ESRS Scope 1, Scope 2 and Scope 3 Emissions: Boundaries, Methods and Data Controls

Educational material. It does not replace the applicable delegated act, national law, legal advice or an assurance conclusion.

Most Scope 1, Scope 2 and Scope 3 errors are not arithmetic errors. They arise because the undertaking has not decided which legal entities, facilities, leases, joint arrangements and value-chain activities belong in each part of the inventory. If that decision is made informally by the data team, the same source may be omitted, double counted or moved between scopes from one year to the next.

Revised ESRS E1-8 requires gross emissions in metric tonnes of CO2 equivalent, disaggregated into Scope 1, location-based Scope 2, market-based Scope 2 and significant Scope 3 categories. It also requires the undertaking to explain its measurement approach under ESRS 2 GDR-M and to disaggregate Scope 1 and Scope 2 between the consolidated accounting group and other emissions. Those requirements make the boundary and the reconciliation visible reporting judgements, not back-office choices.

Source anchor: revised ESRS E1, paragraphs 29-31 and AR 18-24.

The sustainability statement starts from the same reporting undertaking as the financial statements. For a group, this normally means the parent and consolidated subsidiaries. ESRS 1 also contains specific treatment for joint operations and for value-chain relationships. This reporting perimeter is the reference point against which the GHG inventory is explained.

The GHG Protocol, however, permits corporate inventories to be consolidated using financial control, operational control or equity share. Revised E1 AR 19 recognises that choice. It identifies financial control as the ESRS default, while allowing operational control or equity share as an alternative. Whichever approach is used, the undertaking should document why it is appropriate, apply it consistently and retain a reconciliation to the financial reporting group.

A group should not select an approach simply because it produces a lower result. The boundary should reflect a stable accounting policy, the nature of the organisation and the intended management use. A change is a methodology change that needs approval, explanation and an assessment of whether comparatives or the base year should be recalculated.

Figure 1. ESRS GHG inventory boundary and scope control map. Original LRA practitioner visual.

Scope 1 covers direct emissions from sources that fall within the selected organisational boundary. Typical populations include stationary combustion, mobile combustion, process emissions and fugitive emissions. The inventory should cover all relevant greenhouse gases - CO2, CH4, N2O, HFCs, PFCs, SF6 and NF3 - rather than only carbon dioxide.

Revised E1 AR 20 requires gross reporting. Removals, carbon credits, transferred credits and GHG allowances are not deducted. Direct biogenic CO2 from combustion or biodegradation of biomass is disclosed separately rather than included in the Scope 1 total, while non-CO2 emissions from biomass remain in the relevant scope.

Create a facility and mobile-source register linked to the legal-entity register and reporting period.

Identify all fuels, refrigerants, industrial gases, process materials and biological sources that can generate GHGs.

Document the calculation route for each source: direct measurement, activity data multiplied by a factor, mass balance or engineering estimate.

Reconcile fuel and material quantities to invoices, inventory movements, production records and regulatory submissions.

Assign an owner, reviewer, evidence location and close deadline to every material source.

Where operations participate in the EU Emissions Trading System or another regulated scheme, the verified regulatory quantity can be a strong input. It does not automatically represent the complete ESRS Scope 1 population. The organisation should reconcile scheme coverage, gases, installations, reporting period, biomass treatment and any sources outside the regulatory perimeter. Differences should be explained and approved.

Scope 2 covers emissions associated with purchased or acquired electricity, steam, heat and cooling. Revised E1 requires two figures because the methods answer different questions. The location-based method reflects the average emissions intensity of the grids or systems where consumption occurs. The market-based method reflects qualifying supplier-specific or contractual attributes where those instruments meet the relevant quality criteria.

The location-based calculation needs a controlled map from each site and consumption period to the appropriate grid or system factor. The factor should match the geography and reporting period as closely as reasonably possible. The organisation should document how it treats missing regional factors, off-grid supply, district heating and estimation of unmetered consumption.

The market-based calculation requires evidence that the contractual instrument is valid for the reporting entity, technology, geography and consumption period. Controls normally cover ownership, uniqueness, cancellation or retirement, temporal matching, residual-mix treatment and the prevention of double claims. A purchase contract labelled 'renewable' is not sufficient evidence if the environmental attributes are sold separately or are not assigned to the undertaking.

