A Step-by-Step Guide to Scope 1, Scope 2 and Scope 3 Emissions

Climate change has transformed carbon emissions from an environmental issue into a strategic business issue.

Companies today are increasingly asked to understand, measure and disclose their greenhouse-gas emissions. Customers, investors, lenders, regulators and supply-chain partners may all require information about an organisation’s carbon footprint.

But an important question remains:

How does a company actually calculate its carbon footprint?

The basic principle is straightforward:

Activity Data × Emission Factor = Greenhouse-Gas Emissions

However, developing a credible corporate carbon footprint requires clear organisational boundaries, reliable activity data, appropriate emission factors, consistent methodologies and proper documentation.

The GHG Protocol Corporate Standard provides a widely used framework for preparing corporate-level greenhouse-gas inventories.

1. What Is a Corporate Carbon Footprint?

A corporate carbon footprint is an estimate of the greenhouse-gas emissions associated with an organisation’s activities during a defined reporting period.

It is generally expressed in:

tonnes of CO₂ equivalent (tCO₂e)

The footprint can include:

• Direct fuel combustion
• Company-owned vehicles
• Industrial processes
• Purchased electricity
• Purchased heating or cooling
• Business travel
• Employee commuting
• Purchased materials
• Transportation
• Waste
• Use of sold products
• Investments
• Other value-chain activities

The objective is to understand where emissions originate and where reduction opportunities exist.

2. The Three Scopes

A corporate carbon footprint is commonly organised into three scopes.

Scope 1

Direct emissions from sources owned or controlled by the company.

Examples:

• Diesel generators
• Company vehicles
• Boilers
• Furnaces
• Industrial processes
• Refrigerant leakage

Scope 2

Indirect emissions associated with purchased or acquired energy, such as:

• Electricity
• Steam
• Heating
• Cooling

Scope 3

Other indirect emissions occurring throughout the company’s value chain.

Examples include:

• Purchased goods
• Purchased services
• Business travel
• Employee commuting
• Transportation
• Waste
• Use of sold products
• End-of-life treatment
• Investments

The GHG Protocol’s Scope 3 Standard covers the company’s value-chain emissions and provides guidance across 15 Scope 3 categories.

3. Step One: Define the Reporting Period

The first step is to determine the period for which emissions will be calculated.

For example:

Financial Year 2025-26

or

Calendar Year 2026

The company should use a clearly defined and consistently applied reporting period.

This makes year-on-year comparison possible.

For example:

Such information can help management assess whether emissions-reduction initiatives are working.

4. Step Two: Define the Organisational Boundary

Before calculating emissions, the company needs to determine which operations are included in its inventory.

A group may have:

• Parent company
• Subsidiaries
• Joint ventures
• Branches
• Factories
• Warehouses
• Offices
• Leased facilities

The company needs a consistent approach for determining what falls within its organisational boundary.

The GHG Protocol provides guidance on organisational boundaries and different consolidation approaches.

5. Step Three: Identify Emission Sources

The next step is to create an emissions source inventory.

Scope 1 sources

Identify:

• Diesel
• Petrol
• Natural gas
• LPG
• Coal
• Furnace oil
• Company-owned vehicles
• Generators
• Industrial processes
• Refrigerants

Scope 2 sources

Identify:

• Grid electricity
• Purchased steam
• Purchased heating
• Purchased cooling

Scope 3 sources

Identify:

• Raw materials
• Supplier activities
• Logistics
• Business travel
• Employee commuting
• Waste
• Capital goods
• Product use
• Product disposal
• Investments

This exercise creates the company’s initial GHG emissions map.

6. Step Four: Collect Activity Data

Activity data is the information describing how much of an activity occurred.

Examples include:

Diesel: 100,000 litres

Electricity: 2,000,000 kWh

Natural gas: 500,000 m³

Business travel: 1,000,000 passenger-kilometres

Waste: 500 tonnes

Purchased material: 10,000 tonnes

The quality of the final carbon footprint depends heavily on the quality of the underlying activity data.

The GHG Protocol’s calculation tools provide guidance on collecting activity data and selecting emission factors.

7. Step Five: Select Appropriate Emission Factors

An emission factor converts activity data into greenhouse-gas emissions.

For example:

Fuel consumed × fuel emission factor = emissions

or:

Electricity consumed × electricity emission factor = emissions

The GHG Protocol notes that emission factors relate quantities of activity to greenhouse-gas emissions and recommends using more specific or custom factors where appropriate and available.

