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CS Professional · Environmental, Social and Governance (ESG) - Principles and Practice · Green Initiatives

Aarav Steels Ltd's ESG committee reviews a draft climate disclosure. The draft discusses indirect emissions from purchased electricity consumed at its plants but labels them Scope 3. Under the GHG Protocol corporate standard, the correct classification of these emissions is:

Emissions from purchased electricity are Scope 2 under the GHG Protocol. Scope 1 covers direct emissions from owned sources, Scope 2 covers indirect emissions from purchased energy, and Scope 3 covers other value-chain emissions. The draft's Scope 3 label is therefore incorrect.

  1. AScope 1, because the company uses the electricity
  2. BScope 2, because they arise from purchased energyCorrect
  3. CScope 3, because the generator is a third party
  4. DOutside all scopes, because they are not directly emitted by the company

Explanation

Under the GHG Protocol, Scope 1 is direct emissions from owned or controlled sources, Scope 2 is indirect emissions from purchased electricity, steam, heat or cooling, and Scope 3 covers all other value-chain indirect emissions. The draft's Scope 3 label is therefore wrong, even though a third party generates the power.

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