Scope 1, Scope 2 and Scope 3 Emissions: Complete Guide for ESG...

Scope 1, Scope 2 and Scope 3 Emissions: Complete Guide for ESG Reporting

Posted 2026-09-25 10:19:13

Companies today are being asked not only about revenue, production and profitability, but also about their environmental impact. Investors, customers, multinational companies and regulators increasingly want to understand how much greenhouse gas a business generates and what it is doing to reduce that impact.

This is where Scope 1, Scope 2 and Scope 3 emissions become important.

These three categories are widely used to measure a company's greenhouse gas emissions. They help businesses understand where emissions are actually coming from - their own factories, purchased electricity, suppliers, transporters, employees, customers or other parts of the value chain.

For Indian companies preparing ESG reports, BRSR disclosures, carbon inventories or sustainability strategies, understanding these three emission scopes is one of the first steps.

This guide explains Scope 1, Scope 2 and Scope 3 emissions in simple language, with practical examples for Indian manufacturers and businesses.

What Are Scope 1, Scope 2 and Scope 3 Emissions?

The Greenhouse Gas Protocol divides corporate greenhouse gas emissions into three broad categories called Scope 1, Scope 2 and Scope 3.

Scope 1 covers direct emissions from sources owned or controlled by the company.

Scope 2 covers indirect emissions associated with purchased energy, particularly electricity, steam, heating and cooling.

Scope 3 covers other indirect emissions that occur across the company's upstream and downstream value chain.

This classification helps businesses avoid looking only at emissions coming directly from their factories.

For example, a manufacturing company may have relatively low fuel consumption inside its own plant but purchase large quantities of raw materials that require substantial energy to manufacture. Those supplier-related emissions can become part of Scope 3.

Understanding all three scopes therefore gives management a much clearer picture of the company's overall carbon footprint.

What Are Scope 1 Emissions?

Scope 1 emissions are direct greenhouse gas emissions from sources owned or controlled by the company.

In simple terms, if the company controls the equipment or activity that directly releases greenhouse gases, those emissions will generally fall under Scope 1.

For a manufacturing company, common Scope 1 emission sources can include:

Diesel consumed in DG sets
Natural gas used in boilers or furnaces
LPG used in manufacturing operations
Company-owned petrol or diesel vehicles
Process-related greenhouse gas emissions
Refrigerant leakage from company-controlled cooling systems

Consider an Indian manufacturing plant operating three diesel generators.

If those generators consume 100,000 litres of diesel during a financial year, the emissions generated by burning that diesel would generally be included in the company's Scope 1 inventory.

The company would normally collect the quantity of fuel consumed and multiply it by the relevant emission factor to estimate greenhouse gas emissions.

The basic calculation can be represented as:

Activity Data x Emission Factor = GHG Emissions

The GHG Protocol explains that emission calculations often use activity data such as fuel consumed or distance travelled along with appropriate emission factors.

What Are Scope 2 Emissions?

Scope 2 covers indirect greenhouse gas emissions associated with energy purchased or acquired by a company.

This commonly includes:

Purchased electricity
Purchased steam
Purchased heating
Purchased cooling

The emissions do not physically occur inside the company's premises.

Instead, they usually occur at the power plant or energy facility generating the electricity or energy consumed by the company.

For most Indian factories, offices and warehouses, grid electricity is the largest Scope 2 source.

For example, suppose a factory consumes:

2,000,000 kWh of grid electricity annually.

The company's Scope 2 emissions can be estimated by multiplying the electricity consumed by the applicable electricity emission factor.

This is why electricity bills are among the most important source documents during carbon accounting.

Businesses installing rooftop solar, entering renewable electricity contracts or improving equipment efficiency may be able to reduce their dependence on carbon-intensive purchased electricity.

Scope 1 vs Scope 2: Simple Example

Imagine a factory operating in Gujarat.

The factory uses:

Diesel in its own DG set
Natural gas in its furnace
Electricity purchased from the grid

The diesel and natural gas combustion would normally fall under Scope 1 because the fuels are burned in equipment controlled by the company.

The emissions associated with purchased grid electricity would normally fall under Scope 2.

This distinction sounds simple, but correct organisational boundaries are important.

Companies need to determine which facilities, subsidiaries, vehicles, leased assets and operations are included within their carbon accounting boundary.

What Are Scope 3 Emissions?

Scope 3 is normally the largest and most complicated part of corporate carbon accounting.

Scope 3 emissions include indirect emissions, other than Scope 2, that occur throughout a company's value chain.

These emissions may occur before the company's own operations or after the product has been sold.

For many businesses, Scope 3 emissions can represent a major share of the total carbon footprint. The GHG Protocol notes that for many companies, Scope 3 can account for more than 70% of their carbon footprint.

This is why companies serious about carbon reduction cannot look only at fuel and electricity.

Understanding Upstream Scope 3 Emissions

Upstream emissions occur before goods or services reach the reporting company.