Companies should document:

• Source of emission factor
• Year
• Geography
• Unit
• Applicable fuel or activity
• Methodology
• Any assumptions

8. The Basic Carbon Footprint Formula

The fundamental formula is:

Carbon Emissions = Activity Data × Emission Factor

For example, assume a company consumes:

10,000 litres of diesel

and the applicable emission factor is:

2.68 kg CO₂e per litre

Then:

10,000 × 2.68 = 26,800 kg CO₂e

Therefore:

26.8 tonnes CO₂e

This is a simplified illustration. Actual calculations should use appropriate, current emission factors and account for the relevant gases and methodological requirements.

9. Example: Calculating Scope 1

Suppose a manufacturing company uses:

50,000 litres of diesel

Assume, for illustration, an emission factor of:

2.68 kg CO₂e/litre

Calculation:

50,000 × 2.68 = 134,000 kg CO₂e

Convert kilograms to tonnes:

134,000 ÷ 1,000 = 134 tonnes CO₂e

Therefore, the estimated emissions are:

134 tCO₂e

The emission factor used here is only an illustrative example. A company should use the appropriate factor applicable to its fuel, geography and reporting methodology.

10. Example: Calculating Scope 2

Suppose the same company consumes:

2,000,000 kWh of electricity

Assume, for illustration, an electricity emission factor of:

0.70 kg CO₂e/kWh

Calculation:

2,000,000 × 0.70 = 1,400,000 kg CO₂e

Therefore:

1,400 tCO₂e

The company should select the appropriate electricity emission factor and determine the applicable Scope 2 accounting method.

The GHG Protocol Scope 2 Guidance addresses both location-based and market-based methods for Scope 2 accounting.

11. Example: Calculating Scope 3

Scope 3 can be considerably more complex.

Suppose a company purchases:

1,000 tonnes of a particular raw material

Assume the relevant supplier/product emission factor is:

1.5 tCO₂e per tonne

Then:

1,000 × 1.5 = 1,500 tCO₂e

The estimated Scope 3 emissions would therefore be:

1,500 tCO₂e

This example illustrates the basic calculation. Actual Scope 3 accounting can require more detailed supplier-specific or activity-based information.

12. Building a Carbon Inventory

A company can create a simple carbon inventory like this:

*Illustrative calculations using hypothetical emission factors.

This type of table can become the foundation of an internal ESG dashboard.

13. What About Scope 3?

Scope 3 is often the most difficult part of carbon accounting because emissions occur outside the company’s direct operational boundary.

The company may need information about:

• Suppliers
• Logistics providers
• Customers
• Employees
• Waste contractors
• Travel providers
• Investment activities

The GHG Protocol provides a dedicated Scope 3 Standard and calculation guidance to help organisations assess value-chain emissions.

14. Primary Data vs Secondary Data

Companies may use two broad types of information.

Primary Data

Information obtained directly from the source.

Examples:

• Supplier-specific emissions
• Actual electricity consumption
• Actual fuel consumption
• Supplier-specific product footprint

Primary data can provide greater specificity where reliable information is available.

Secondary Data

Information obtained from external databases, industry averages or published emission factors.

Secondary data can be useful when primary data is unavailable.

A company should clearly document where estimates and assumptions are used.

15. How Should Companies Handle Missing Data?

Perfect data may not be available when a company calculates its first carbon footprint.

Instead of abandoning the exercise, the company can:

1. Identify the missing data.
2. Estimate where appropriate.
3. Document the methodology.
4. Identify the data owner.
5. Improve data collection for the following year.

The objective should be continuous improvement in data quality.

16. Carbon Footprint Per Employee

Companies can also develop intensity metrics.

For example:

Total emissions ÷ number of employees

If a company produces:

10,000 tCO₂e

and has:

1,000 employees

then:

10,000 ÷ 1,000 = 10 tCO₂e per employee

This can help management compare performance over time.

17. Carbon Footprint Per Revenue

Another useful metric is:

Emissions Intensity = Total Emissions ÷ Revenue

For example:

Annual emissions:

20,000 tCO₂e

Annual revenue:

₹1,000 crore

Emissions intensity:

20 tCO₂e per ₹1 crore revenue

Intensity metrics can help companies assess emissions in relation to business growth.

However, companies should choose metrics that are meaningful for their industry and reporting requirements.

18. Carbon Footprint and Finance

Carbon accounting increasingly intersects with financial management.

Carbon-related information can influence:

• Capital expenditure
• Product pricing
• Procurement
• Operating costs
• Supply-chain decisions
• Investment decisions
• Financing
• Risk management
• Business valuation

For this reason, carbon accounting should not be treated as an isolated environmental exercise.

