When assessing a company’s greenhouse gas emissions, investors use the Greenhouse Gas (GHG) protocol, which segments GHG emissions into categories called scopes.  

‍Scope 1 emissions: These emissions occur directly from sources owned or controlled by the reporting company, such as company real estate, manufacturing facilities, or vehicles. 

Scope 2 emissions: These emissions are not directly tied to the company’s operations. They emanate from the generation of electricity, steam, heating, and cooling that is purchased and consumed.       

Scope 3 emissions: Although Scope 3 emissions on average represent 80% of corporate GHG emissions, only 30% percent of all publicly traded companies report any information on it. These emissions are tied to the company value chain, and encompass emissions stemming from both upstream and downstream activities. There are 15 categories of Scope 3 emissions, with notable variability by industry.  

Scope 4 emissions: Scope 4 emissions refer to voided or eliminated emissions through product use.  Companies are generally not required to report them, but they are critical to climate impact because they are tied to products or solutions that are emission free, or lower emitting compared to existing alternatives. One way to think of Scope 4 emissions is to think of them as the counterweight to Scope 1, 2 and 3 emissions. In principle, the higher ‘voided’ Scope 4 emissions are in a given industry, the lower other emission categories are.     

‍

Download PDF for access to the full article.

‍

‍

‍

‍

‍