How to Build a Scope 3 GHG Inventory: Step by Step

What are Scope 3 emissions?

Scope 3 emissions are the indirect greenhouse gas emissions that happen in your value chain but outside your own operations. Scope 1 covers fuel you burn and process emissions on your own sites, and Scope 2 covers purchased electricity, steam, heat or cooling. Everything else linked to your business, upstream and downstream, is Scope 3.

For many companies, Scope 3 is the largest part of the total footprint. That is why customers, investors and disclosure frameworks increasingly ask for it, even though it is harder to measure than Scopes 1 and 2.

Why are Indian companies being asked for Scope 3 data?

Pressure comes from three directions. Global buyers with their own climate targets need emissions data from their suppliers, which is your Scope 1 and 2 and their Scope 3. Listed companies reporting under SEBI's Business Responsibility and Sustainability Reporting (BRSR) framework are encouraged to disclose value chain emissions, and SEBI has been extending ESG disclosure expectations to the value chain in phases. Investors and lenders also use Scope 3 to judge transition risk.

Because the BRSR value chain requirements and their timelines have been revised more than once, check the latest SEBI circular before setting your reporting scope.

Step 1: Set boundaries and the reporting year

Start by fixing the organisational boundary, meaning which entities, plants and offices are included, and the consolidation approach (operational control, financial control or equity share). Use the same boundary as your Scope 1 and 2 inventory so the numbers add up.

Choose a reporting year, usually the financial year April to March for Indian companies, and decide whether it will also serve as your base year for future targets.

Step 2: Screen all 15 Scope 3 categories

The GHG Protocol splits Scope 3 into 15 categories: eight upstream and seven downstream. Go through each one and decide whether it applies to your business, then make a rough estimate of its size. Any category you exclude should be justified in writing.

• Upstream: purchased goods and services, capital goods, fuel- and energy-related activities, upstream transport and distribution, waste generated in operations, business travel, employee commuting, upstream leased assets
• Downstream: downstream transport and distribution, processing of sold products, use of sold products, end-of-life treatment of sold products, downstream leased assets, franchises, investments

Step 3: Prioritise the categories that matter

Use the screening results to rank categories by estimated size, by how much influence you have over them, and by what your stakeholders ask for. A simple spend-based estimate is usually enough for this ranking.

For a typical manufacturer, purchased goods and services (raw materials, components, packaging) often dominate. If you sell products that use energy, such as motors, pumps or appliances, the use of sold products can be even larger. Focus your effort where the emissions and your influence are greatest.

Step 4: Collect activity data and choose a calculation method

Each category can be calculated in more than one way. The method you choose depends on what data you can realistically get.

• Spend-based method: purchase value in rupees multiplied by an emissions-per-rupee (or per-dollar) factor. Quick, but the least accurate.
• Average-data method: physical quantities, such as tonnes of steel or tonne-kilometres of freight, multiplied by industry-average emission factors.
• Supplier-specific method: actual product-level or allocated emissions data from your suppliers. The most accurate, but it takes time to build.
• Hybrid method: supplier data where available, average data elsewhere. This is where most companies end up.

Step 5: Select emission factors and calculate

An emission factor converts activity data into kilograms or tonnes of CO2 equivalent (CO2e). Use recognised, documented sources and note the version and year of each factor. Where possible, prefer factors that reflect Indian conditions, for example the Central Electricity Authority's grid emission factor for electricity-related calculations.

Keep calculations in a structured workbook or tool with clear links from raw data to results. Record every assumption, such as how you allocated a shared shipment or estimated missing invoices. Good documentation is what makes the inventory reviewable and, later, verifiable.

Step 6: Engage suppliers and improve data quality over time

Your first Scope 3 inventory will rely heavily on estimates, and that is normal. The aim is to replace generic factors with supplier-specific data in your largest categories year by year.

Start with the small number of suppliers that account for most of your purchased-goods emissions. Send them a short, clear questionnaire, explain why you need the data, and accept that early responses may be partial. Track a data quality score for each category so you can show improvement in future reports.