If you’re preparing for mandatory climate reporting under AASB S2

Understanding Scope 1, 2, and 3 emissions is essential. These three categories form the foundation of greenhouse gas (GHG) accounting — and they determine what your business is required to measure and disclose under Australia’s new sustainability reporting standards.

This guide explains each scope in plain English, with practical Australian examples, and sets out what AASB S2 requires from each category.

The GHG Protocol: The Framework Behind the Scopes

The Scope 1/2/3 classification comes from the GHG Protocol — the world’s most widely used standard for measuring and managing greenhouse gas emissions. Originally developed in 1998 by the World Resources Institute and the World Business Council for Sustainable Development, the GHG Protocol is now the methodology underpinning AASB S2, the Paris Agreement, and most major corporate climate frameworks.

The GHG Protocol divides emissions into three scopes to prevent double counting across the economy and to help businesses understand where their emissions actually come from.

Scope 1: Direct Emissions

Scope 1 covers all greenhouse gas emissions that come directly from sources owned or controlled by your organisation. These are the emissions you produce yourself.

Examples of Scope 1 emissions for Australian businesses include:

• Natural gas combustion in on-site boilers or furnaces
• Diesel or petrol burned in company-owned vehicles or forklifts
• Refrigerant leaks from air conditioning and refrigeration systems (known as fugitive emissions)
• Emissions from on-site manufacturing or industrial processes

Scope 1 is typically the easiest scope to measure because the data sources are within your direct control — fuel purchase records, fleet logs, and maintenance records for refrigerant systems are usually sufficient starting points.

Under AASB S2, all Scope 1 emissions must be disclosed regardless of materiality.

Scope 2: Indirect Energy Emissions

Scope 2 covers indirect greenhouse gas emissions from the generation of purchased electricity, steam, heat, or cooling that your organisation consumes. You don’t produce these emissions yourself — they occur at the power station or energy generation facility — but they arise as a direct consequence of your energy consumption.

For most Australian office-based businesses, Scope 2 will primarily consist of electricity purchased from the grid. For manufacturers, large retailers, or businesses with significant cold storage, Scope 2 can also include purchased steam or cooling.

The GHG Protocol allows for two approaches to calculating Scope 2:

• Location-based method: Uses average grid emission factors for the region
• Market-based method: Uses supplier-specific emission factors, including from renewable energy certificates

AASB S2 requires both methods to be disclosed where applicable.

Like Scope 1, all Scope 2 emissions must be disclosed under AASB S2.

Scope 3: Value Chain Emissions

Scope 3 is where it gets complex — and where most of the emissions are. Scope 3 covers all other indirect greenhouse gas emissions that occur in your value chain, both upstream and downstream. The GHG Protocol organises Scope 3 into 15 categories:

Upstream Categories (emissions associated with your inputs)

• Purchased goods and services
• Capital goods
• Fuel and energy-related activities (not included in Scope 1 or 2)
• Upstream transportation and distribution
• Waste generated in operations
• Business travel
• Employee commuting
• Upstream leased assets

Downstream Categories (emissions associated with your outputs)

• Downstream transportation and distribution
• Processing of sold products
• Use of sold products
• End-of-life treatment of sold products
• Downstream leased assets
• Franchises
• Investments

For most Australian businesses, the largest Scope 3 categories will be purchased goods and services, business travel, employee commuting, and (for product businesses) use of sold products.

Under AASB S2, businesses must disclose all Scope 3 emissions that are material to their operations. Materiality is assessed based on the significance of emissions categories relative to your total footprint and their relevance to climate-related risks and opportunities.

Why Scope 3 is the Hardest (and Most Important)

Scope 3 is notoriously difficult to measure because it requires data from third parties — your suppliers, logistics partners, employees, and customers. For most organisations, Scope 3 represents 70–90% of their total carbon footprint, which means it’s also where the greatest opportunities for emissions reduction lie.

The practical challenges of Scope 3 measurement include:

• Suppliers who don’t yet track or disclose their own emissions
• Inconsistent data formats across the supply chain
• The need to make estimates where primary data isn’t available
• The complexity of allocating emissions across shared activities

Despite these challenges, AASB S2 requires material Scope 3 disclosures — and ASIC enforcement means that organisations can’t simply ignore it.

Common Questions About the Scopes

Is electricity a Scope 1 or Scope 2 emission?
If you generate your own electricity (e.g., from a diesel generator), the fuel combustion is Scope 1. If you purchase electricity from the grid, the associated emissions are Scope 2.

Are business flights Scope 1 or Scope 3?
Business travel is almost always Scope 3 (Category 6), because the aircraft is not owned or controlled by your organisation. The only exception is if you operate your own corporate aircraft.

Do we need to report Scope 3 even if we can’t measure it accurately?
AASB S2 requires material Scope 3 disclosures, and allows for estimation using spend-based methods where primary data is unavailable. The key is to disclose your methodology and improve data quality over time.

💡 Enviro Capture automates the collection and calculation of Scope 1, 2 and 3 emissions. Our platform applies GHG Protocol-compliant emission factors, integrates with your supplier data, and generates the audit-ready disclosures required under AASB S2. Start your emissions measurement journey at envirocapture.au.