Getting a handle on Scope 3: a guide for Australian SMEs

If you're running a small or medium-sized enterprise (SME) in Australia, you might have noticed a new question popping up in tenders and supplier questionnaires: "What's your carbon footprint?"

Your big corporate customers are now under pressure to report their own 'Scope 3' emissions, and since you are in their supply chain, your emissions are part of their footprint. This isn't just a headache; it's a critical new requirement for doing business. But tackling Scope 3 doesn't have to be overwhelming. Here's a practical guide to getting started.

What are Scope 3 emissions?

First, a quick refresher. Greenhouse gas emissions are categorised into three 'scopes':

Scope 1: Direct emissions from sources you own or control (e.g., fuel for your company vehicles, gas for heating).
Scope 2: Indirect emissions from the electricity you purchase and use.
Scope 3: All other indirect emissions that occur in your value chain, both upstream (your suppliers) and downstream (your customers).

Scope 3 is often the largest source of emissions for a company—sometimes over 80% of the total. It includes everything from the emissions generated to produce the raw materials you buy, to the transport of your goods, to your employees' business travel, and even what happens to your product at the end of its life.

Why should an SME care?

The primary driver is your customers. As large corporations begin reporting under the Australian Sustainability Reporting Standards (ASRS), they will be required to disclose their material Scope 3 emissions. Their quickest path to getting this data is to ask their suppliers—that's you.

Being able to provide this information is rapidly becoming a competitive advantage. Companies that can't will risk being designed out of supply chains. But it’s not just about compliance. Understanding your Scope 3 footprint can help you:

Identify 'hotspots' of cost and resource inefficiency in your value chain.
Collaborate with suppliers to reduce costs and build resilience.
Strengthen your relationships with key customers by helping them meet their goals.

The 80/20 rule: where to start

The Greenhouse Gas Protocol defines 15 distinct categories of Scope 3 emissions. Trying to measure all of them from day one is a recipe for frustration. The key is to apply the 80/20 principle: focus on the few categories that make up the bulk of your emissions.

For most SMEs, the biggest hotspots are likely to be:

Category 1: Purchased Goods and Services: The emissions embedded in everything you buy, from raw materials to office supplies and professional services.
Category 4: Upstream Transportation and Distribution: The transport of goods from your suppliers to you.
Category 9: Downstream Transportation and Distribution: The transport of your products to your customers.
Category 5: Waste Generated in Operations: The emissions from disposing of your business waste.

Start there. You can worry about the smaller categories later.

A pragmatic, step-by-step approach

Here’s a simple process for an SME to get a first-pass estimate of its Scope 3 emissions:

Map your value chain: At a high level, what are the main things you buy and from whom? How do you get your products to your customers?
Use spend-based data for hotspots: This is the easiest way to start. Go through your accounting system and pull your total annual spend for different categories (e.g., raw materials, IT services, freight). You can then use 'spend-based emission factors'—industry-average estimates of kilograms of CO2 equivalent per dollar spent—to calculate a rough footprint. Several free and paid tools can help with this.
Refine with activity-based data where possible: A spend-based estimate is a good start, but it's not very accurate. The next step is to use real activity data where you can get it. For example, for your freight (Category 4 & 9), instead of using dollars spent, use the actual weight of goods and the distance and mode of transport (e.g., tonne-kilometres by road). This gives a much more accurate result.
Engage key suppliers: The ultimate goal is to move from industry averages to supplier-specific data. Start a conversation with your top 5-10 suppliers. Ask them if they have calculated their own carbon footprint or if they can provide emissions data for the products you buy from them. This is the future of supply chain management.

Throughout this process, document everything: your assumptions, the data sources you used, and the emission factors you applied. This transparency is crucial.

The bottom line

For Australian SMEs, Scope 3 is no longer an abstract concept but a commercial reality. Don't aim for perfection from the start. Begin with a simple, spend-based estimate of your biggest emission sources, document your methodology, and build from there. Taking the first step now will put you ahead of your competitors and make you a more valuable partner to your customers.