Understanding carbon emissions reporting, particularly within Scope 3 categories, can be complex. This was the central theme of our recent webinar, "Clearing the Confusion Around Scopes 3.4 and 3.9," where we addressed common questions and provided clarity on how emissions are categorized based on various logistics and payment scenarios. Here's a summary of the key Q&A from the session:
In case of sourcing on base EXW, reporting will take place at the buyer?
Please note that the freight payer’s role just change the way the emissions are reported under different sub scopes but it never overrules the obligation of declaring the emissions for different players participating in the value chain, if deemed material and if the company is obligated to report under CSRD. Under EXW (Ex Works), the buyer is responsible for all transportation costs from the point of pickup. Therefore, the emissions associated with the transportation of goods will fall under Scope 3.4 for the buyer.
In case of sourcing on base DDP, reporting will take place at the supplier and is included in the calculation of material?
Please note that the freight payer’s role simply determines how emissions are reported under the relevant sub-scopes, but it does not override the responsibility of each party to declare emissions that are material within the value chain and if the company is obligated to report under CSRD. Under DDP(Delivered Duty Paid), the supplier is responsible for covering all transportation costs and risks until the goods are delivered to the buyer’s location. Therefore, the emissions associated with the transportation and delivery of goods fall under Scope 3.1 for the buyer, as these are part of the 'upstream emissions' related to purchased goods and services. It may or may not be included in the cost of material, really depends on the invoice structure.
Where do the emissions sit if a reporting company arranges transportation and logistics, but my client who I have sold products to pays for the transportation and logistics? The same principle applies?
Yes, the principle still applies. If the client pays for the transportation, the emissions should be recorded under Scope 3.9 (Downstream Transportation & Distribution) for the reporting company. Really depends on who pays and what perspective we at looking at-- is it the reporting company or the client's emission reporting we are looking at.
Does it mean that a company's 3.9 emissions could be its customer's 3.4 emissions?
Yes, exactly. If the customer pays for the transportation, the emissions related to that transportation would be reported under Scope 3.4 by the customer, while the company may report the same transportation emissions as Scope 3.9 because it applies to their downstream operations. This ensures that the emissions are accounted for correctly.
What about deliveries of raw materials (i.e., upstream) that are delivered DAP? Would that be 3.9?
This is upstream for the buyer of raw materials but downstream for the seller of raw materials. Under DAP (Delivered at Place), the buyer does not pay for transportation costs, so the emissions related to the transportation of raw materials would fall under Scope 3.1 for the buyer and this would fall under Scope 3.9 for the seller, as the seller assumes responsibility for transportation and distribution until the arrival of goods at the final destination.
If a company pays for the delivery but charges back some kind of 'shipping fee' to the customer, that's still Scope 3.4, right?
These minute nuances are not taken into consideration if the charge back fee is not considerable or material, the emissions will still be allocated under Scope 3.4 for the company.
If it is the final customer (the buyer) who pays for the delivery and not the seller, who should report these emissions, and in which category?
Again, the freight payer’s role simply determines how emissions are reported under the relevant sub-scopes, but it does not override the responsibility of each party to declare emissions that are material within the value chain. Both the seller and the buyer are obligated to report the emissions if they are eligible to report under CSRD. If the final customer(the buyer here) pays for the delivery, the emissions should be reported under Scope 3.4 by the buyer, as they are responsible for the transportation costs and logistics. For the seller, this will be reported under Scope 3.9.
So, with some Incoterms, the transportation could be split between Scope 3.4 and 3.9 (e.g., considering Ocean Freight with pickup and drop-off)?
Yes, that is possible. Depending on the specific terms of the Incoterms and who pays for each leg of the transportation, the emissions can be split between Scope 3.4 (for upstream transportation) and Scope 3.9 (for downstream transportation) from the seller's reporting perspective. But if we look from buyer's reporting perspective, the emissions can be split between Scope 3.1 and Scope 3.4. This is especially relevant in cases where transportation involves both the buyer and seller, such as in the case of ocean freight.
How is payment of transport defined? If the invoice is addressed to the reporting company and it explicitly says "transport" and there is a specific amount linked to transport? How is the reporting done if the invoice says "services" like marketing, promotion, or others, and transport is part of that but no specific amount is linked to transport?
It only matters if the company in question decides to report the emissions on spend based approach. In this case, if the invoice explicitly lists "transport" with a specific amount, emissions are reported based on the transport costs. If the invoice lists "services" like marketing, and transport is part of that without a specific amount, then an approximate percentage can be assumed to derive the transport cost and eventually use this amount to report emissions.
Alternatively, if using activity-based calculation, only the transport activity matters, and other costs (like marketing) don't affect emissions reporting.
Why does 3.1 figure here, surely if the seller pays this would be 3.9?
It depends on the perspective of buyer or seller. If we are looking at the emissions reporting of buyer, emissions from transportation of goods from the seller's premises to buyer's would fall under Scope 3.1 for the buyer, as this is the cradle to gate emissions from the tier 1 supplier which falls under Scope 3.1 - from the perspective of the buyer.
Conversely if we consider the emissions reporting from the seller's perspective, the emissions from this transportation activity falls under Scope 3.4, as the seller pays for the logistics and not 3.9, as the buyer is not covering the cost of freight. It is the seller who pays for it.
Again the topic 3.1 and 3.4: It means if the "finished" product or service is delivered to the customer/retailer/distribution center and they are paying for the costs, it is 3.9. But if it is e.g., material or a service which is delivered to the seller company, it is 3.1, right?
Let's say we have 3 parties, A, B and C. Supplier A is the supplier of raw material, Manufacturer B is the manufacturer and uses the material from A to produce goods and Customer C is one of the customers or retailers. If Customer C pays for the transportation of finished goods from Manufacturer B's premises, it falls under Scope 3.9 (downstream) if we are looking at the emissions reporting of Manufacturer B. If raw materials are delivered back to Supplier A for some reasons(reverse logistics etc.) and Supplier A pay for the transportation, it falls under Scope 3.1 (purchased goods and services) from the perspective of Manufacturer B.
Key Takeaways
Scope 3 emissions reporting depends heavily on the contractual terms, payment responsibility, and the supply chain position of the reporting entity. Understanding the nuances of Incoterms and cost allocations is critical for accurate reporting under CSRD. This clarity helps ensure that all emissions are properly accounted for, supporting more transparent and effective sustainability practices.
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