Scope 3 Emissions: Why Supplier and Value Chain Data Matter Under AASB S2

Scope 3 emissions — everything in your upstream and downstream value chain — are typically the largest share of most organisations’ total greenhouse gas footprint. For a construction company, embodied carbon in steel, concrete, and glass can dwarf the Scope 1 and 2 footprint from site operations by a factor of five or more.

AASB S2 requires Scope 3 disclosure, with transition relief allowing most entities to omit it in year one. But the transition period ends quickly, and the data challenge is substantial. Here’s what you need to know.

What Scope 3 covers

The GHG Protocol Corporate Standard organises Scope 3 into 15 categories, split between upstream (production and delivery of what you buy) and downstream (use and disposal of what you sell).

The most material categories for construction and infrastructure:

Category 1 — Purchased goods and services: The embodied carbon in materials (concrete, steel, timber, glass, asphalt) and services (subcontractors bringing their own plant). For most construction businesses, this is the dominant Scope 3 source.

Category 2 — Capital goods: Emissions from manufacturing the plant and equipment you own — excavators, cranes, vehicles. Typically allocated over asset life.

Category 4 — Upstream transportation: Emissions from transport of materials to your sites, where you’re the buyer.

Category 5 — Waste generated in operations: Emissions from waste disposal, particularly landfill decomposition.

Category 6 — Business travel: Flights, accommodation, hire cars.

Category 7 — Employee commuting: Emissions from employees travelling between home and work.

Category 11 — Use of sold products: For property developers, the operational energy use of buildings sold or leased.

What AASB S2 requires

AASB S2 requires disclosure of Scope 3 emissions including:

• Which categories are included and which are excluded (with the reason for exclusions)
• The approach used to calculate each included category (spend-based, activity-based, supplier-specific)
• The level of uncertainty in the estimates

The transition relief allows most entities to omit Scope 3 in year one. From year two onwards (for Group 1) and from the equivalent transition year for other groups, Scope 3 must be included.

Why data collection is hard

You don’t control your suppliers’ data. Unlike Scope 1 and 2, where you know exactly how much fuel you burned and electricity you consumed, Scope 3 requires data from entities you don’t control — your suppliers, subcontractors, and logistics providers.

The data quality varies enormously. Some suppliers have emission factor data per unit of product (a steel mill might provide kg CO₂e per tonne of steel). Most don’t — and you fall back on industry average factors that may not reflect actual production methods.

The calculation method matters. There are three main approaches:

1. Spend-based: Multiply spend with a supplier by an industry-average emission factor per dollar. Low accuracy but low data burden.
2. Activity-based: Use physical activity data (tonnes of concrete purchased) with an emission factor per physical unit. More accurate but requires supply chain engagement.
3. Supplier-specific: Use emissions data provided directly by the supplier (their Scope 1 and 2 per unit). Highest accuracy, but depends on supplier reporting maturity.

For AASB S2 purposes, the approach should be disclosed and as accurate as reasonably practicable. Spend-based is acceptable as a starting point; the expectation is that it improves over time.

The supply chain pressure flowing downstream

One consequence of mandatory reporting is that large entities subject to AASB S2 will need Scope 3 data from their suppliers. This creates supply chain pressure:

• Tier-1 contractors will ask subcontractors for emissions data
• Major property developers will ask construction contractors for embodied carbon figures
• Infrastructure owners will ask maintenance contractors for Scope 1 and 2 data

Even if your business is below the mandatory reporting threshold, your customers may require emissions data as a condition of contract. This is already happening in federal and state government procurement, and in the ESG requirements of major private developers.

Getting started on Scope 3

The most practical starting point is to identify your three to five highest-impact Scope 3 categories using the spend-based method — this tells you where to focus more rigorous data collection.

Then prioritise direct engagement with suppliers in those high-impact categories to obtain product-level emission factors or EPDs (Environmental Product Declarations), particularly for materials with significant embodied carbon.

Build supplier engagement into procurement processes — requesting emissions data at the same time as price and lead time information.

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Ayika is building Scope 3 data collection workflows alongside its Scope 1 and 2 functionality. Book a conversation about your Scope 3 readiness.