Understanding Scope 3, Category 13 Emissions: Downstream Leased Assets

The Greenhouse Gas Protocol categorizes emissions into three scopes: Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased energy), and Scope 3 (all other indirect emissions).

Among the 15 categories of Scope 3 emissions, Category 13: Downstream Leased Assets focuses on emissions from assets owned by a company but leased to others. This blog explores the significance of Category 13 emissions, their calculation, and their impact on various industries. 

Scope 3 Emissions

Scope 3 emissions encompass all indirect greenhouse gas emissions that occur in a company's value chain but are not under its direct operational control. These emissions are divided into upstream and downstream categories, with downstream emissions including activities such as the use of sold products and leased assets. 

Scope 3, Category 13 Emissions

Category 13 emissions arise from the operation of assets owned by a company (acting as lessor) and leased to other entities. These emissions are considered indirect because the lessor does not control how the assets are used. Examples include: 

• Real estate: Emissions from buildings leased to tenants.
• Vehicles and equipment: Emissions from vehicles or machinery leased to customers.
• Power generation assets: Emissions from power plants leased to utility companies

Reporting Considerations

• Type of Lease: The reporting of emissions from leased assets depends on whether it is an operating or finance/capital lease. For Category 13, emissions are typically reported when the lessor maintains ownership and financial control but lacks operational control over the asset's use.
• Boundary Setting: Emissions must be accounted for without double counting across Scopes 1, 2, and 3. The lessee typically reports these emissions under Scopes 1 or 2

Why Do Scope 3, Category 13 Emissions Matter?

• Complete Carbon Footprint: Ignoring these emissions provides an incomplete picture of a company's environmental impact, potentially leading to inaccurate sustainability reporting.
• Risk Management: Unaccounted emissions can expose businesses to regulatory risks, reputational damage, and financial losses as stakeholders increasingly demand transparency.
• Opportunities for Reduction: Understanding these emissions allows businesses to identify opportunities for improvement, such as promoting energy efficiency in leased assets or transitioning to cleaner technologies.
• Stakeholder Expectations: Investors, customers, and employees are increasingly scrutinizing companies' Scope 3 emissions, making it a critical factor in building trust and credibility.

Industries Most Impacted by These Emissions

Real Estate and Scope 3, Category 13 emissions 

In the real estate sector, Scope 3, Category 13 emissions arise from assets leased to other organizations, such as commercial buildings or office spaces. These emissions are considered indirect because the lessor does not control how the assets are used. 

Category 13 emissions in real estate primarily come from the energy consumption of leased buildings. This includes electricity, heating, cooling, and other energy uses by tenants. For instance, a property management company leasing office spaces would account for emissions from energy use in those buildings under Category 13.

The complexities of measuring and managing these emissions stem from the need to assess tenant energy usage and the operational practices within leased properties. Additionally, regulatory pressures are increasing, compelling companies to report their Scope 3 emissions more transparently.

The potential solutions for the real estate industry are: 

• Green Leasing: Implement green lease agreements that require tenants to report energy usage and adhere to sustainability practices.
• Energy Efficiency Upgrades: Retrofit buildings with energy-efficient systems (e.g., LED lighting, high-efficiency HVAC) to reduce overall energy consumption.
• Tenant Engagement Programs: Develop initiatives that encourage tenants to adopt sustainable practices, such as energy audits and sustainability training.

Transportation and Scope 3, Category 13 Emissions

In the transportation sector, vehicle rental companies and logistics providers face significant Scope 3 emissions from leased vehicles. These emissions primarily result from fuel consumption during vehicle operation.

The industry struggles with the variability in fuel efficiency among different vehicle types and the difficulty in tracking actual usage data from lessees.

The transportation industry could consider the below for minimizing their scope 3 c ateogry 13 emissions: 

• Fleet Optimization: Transition to a fleet of electric or hybrid vehicles to reduce emissions associated with fuel consumption.
• Telematics Systems: Use telematics to monitor vehicle usage patterns and optimize routes for fuel efficiency.
• Incentives for Sustainable Choices: Offer discounts or rewards for customers who choose lower-emission vehicles or participate in eco-driving programs.

Addressing Scope 3, Category 13 emissions is essential for various industries as they strive for sustainability and compliance with increasing regulatory demands. By implementing targeted solutions such as green leasing, fleet optimization, and collaborative programs with lessees, companies can significantly reduce their carbon footprint while enhancing their reputation as environmentally responsible organizations.

For organizations looking to start their journey with Scope 3 emissions, focusing on downstream leased assets is a strategic step toward comprehensive decarbonization.