A worked Scope 3 estimate for one portfolio company: which spend goes in, how the factors are applied, and the two adjustments most first attempts miss.
Spend-based Scope 3 emissions are the company's purchases by category, excluding VAT and deflated to the price year of the emission factor, multiplied by an environmentally extended input-output (EEIO) factor in kgCO2e per euro. An illustrative manufacturer with 25,100,000 euros of in-scope purchases emits 13,326 tonnes of CO2e of Scope 3, 6.2 times its Scope 1 and 2. Skip the deflator and leave VAT in, and the same ledger reports 18,870 tonnes, 41.6 per cent too many.
Worked in full in The ESG Manager in Private Equity by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
The spend-based method is the GHG Protocol's lowest-data route into the upstream categories: it needs only the accounts payable ledger mapped to sectors and a factor set. It is how most private equity portfolio companies produce their first Scope 3 figure, and the number every later, better estimate is compared with.
Per line: tCO2e = (spend ex VAT / price deflator) × factor (kgCO2e per euro, base-year prices) / 1,000
Deflator: price level of the reporting year divided by the price level of the factor's base year
Excel: =SUMPRODUCT(Spend/Deflator,Factor)/1000
A fictional precision engineering company owned by a buyout fund, 70 million euros of revenue, 2,150 tonnes of Scope 1 and 2. Its general ledger carries 46,800,000 euros of costs; 21,700,000 of them are excluded before any factor is applied: payroll, taxes and duties, interest, depreciation, intercompany charges, and the purchased energy already counted in Scopes 1 and 2. What remains, 25,100,000 or 53.6 per cent of the ledger, is mapped to sectors. The factors are illustrative values of the right order, quoted in base-year prices; in practice they come from a published EEIO database, and the deflator from the price index that database specifies. Here prices have risen 18 per cent since the base year.
| Spend line | Category | Spend, EUR ex VAT | Factor, kgCO2e per EUR |
|---|---|---|---|
| Steel and machined metal parts | 1 | 9,600,000 | 0.95 |
| Plastics and packaging | 1 | 3,400,000 | 0.70 |
| Electronic components | 1 | 2,200,000 | 0.40 |
| Professional and IT services | 1 | 4,100,000 | 0.11 |
| Machinery and tooling (capex) | 2 | 2,500,000 | 0.38 |
| Road freight, inbound and outbound | 4 | 2,700,000 | 0.62 |
| Flights and hotels | 6 | 600,000 | 0.45 |
| Total in scope | 25,100,000 |
Step 1, strip VAT and exclude non-purchases. Use the net invoice amount. VAT is a tax, not a purchase from a sector, and payroll or interest have no supplier emissions to attribute.
Step 2, deflate to the factor's price year. Steel: 9,600,000 / 1.18 = 8,135,593 euros in base-year prices. A factor measured when steel was cheaper would otherwise be applied to inflated euros.
Step 3, multiply by the factor. Steel: 8,135,593 × 0.95 / 1,000 = 7,728.8 tonnes. Repeat for every line and add.
| Spend line | Deflated spend | tCO2e | Share |
|---|---|---|---|
| Steel and machined metal parts | 8,135,593 | 7,728.8 | 58.0% |
| Plastics and packaging | 2,881,356 | 2,016.9 | 15.1% |
| Electronic components | 1,864,407 | 745.8 | 5.6% |
| Professional and IT services | 3,474,576 | 382.2 | 2.9% |
| Machinery and tooling | 2,118,644 | 805.1 | 6.0% |
| Road freight | 2,288,136 | 1,418.6 | 10.6% |
| Flights and hotels | 508,475 | 228.8 | 1.7% |
| Scope 3, upstream | 13,326.3 | 100% |
By category: purchased goods and services (Category 1) 10,873.7 tonnes, 81.6 per cent; capital goods (Category 2) 805.1, 6.0 per cent; upstream transport (Category 4) 1,418.6, 10.6 per cent; business travel (Category 6) 228.8, 1.7 per cent. Added to Scope 1 and 2, the company's footprint is 15,476 tonnes, of which Scope 3 is 86.1 per cent, and Scope 3 intensity is 190.4 tonnes per million euros of revenue.
The useful output is not the total but the ranking. One line, steel, is 58.0 per cent of the estimate; professional services, about a sixth of in-scope spend by value, are 2.9 per cent. That tells the ESG manager where supplier engagement and better data will move the number, and where they will not. Capital goods are reported in the year of purchase, not depreciated, so a year with a new machining centre shows a spike that is not a trend.
| Change | Scope 3 | vs base |
|---|---|---|
| Base case, spend-based | 13,326.3 | 0.0% |
| Steel from supplier data: 3,900 t at 1.15 tCO2e per t | 10,082.5 | -24.3% |
| Steel factor 30% lower (0.665) | 11,007.6 | -17.4% |
| Steel factor 30% higher (1.235) | 15,644.9 | 17.4% |
| Steel price up 10%, same tonnes | 14,099.2 | 5.8% |
Replacing the spend estimate for steel with the supplier's product footprint, 3,900 tonnes bought at 1.15 tCO2e per tonne, gives 4,485.0 tonnes instead of 7,728.8 and cuts the total by 24.3 per cent. That is not an abatement: nothing changed in the supply chain, only the measurement. Report it as a methodology change and restate the base year, or the fund will book a reduction that never happened. The last row is the method's structural flaw: a 10 per cent price rise on the same steel adds 772.9 tonnes.
The core metric set as a data dictionary, and the collection calendar with its validation log, are among the working documents that come with the free workbook for this book. For the operational scopes of the same company, see how to calculate Scope 1 emissions.
An environmentally extended input-output factor gives the average emissions per unit of spend in a sector, for example kgCO2e per euro of fabricated metal products, derived from national accounts and emissions statistics. It is expressed in the prices of one base year. In the worked case the illustrative steel factor of 0.95 kg per euro turns 8,135,593 euros of deflated spend into 7,728.8 tonnes.
Because the method multiplies money, not material. If the company pays 10 per cent more for the same steel, spend-based emissions for steel rise by the same 10 per cent, 772.9 tonnes in the illustration, though nothing physical changed. Deflating to the factor's base year removes general inflation but not a supplier's own price increase, which is why the largest lines should move to supplier or activity data.
Category 1 purchased goods and services and Category 2 capital goods almost always; Category 4 upstream transport and Category 6 business travel where activity data is missing. In the worked company those four categories total 13,326 tonnes, with Category 1 alone at 81.6 per cent. Downstream categories such as the use of sold products need product and activity data, not spend.
This article is one calculation from The ESG Manager in Private Equity. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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