Scope 3: the spend-based method

How does the spend-based method work?

The company groups its spending by type, maps each group to an industry or commodity in an EEIO model, and multiplies the spend by that industry's emission factor. The factor represents the cradle-to-gate emissions of producing one dollar's worth of that output, including the supply chain behind it. Spending that has no emissions of its own in this sense, such as taxes, wages paid directly, interest, intercompany charges and payments already counted in scope 1 or 2, is excluded. See the 15 scope 3 categories. Category 1 is covered in purchased goods and services.

Where do spend-based emission factors come from?

EEIO models combine national input-output tables, which show how much each industry buys from every other, with emissions data by industry. The US EPA publishes supply chain emission factors for US industries and commodities, in kilograms of CO2 equivalent per dollar at a stated base year's prices; multi-regional models such as EXIOBASE cover other countries. Choosing the right model matters, because the same spend on steel can have a very different factor in a country whose steel comes mainly from coal-based blast furnaces than in one with mostly electric arc furnaces. See choosing emission factors.

Scope 3 spend-based method: a manufacturer's ledger

A machinery maker maps its 2026 purchase ledger to EEIO factors. The factors are illustrative, in base-year dollars; prices have risen 12% since the factors' base year, so spend is divided by 1.12 before applying them.

Without the inflation adjustment, the result would be 28,520 tonnes, 12% too high, because each dollar now buys less than in the factors' base year. The steel supplier then provides product carbon footprints for the parts it sold, totalling 11,000 tonnes, below the spend-based 15,179 because it uses mostly recycled steel. Replacing that line gives a hybrid total of 21,286 tonnes, and the company records which lines use supplier data and which use spend.

What are the limits of the spend-based method?

• Prices, not emissions: if steel prices rise 20% and the company buys the same tonnage, reported emissions rise 20%.
• Averages: a supplier that cuts its emissions gets no credit until supplier data replaces the factor.
• Currency and price basis: spend in other currencies must be converted, and factors at purchaser prices include margins and transport that factors at producer prices do not.
• Mapping: broad ledger codes such as "materials" map poorly to industries, so the results are only as good as the classification.

How does it compare with other scope 3 methods?

For purchased goods and services, the GHG Protocol describes four methods, from most to least specific: supplier-specific, using each supplier's product-level data; hybrid, combining supplier data with secondary data for the rest; average-data, using quantities bought, such as tonnes of steel, times industry average factors per tonne; and spend-based. Companies typically use spend-based for the long tail of small purchases and move their largest categories and suppliers up the hierarchy over time. See the GHG Protocol explained. See supplier-specific data and category 1, purchased goods and services.

What should companies disclose about spend-based estimates?

IFRS S2 asks companies to explain their scope 3 measurement approach, the inputs and assumptions, and the share of data from their own value chain, and its measurement framework favours primary and verified data over estimates. ESRS E1 also asks for the methods used and the share of scope 3 calculated from primary data. Users and assurance providers look for consistency from year to year, so changes in factors or method should be explained, and prior-year figures restated where significant. See IFRS S2 climate disclosures and sustainability assurance.

This guide is general information. It is not tax or legal advice for your situation.