It should increasingly become part of management accounting and corporate performance management.

19. Role of CA and CMA Professionals

Chartered Accountants and Cost Accountants can play a significant role in corporate carbon accounting.

Their responsibilities can include:

Carbon Data Controls

Checking whether data is complete, consistent and properly supported.

Cost Analysis

Assessing the cost of emissions-reduction projects.

Capital Budgeting

Evaluating investments in:

• Solar power
• Energy-efficient equipment
• Electric vehicles
• Waste-reduction systems
• Cleaner production technology

ESG Reporting

Supporting management in preparing sustainability disclosures.

Internal Audit

Testing ESG data processes and controls.

Assurance Readiness

Maintaining documentation and evidence supporting reported figures.

Performance Management

Linking carbon KPIs with operational and financial performance.

20. From Carbon Measurement to Carbon Reduction

Calculating the carbon footprint is only the beginning.

The next step is to identify reduction opportunities.

For Scope 1, companies can consider:

• Energy efficiency
• Electrification
• Cleaner fuels
• Process improvements
• Fleet optimisation

For Scope 2:

• Renewable electricity
• Solar power
• Energy efficiency
• Electricity procurement strategies

For Scope 3:

• Sustainable procurement
• Supplier engagement
• Low-carbon logistics
• Product redesign
• Circular economy
• Reduced business travel

The GHG Protocol’s Scope 3 framework is specifically designed to help companies understand value-chain emissions and identify where reduction efforts should be concentrated.

21. Carbon Footprint Software and Tools

Companies can use spreadsheets, specialised ESG platforms or carbon-accounting software.

The GHG Protocol also provides calculation tools and a Scope 3 Evaluator.

Its Scope 3 Evaluator is designed to help organisations estimate emissions across all 15 Scope 3 categories and identify areas where more detailed data collection may be needed.

Technology can help automate:

• Data collection
• Emission calculations
• Dashboards
• Document storage
• Approval workflows
• KPI monitoring
• Reporting

However, software does not replace sound accounting methodology.

22. Five Common Carbon Accounting Mistakes

1. Using an inappropriate emission factor

The factor should match the activity, geography and methodology.

2. Ignoring Scope 3

A company may significantly underestimate its footprint if it focuses only on its own facilities.

3. Mixing reporting boundaries

Changes in organisational boundaries can distort year-on-year comparisons.

4. Poor documentation

Every major calculation should be supported by evidence and assumptions.

5. Treating estimates as actual measurements

Estimated data should be clearly identified and progressively improved.

23. Is Carbon Accounting Only for Large Companies?

No.

Even an MSME can begin with a simple carbon inventory.

A small business could start by measuring:

• Electricity
• Diesel
• Petrol
• LPG
• Business travel
• Waste
• Major purchased materials

It can then gradually expand toward a broader Scope 3 inventory.

This is particularly valuable for MSMEs that supply large companies or multinational customers.

24. What Should a Company Do in the First 90 Days?

Days 1–30: Identify

• Establish a carbon team
• Define organisational boundaries
• Identify emission sources
• Assign data owners

Days 31–60: Measure

• Collect activity data
• Select emission factors
• Calculate Scope 1
• Calculate Scope 2
• Begin Scope 3 screening

Days 61–90: Improve

• Review calculations
• Identify major emission sources
• Establish baseline
• Set reduction priorities
• Develop an ESG dashboard

This creates a practical foundation for a company’s longer-term climate strategy.

25. The Future of Corporate Carbon Accounting

Carbon accounting is evolving.

The GHG Protocol and ISO announced a strategic partnership in 2025 to develop a consolidated corporate greenhouse-gas accounting standard intended to harmonise Scope 1, Scope 2, Scope 3 and related accounting approaches with ISO 14064-1. The development process is ongoing, so companies should distinguish current requirements from proposed future standards.

This direction indicates that carbon accounting is likely to become increasingly standardised and integrated with corporate sustainability reporting.

Conclusion

Calculating a company’s carbon footprint begins with a simple principle:

Activity Data × Emission Factor = Emissions

But credible carbon accounting requires much more than a mathematical calculation.

Companies need to establish appropriate boundaries, identify emission sources, collect reliable activity data, select suitable emission factors, document assumptions and continuously improve data quality.

The process can be summarised as:

Define → Identify → Collect → Calculate → Verify → Report → Reduce → Monitor

For finance professionals, carbon accounting represents an important new area where accounting, costing, risk management, technology and sustainability intersect.

As ESG reporting develops globally, the ability to understand and manage carbon data will increasingly become a core business skill—not just an environmental function.