Scope 3 covers indirect upstream and downstream emissions outside the selected Scope 1 and Scope 2 boundary. Revised E1 AR 24 requires the undertaking to screen all 15 GHG Protocol categories and identify significant categories using both magnitude and other criteria, including influence, transition risk, stakeholder attention and sector relevance. A category with a modest initial estimate can still be significant where it is strategically important or highly exposed to transition risk.

The screening file should record the category definition, applicable activities, initial estimate, data source, exclusions, significance rationale and the reviewer conclusion. The significant categories are then measured and disclosed individually. The total disclosed Scope 3 number should represent the sum of the significant categories, with methods and material limitations explained.

Significant categories should be updated annually. The full screening of all categories should be refreshed at least every three years and earlier when there is a significant event, such as an acquisition, disposal, new product line, business-model change, major supplier shift or revised methodology. The assessment should not be frozen indefinitely simply because the category list was approved in a prior year.

The standard prioritises specific, timely, representative and verified data, but it does not require perfect primary data before a category can be reported. A defensible hierarchy begins with supplier- or asset-specific activity data, then technology- and geography-specific secondary data, modelled activity data and, finally, spend or proxy estimates for screening or residual gaps. Each estimate should carry a method, assumption, uncertainty note, owner and improvement action.

Figure 2. Scope 2 dual reporting and the Scope 3 data hierarchy. Original LRA practitioner visual.

An associate or joint venture that is outside the selected organisational boundary is not automatically ignored. If the relationship is material as an investment, Category 15 may apply. If the same counterparty is also a supplier, customer or logistics provider, the organisation should account for the relevant activities in the appropriate categories and document how it prevents duplicate activity data. Financial institutions should consider PCAF for financed emissions and retain asset-class coverage and data-quality information.

Revised E1 AR 24 identifies cloud computing and data-centre services as a potentially relevant subset of purchased goods and services. Undertakings with material digital operations should therefore test whether provider energy and emissions data, service-use measures or a transparent allocation model are needed, rather than assuming these emissions are immaterial because the physical equipment is off-site.

A controlled factor library is as important as the activity dataset. Revised E1 expects the latest available 100-year global warming potential values published by the IPCC. Older factors may be used where they remain the best available information, but the undertaking should explain the choice. The same discipline applies to grid factors, fuel factors, refrigerant GWPs, spend factors and sector-specific lifecycle factors.

Assurance readiness does not mean adding a review signature at the end. It means designing evidence and review into the inventory process. Each material number should be traceable from the sustainability statement to a calculation output, an approved methodology, source data and supporting evidence. Narrative statements about boundaries, category significance and uncertainty need the same discipline as quantitative metrics.

Northbridge selects the operational-control approach for its GHG inventory because environmental management and energy procurement are managed centrally across the joint venture. The three plants, the acquired subsidiary from the acquisition date and the operationally controlled joint venture are included in Scope 1 and Scope 2. The group prepares the required disaggregation between the consolidated accounting group and other emissions, identifying the joint venture separately. The leased warehouse is classified after reviewing responsibility for energy and operations; because the lessor controls the equipment and energy contract, the warehouse electricity is reported in Scope 3 Category 8 rather than Scope 2.

For Scope 2, Northbridge reports both methods. Location-based emissions use regional grid factors. Market-based emissions use certificates only where the certificates are allocated to the correct legal entity and consumption period and have been cancelled. Unmatched consumption uses the required residual or fallback factor. The difference between the two figures is explained rather than presented as an avoided emission.

The Scope 3 screening identifies purchased metals, upstream transport, use of sold products and investments as significant. Supplier-specific metal data cover 45% of volume; the remainder is estimated with geography-specific secondary factors. The minority recycling investment is measured under Category 15 using the available company emissions and an ownership attribution. The team records the data gap, uncertainty and a supplier-engagement plan for the next reporting cycle.

Why it is stronger: the wording states the boundary approach, separates the accounting group from other emissions, gives both Scope 2 methods, names the significant Scope 3 categories, describes primary-data coverage and identifies the material estimation uncertainty. The undertaking would still need to add its precise methods, factor sources, comparative information and any other ESRS 2 GDR-M disclosures relevant to its facts.