Examples include emissions associated with:

purchased raw materials, supplier manufacturing, inbound transportation, business travel, employee commuting, waste generated during operations and production of fuels or energy purchased by the company.

Consider an automobile parts manufacturer.

The company may purchase:

steel, aluminium, plastics, packaging materials, electronic components and chemicals.

The emissions generated by suppliers while producing these materials may form part of the manufacturer's Scope 3 inventory.

Similarly, if a third-party logistics company transports these raw materials to the factory, those transportation emissions may also fall within Scope 3.

Understanding Downstream Scope 3 Emissions

Downstream Scope 3 emissions occur after the company sells its product or service.

These can include emissions associated with:

Transportation of sold products
Processing of sold products
Use of sold products
End-of-life treatment
Franchises
Investments
Leased assets, depending on the accounting boundary

Consider an electrical appliance manufacturer.

The company may use electricity to manufacture the appliance, which creates Scope 2 emissions.

However, customers may continue using that appliance for 10 or 15 years.

Depending on the applicable Scope 3 category and accounting methodology, emissions associated with electricity consumed during use of the sold product can become part of the manufacturer's downstream Scope 3 footprint.

This demonstrates why Scope 3 calculations can become much larger and more complex than direct operational emissions.

The 15 Scope 3 Categories

The GHG Protocol Corporate Value Chain Standard provides a structured methodology for companies to measure value-chain emissions.

Scope 3 is commonly divided into 15 categories.

Upstream categories include purchased goods and services, capital goods, fuel and energy-related activities, upstream transportation, waste generated in operations, business travel, employee commuting and upstream leased assets.

Downstream categories include downstream transportation, processing of sold products, use of sold products, end-of-life treatment, downstream leased assets, franchises and investments.

Not every category will be equally important for every business.

A company should therefore identify its major emission sources rather than spending equal effort on insignificant categories.

Why Scope 1, 2 and 3 Matter for ESG Reporting in India

Carbon emissions are increasingly connected with ESG disclosures in India.

SEBI's Business Responsibility and Sustainability Reporting framework requires covered listed entities to disclose information relating to their environmental performance.

The BRSR format specifically includes reporting of total Scope 1 emissions, total Scope 2 emissions and greenhouse gas emission intensity, generally expressed in metric tonnes of CO2 equivalent.

This means companies preparing BRSR or broader ESG reports need reliable carbon data.

Even private companies may increasingly receive requests for carbon information from listed customers, multinational companies, investors or international buyers.

A supplier may therefore be asked:

What are your annual Scope 1 emissions?

What are your Scope 2 emissions?

Do you calculate Scope 3?

Do you have an emission reduction target?

How much renewable electricity do you use?

Companies that cannot answer these questions may find it increasingly difficult to satisfy advanced procurement and sustainability assessments.

How to Calculate Scope 1 Emissions

The first step is identifying all direct emission sources controlled by the organisation.

Businesses should collect actual operational records wherever possible.

For fuel combustion, records may include:

diesel invoices, LPG records, PNG or natural gas bills, company vehicle fuel records and DG set consumption.

The company then converts fuel consumption into greenhouse gas emissions using appropriate emission factors.

For example:

Diesel consumed = 50,000 litres

This activity data is multiplied by the relevant diesel emission factor.

The final result is generally converted into tonnes of CO2 equivalent, or tCO2e.

Different greenhouse gases can have different global warming impacts, so carbon accounting converts them into a common CO2-equivalent unit for reporting.

How to Calculate Scope 2 Emissions

Scope 2 calculations usually begin with electricity consumption.

Businesses should collect:

Monthly electricity bills
Meter readings
Renewable energy procurement data
Captive power information
Renewable energy certificates, where relevant

The annual electricity consumption is then multiplied by the applicable emission factor.

For example:

Annual electricity consumption = 5,000,000 kWh

If the organisation purchases this electricity from the grid, the applicable electricity emission factor can be used to estimate Scope 2 emissions.

Companies operating several plants should avoid simply combining numbers without documentation.

A proper carbon inventory should ideally show facility-wise consumption and then consolidate it at the company level.

How to Calculate Scope 3 Emissions

Scope 3 usually requires more work because much of the information sits outside the organisation.

The company first identifies relevant Scope 3 categories.

It may then collect data relating to:

raw material purchases, tonnes of material purchased, kilometres travelled, freight movements, employee commuting, business travel, waste quantities, supplier information and customer product usage.

Different calculation approaches may be used depending on the quality of data available.

For example, supplier-specific emissions data is often more precise than estimates based only on financial spending.

However, businesses starting their first Scope 3 inventory may initially need to use industry-average emission factors and gradually improve data quality.

The goal should be continuous improvement rather than waiting until every supplier can provide perfect carbon data.

Important Documents Required for Carbon Accounting

Good carbon reporting depends on evidence.

