeoEnvironmental, Inc., designed to assist enterprises in conducting their initial Scope 3 screening and hotspot analysis. The tool covers upstream activities (Categories 1–8) and several downstream activities (Categories 13–15).

Key features include: fast start-up, low entry barrier, and built-in emission factors, making it suitable for companies that have not yet fully established their supply-chain activity data.

II. Methodology and Applicability Explanation

The GZA Calculator adopts the spend-based method for estimating emissions from purchased goods, suppliers, or investments, combined with an economy-wide input–output model (EEIO model) to derive associated emission factors. In other words, this method can be viewed as a hybrid estimation method integrating spend-based and EEIO approaches.

This is consistent with the tool developer’s official description, which states that the calculator
“uses the United States Environmentally-Extended Input–Output (EEIO) emissions factors to correlate supply chain purchases with the associated life cycle emissions of each purchase.”

Therefore, the GZA Calculator is most applicable in the following situations:

1. When an enterprise lacks activity-level or supplier-specific data from its supply chain.

2. When performing an initial Scope 3 inventory requiring quick results to identify emission hotspots.

3. When estimating emissions for investment activities (Category 15) or franchised operations (Category 14) for the first time.

III. Business Advantages and Practical Value

• Fast start-up:

Only basic spend or financial data is required, enabling enterprises to obtain initial emission estimates quickly and reduce data-collection burdens.

• Hotspot identification:

The tool provides emission profiles by purchased goods/suppliers to help enterprises identify key impact areas.

• Standardized reference:

The tool aligns with the Greenhouse Gas Protocol Scope 3 Standard methodology, supporting enterprises in disclosure and target setting.

IV. Limitations and Considerations

• Estimation quality: Since the method primarily relies on “spend × EEIO factors,” its accuracy remains lower than supplier-specific activity data collected directly from the supply chain.

• Model regional and sector limitations: The tool applies the U.S. EEIO model; for non-U.S. supply chains or highly specialized industries, results may differ from actual conditions.

• Tool for early-stage estimation: It is recommended as a coarse-level tool for preliminary screening. Enterprises should simultaneously build mechanisms for collecting primary activity data to gradually improve inventory accuracy.

V. Practical Recommendations

• During the initial screening phase, enterprises may use the GZA Calculator to obtain rough estimates based on the “spend-based + EEIO method,” serving as a basis for hotspot identification and strategy formulation.

• At the same time, enterprises should disclose in their reports:

  • That the tool relies on a hybrid spend-based + EEIO modeling approach;

  • The assumptions and model limitations regarding input data sources.

• As data availability improves, enterprises—especially those with high emissions or suppliers with high climate relevance—should progressively transition to supplier primary activity data (Primary Data), using GZA results only as a comparative reference.

VI. GZA Uses USD-Based Spend as the Basis

This tool adopts U.S. dollars (USD) as the spend-based foundation for estimating Scope 3 emissions.
According to the official documentation:
“The Calculator uses … the United States Environmentally-Extended Input-Output (EEIO) emissions factors … Each factor is automatically adjusted to account for currency inflation …”
Therefore, users must input the expenditure amount (in USD) associated with suppliers or investment items as activity data; the system then converts the spend into estimated GHG emissions through the EEIO model factors.

VII. GZA Calculator Operating Procedure (EEIO Model Based on Spend)

Step 1: List Purchase Items

1. In the main worksheet of the tool, list all purchased items and supplier names.

2. Each row represents one “purchasing activity” or “spend category.”

3. It is recommended to follow supplier or accounting classification when completing the purchase item name to ensure consistency with financial expenditure.

Step 2: Enter Spend in USD

1. Enter the expenditure amount for each item in U.S. dollars (USD).

2. If transactions were originally in another currency, the annual average exchange rate for the reporting year should be used for conversion.

3. The system will automatically use the inflation-adjusted USD amount as the basis for estimation (see GZA Calculator Spend Input section). 

Step 3: Select Primary Sector

A. Use the Dropdown Menu to choose the primary sector category of the supplier, for example:

• Manufacturing

• Transportation

• Information

• Construction

B. This selection will trigger the EEIO model database and filter out the corresponding emission factor group.

Step 4: Select Sub-Sector / Industry Detail

1. Once the primary sector is confirmed, the system will provide more detailed classifications (e.g., “Plastic materials and resin manufacturing”).

2. Users should choose the sub-sector that best matches the nature of the purchased items in order to apply a more accurate EEIO emission factor.

Automatic Calculation After Completing Data Entry

The system will calculate based on:

“Spend × EEIO emission factor = Estimated emissions (tCO₂e)”

The system automatically generates the estimated emissions for each purchase activity and displays category-level and total emissions in the “Summary” worksheet.
(See figures: Overview of GZA calculator Scope 3 categories; GZA calculator key supplier emission summary and hotspot analysis)

Extended Features

• Hotspot Analysis:
  The system automatically ranks suppliers or items based on spend and emissions, highlighting high-emission suppliers or products.

• Improvement Tracking:
  Allows annual updates of spend and supplier categories to monitor improvements in primary-data coverage.