Scope 1, 2, and 3 Emissions Explained: A Simple Guide for SMEs

If you’re new to ESG reporting, “Scope 1, 2, and 3” is probably the first piece of jargon you’ll run into, and has often baffled even experienced sustainability teams. Here’s the plain-English, dumbed down (but still must-know calibre) version.

The scopes come from the GHG Protocol, the global standard most emissions frameworks (including VSME and CSRD) build on. They’re a way of sorting a company’s emissions by where they come from and how directly the company controls them.

Scope 1: Emissions You Create Directly

Scope 1 covers greenhouse gases released by things your business owns or controls. Think emissions from:

• Company vehicles
• Building heating*
• Any on-site manufacturing or machinery

If the source is “ours,” it’s Scope 1. For most small businesses, this category is often the smallest and easiest to measure, with your fuel and energy receipts.

Scope 2: Emissions From the Energy You Buy

Scope 2 covers emissions created on your behalf by the electricity, steam, heat, or cooling you purchase. You’re not burning the fuel yourself, but your energy demand is causing emissions somewhere upstream, typically at a power plant.

For most SMEs, this means: the electricity bill. If your building isn’t running on renewables, your utility’s grid mix determines your Scope 2 footprint.

*The difference here between ‘building heating’ mentioned in scope 1 is this: on-site combustion = Scope 1. Purchased energy (electricity, steam, heat, cooling) from an external source = Scope 2.

Scope 3: Everything Else in Your Value Chain

Scope 3 is where things get complicated, and where most emissions actually live. It covers every emission connected to your business that isn’t Scope 1 or 2, including:

• Emissions from suppliers producing the goods you purchase
• Business travel and employee commuting
• Emissions from how customers use or dispose of your product
• Transportation and distribution you don’t directly control

The GHG Protocol splits Scope 3 into 15 categories, but SMEs don’t need to master all of them on day one. What matters is understanding that Scope 3 usually accounts for the majority of a company’s total footprint, often over 70% for non-industrial businesses. This is why larger companies are now asking their suppliers (including SMEs) for this data.

Why This Matters If You’re VSME-Adjacent

If a large customer under CSRD has asked you to report emissions data, there’s a good chance they’re asking because your emissions are their Scope 3. Understanding these categories helps you see where those questions are coming from, and why the VSME standard exists partly to give SMEs a proportionate, simplified way to respond.

Where to Start

You don’t need perfect Scope 3 data to begin. Most SMEs start with Scope 1 and 2 (the most controllable and best-documented), then build toward Scope 3 as supplier and customer requests make specific categories relevant. For context, check out this supplier questionnaire guide .

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FAQ

Q: Do SMEs have to report Scope 3 emissions?
A: Not under VSME’s Basic Module. Comprehensive Module reporting includes some Scope 3 disclosures, but VSME is voluntary and designed to be proportionate to SME capacity.

Q: Which scope should a small business calculate first?
A: Scope 1 and 2 are typically most accessible, since they rely on data you already have, like fuel and energy bills.

Q: Why do my customers keep asking about my emissions?
A: If they report under CSRD, your emissions likely count toward their Scope 3, often their largest reporting gap.