How to Decide Which Scope 3 Emissions Are Significant

Category 3 of a Thai corporate footprint, the other indirect emissions that the GHG Protocol calls Scope 3, can run to fifteen categories. The TGO Requirements for Calculating and Reporting the Carbon Footprint of an Organization (2022) do not ask an organization to quantify all of it. They ask for a written process for deciding which of those emissions are significant, and a reason for every source left out. This article follows that process step by step, using the rule in section 5.2.5 and the guidance in Appendix 12.

#The rule: identify everything, report what is significant

The requirements describe other indirect emissions as emissions outside the organization's operations that result from its activities, which the organization may handle under ISO 14064-1:2018 or the GHG Protocol by dividing them into 15 categories, from purchased goods and services to franchises and investments (TGO CFO Requirements, 2022, pp.17-19). The organization must identify its category 3 sources completely, report only those that are significant, and establish criteria for assessing significance by reference to Appendix 12 (TGO CFO Requirements, 2022, p.19). The definitions add that a significant indirect emission is one calculated and reported in line with the significance criteria set by the organization itself (TGO CFO Requirements, 2022, p.12). The judgement belongs to the organization, but it has to be written down.

Section 5.2.5 turns this into four obligations: the organization must have a process for identifying the category 3 sources it will include in the inventory; the process must be in writing; it must state the significance criteria used, taking into account how the inventory will be used; and if the organization chooses not to report a source, it must have reasons to support that choice (TGO CFO Requirements, 2022, p.20).

#Step 1: state the intended use

Appendix 12 begins with intended use, because significance depends on who will read the inventory. The uses it lists are disclosure required by regulation or made voluntarily under a programme; a public commitment; an emissions trading scheme; tracking performance and progress in reducing emissions or increasing removals; a GHG reduction project; the organization's annual report; information for investors; identification of carbon-related risks or opportunities; and a due diligence report (TGO CFO Requirements, 2022, p.81). An inventory for investors and one for an internal energy programme may reasonably draw the line in different places, as long as each says where and why.

#Step 2: set criteria that match that use

Appendix 12.3.1 asks the organization to turn the five assessment principles into questions. Relevance: which indirect emissions must be assessed to meet the needs of the people who will use the data, such as customers, suppliers, investors, government or independent bodies, considered per activity or for several activities together. Completeness: which must be included so that the inventory covers all sources judged relevant. Consistency: whether including them is necessary for users who want to make meaningful comparisons. Accuracy: whether including them is necessary for the total to be reasonably free of uncertainty. Transparency: whether excluding them without disclosure and reasons would leave users unable to decide with reasonable confidence (TGO CFO Requirements, 2022, pp.81-82).

Appendix 12.3.2 then lists the criteria the assessment may use (TGO CFO Requirements, 2022, pp.82-83):

• Magnitude: activities presumed to emit or remove a significantly large quantity.
• Level of influence: activities the organization can monitor and reduce, for example those tied to energy efficiency assessment, eco-design, customer agreements or a client's scope of work.
• Risk or opportunity: activities that expose the organization to climate-related risk (financial, regulatory, supply chain, product and customer, litigation, reputation) or offer opportunities such as new market channels or new business models.
• Sector-specific guidance: activities treated as significant for the sector in a specific guide or guideline.
• Outsourcing: emissions from external parties contracted to carry out what are core activities of the business.
• Employee engagement: emissions whose reduction can motivate staff, for example energy-saving incentives, carpooling or internal carbon pricing.

The same six criteria appear in section 5.2.5 itself as the screening rules for ranking other indirect sources (TGO CFO Requirements, 2022, p.20).

#Step 3: screen before you calculate

Appendix 12.4 says to identify and assess indirect emissions in each category through a screening step that does not yet require detailed calculation, using the resources at hand: internal experts, external experts, sector-specific assessment guidance, a literature review or external databases. It notes that the magnitude of the emissions is an important consideration at the screening stage, and suggests drawing a value chain diagram showing the sequence of the organization's activities to locate emissions in the categories of section 5.2.4 and the sub-categories of Appendix 3 (TGO CFO Requirements, 2022, p.83). A rough order-of-magnitude estimate per category shows where a full calculation is worth the cost.

#Step 4: apply the criteria and record the reasons

Appendix 12.5 observes that in most cases the criteria give a clear yes or no for each source. Where they do not, typically because the criteria are qualitative rather than quantitative, the organization should analyse the criteria in more depth. The example given is an indirect source, such as goods used by the organization, estimated at about 10 percent of the organization's total indirect emissions, where the data needed to assess it would be very expensive to obtain and the accuracy of the estimate would be very low. The organization should balance the magnitude of the emissions against the accuracy and cost of the data, together with the other criteria such as risk and opportunity and the needs of data users, in deciding whether the source is significant. Whatever it decides, it should explain its reasons for concluding that an indirect emission is or is not significant (TGO CFO Requirements, 2022, p.83).

#Significance applies inside a category too

The category descriptions in Appendix 3 use the same logic at a finer level. For business travel, the requirements say hotel nights may be included when they are linked to the trip, such as an overnight stay while waiting for a connecting flight or attending a meeting, and that the indirect emissions arising during travel should be included where data to quantify them exists and they are significant (TGO CFO Requirements, 2022, p.46).

#What goes into the report

The required content of a GHG report includes documentation supporting the reporting boundary, including the criteria the organization established to determine significant emissions; an explanation of how significant sources are reported separately from the quantification (5.2.5); and the quantified indirect emissions by category in tonnes of CO2 equivalent (TGO CFO Requirements, 2022, p.31). The suggested report structure in Appendix 15 also leaves room, in its additional information section, for category 3 emissions beyond those defined in the assessment guideline (TGO CFO Requirements, 2022, p.88). The criteria and the exclusions are part of the report, not an internal memo.

#How CarbonBiz supports this

The App provides input forms and factor lookups for all 15 Scope 3 categories, so a category judged significant can be quantified the right way. Each activity record carries a significance score that marks the activities that matter most for Scope 3 materiality. Supplier Engagement maps how much of each category from 1 to 15 is covered by engaged suppliers, and supplier-measured values can be registered as Tier 3 factors with the reason and source URL recorded. The written process, the criteria and the reasons for each exclusion remain the organization's to write; the App keeps the data they rest on.