Companies should maintain supporting records such as:

Electricity bills
Diesel and petrol invoices
PNG or natural gas bills
LPG consumption records
DG set logs
Vehicle fuel records
Refrigerant records
Production data
Purchase records
Supplier information
Transportation records
Waste disposal records
Employee travel information
Renewable electricity documentation

Source documents should ideally be retained in an organised digital system.

This becomes especially important where emissions are subject to ESG assessment, assurance or customer verification.

Common Challenges in Scope 1, 2 and 3 Reporting

One common problem is incomplete data.

A company may have electricity bills but no reliable record of diesel consumed by company vehicles.

Another may know its total raw material spending but not the quantity of each material purchased.

Scope 3 presents an even greater challenge because data may need to come from hundreds of suppliers.

Businesses also frequently face issues relating to incorrect emission factors, duplicate reporting, inconsistent units and confusion about organisational boundaries.

For example, emissions may accidentally be counted twice when fuel consumption and transportation invoices are not properly categorised.

Another common mistake is treating a carbon footprint as a one-time calculation.

Carbon accounting works best when systems are built to collect information every month.

Benefits of Measuring Scope 1, Scope 2 and Scope 3 Emissions

Carbon accounting is not useful only for ESG reports.

It can also help management understand operational performance.

For example, unexpectedly high Scope 1 emissions may indicate excessive fuel consumption.

High Scope 2 emissions may highlight opportunities for energy-efficiency projects or renewable energy procurement.

Scope 3 analysis may show that a small group of raw materials accounts for a large portion of the company's total carbon footprint.

Businesses can then focus their reduction efforts where they can make the greatest difference.

Other benefits can include stronger ESG reporting, better customer confidence, improved investor communication and greater preparedness for future climate-related requirements.

How Can Businesses Reduce Scope 1 Emissions?

Reducing Scope 1 usually means reducing fossil fuel consumption or direct process emissions.

Possible measures can include:

replacing inefficient boilers, improving furnace efficiency, converting diesel equipment to cleaner alternatives, improving vehicle efficiency, adopting electric vehicles and controlling refrigerant leakage.

Manufacturers should first identify their largest direct emission sources.

A company where 80% of Scope 1 emissions come from a furnace should focus on that furnace rather than launching dozens of smaller carbon reduction projects.

How Can Businesses Reduce Scope 2 Emissions?

Reducing Scope 2 normally involves energy efficiency and cleaner electricity.

Businesses can evaluate:

energy-efficient motors, LED lighting, variable-frequency drives, rooftop solar, renewable power purchase agreements and other renewable electricity procurement options.

Energy efficiency often delivers two benefits simultaneously.

It reduces both electricity costs and greenhouse gas emissions.

This makes Scope 2 reduction particularly attractive for energy-intensive Indian manufacturers.

How Can Businesses Reduce Scope 3 Emissions?

Scope 3 requires cooperation across the value chain.

Companies may need to work with suppliers, logistics companies, distributors and customers.

Possible actions include choosing lower-carbon raw materials, sourcing locally where practical, improving logistics efficiency, reducing packaging, selecting suppliers with renewable energy programmes and designing products with longer operating lives.

For some businesses, product redesign itself can significantly reduce downstream emissions.

Scope 3 reduction is therefore often connected with procurement strategy and product development, not only environmental management.

How an ESG and Carbon Accounting Consultant Can Help

Calculating emissions may look simple when expressed as activity data multiplied by an emission factor.

In practice, preparing a reliable corporate greenhouse gas inventory requires several decisions.

Companies need to establish organisational boundaries, identify emission sources, collect reliable data, select appropriate emission factors and maintain calculation records.

An experienced ESG and carbon accounting consultant in India can help structure this process.

Consulting support may include:

GHG inventory preparation, Scope 1 calculations, Scope 2 calculations, Scope 3 screening, carbon footprint assessments, ESG data collection frameworks, BRSR support, emission reduction planning and preparation for sustainability reporting or third-party verification.

For manufacturers, the consultant can also integrate carbon accounting with environmental compliance, energy consumption, waste management and resource-efficiency initiatives.

This approach makes ESG reporting more practical and reduces duplication between departments.

Conclusion

Scope 1, Scope 2 and Scope 3 emissions provide businesses with a structured way to understand their complete greenhouse gas footprint.

Scope 1 covers direct emissions from sources controlled by the company.

Scope 2 covers emissions connected with purchased electricity and other forms of acquired energy.

Scope 3 covers the wider value-chain emissions associated with suppliers, transportation, employees, customers and products.

For Indian manufacturers and businesses, measuring these emissions is becoming increasingly relevant for ESG reporting, BRSR, investor communication and global supply-chain requirements.

The best approach is to start with reliable operational data, establish a clear carbon accounting boundary and gradually improve the accuracy of the company's greenhouse gas inventory.

Green Permits supports businesses with ESG reporting, Scope 1, Scope 2 and Scope 3 calculations, carbon footprint assessments, BRSR preparation and sustainability compliance.