Greenhouse gas (GHG) emissions reporting requires companies to account for their entire environmental footprint, which spans the full length of their production and distribution process, known as the value chain. This comprehensive view acknowledges that a company’s influence on global emissions extends far past its immediate operational boundary. Understanding these complex, indirect emissions is necessary for any business aiming to accurately assess and reduce its contribution to climate change.
Defining Upstream Emissions and Their Context
Upstream emissions are defined as the indirect greenhouse gases generated by a company’s suppliers and vendors before the company’s direct operations begin. These emissions result from the extraction, production, and transportation of goods and services that a reporting company purchases or acquires. They represent the environmental footprint embedded in the materials, components, and services that flow into a company’s manufacturing or service delivery process.
For reporting purposes, the Greenhouse Gas (GHG) Protocol, the world’s most widely used accounting standard, classifies all emissions into three Scopes. Scope 1 covers direct emissions from sources owned or controlled by the company. Scope 2 includes indirect emissions from the generation of purchased electricity, steam, heat, or cooling consumed by the company.
Upstream emissions fall under Scope 3, which encompasses all other indirect emissions that occur within a company’s value chain but are not owned or controlled by the reporting entity. For many organizations, particularly those involved in retail or manufacturing, Scope 3 activities can account for the largest proportion of their overall carbon footprint, sometimes exceeding 90%. Grouping these activities into Scope 3 helps companies identify where their influence lies outside of their direct operations.
Categorizing Upstream Activities
The GHG Protocol specifies eight categories of upstream activities to help companies systematically organize and calculate these indirect emissions. The largest and most common category is Purchased Goods and Services, which includes the full life cycle emissions from raw material extraction, manufacturing, and transport of all materials bought by the company. This category is often an emissions hotspot, especially for product-based businesses.
Other categories include:
- Capital Goods: Accounts for the emissions related to the production of long-term assets like machinery, buildings, and vehicles that a company purchases.
- Fuel- and Energy-Related Activities: Covers the upstream production and transport of fuels and electricity not already counted in Scope 1 or 2.
- Upstream Transportation and Distribution: Tracks emissions from third-party logistics services, including the movement of products from a supplier’s facility to the reporting company’s operations.
- Business Travel: Accounts for emissions from employee air travel, rail travel, or use of rental cars for company purposes, as these transportation services are purchased from external providers.
Measuring the Invisible Life Cycle Assessment
Quantifying upstream emissions is a complex task because the data originates from sources outside the reporting company’s operational control. The primary methodology used to track these emissions is the Life Cycle Assessment (LCA). For upstream emissions specifically, the analysis typically focuses on a “cradle-to-gate” boundary, which includes all impacts up to the point the product leaves the supplier’s facility and enters the reporting company’s possession.
LCA requires the collection of two main types of data: activity data and emission factors. Activity data includes measurable metrics like the quantity of purchased materials, the distance traveled by transport vehicles, or the amount of waste generated. Emission factors are then applied to this activity data, representing the quantity of greenhouse gases released per unit of activity, such as kilograms of carbon dioxide equivalent per ton of steel produced or per kilometer traveled by a truck.
A significant challenge in this measurement is the heavy reliance on third-party data, which can vary widely in quality and availability across a global supply chain. Many companies must use industry-average emission factors or economic input-output models to estimate the footprint of complex or distant suppliers, which introduces uncertainty. A lack of consistent, high-quality primary data from every single supplier remains a persistent hurdle for achieving a precise inventory.
The Distinction Upstream Versus Downstream Emissions
The terms upstream and downstream are used to divide the entire Scope 3 value chain based on the flow of products and services relative to the reporting company’s operations. Upstream emissions are generated by the supply side, occurring before the company’s internal production processes are complete. This is the phase where the company is the purchaser, acquiring the inputs necessary for its business.
In contrast, downstream emissions occur after the product leaves the reporting company’s control, typically during the consumption and post-consumer phases. Examples of downstream activities include the emissions from the use of sold products, such as the electricity consumed by an appliance a company manufactured. They also include the end-of-life treatment of sold products, such as the emissions from landfilling or recycling.
Both upstream and downstream emissions collectively form the company’s total Scope 3 footprint. The focus for reporting shifts depending on the company’s position in the value chain. A raw material producer, for instance, might focus on downstream emissions from the processing of their sold materials, while a retailer will typically have a much larger upstream footprint due to the vast range of goods it purchases. This distinction allows companies to focus their reduction strategies on the areas where they have the most potential influence, whether that is engaging suppliers or influencing consumer behavior.