Scope 3 emissions — indirect emissions across an entity's value chain — represent the most technically challenging aspect of UK SRS S2 implementation.
UK SRS S2 paragraph 29(a) requires disclosure of absolute gross greenhouse gas emissions classified by Scope 1, Scope 2, and Scope 3, with Scope 3 categorised across the 15 categories of the GHG Protocol Corporate Value Chain (Scope 3) Standard.
The FCA's CP26/5 proposals recognise the practical challenges of Scope 3 data collection in two steps.
For accounting periods beginning on or after 1 January 2027, UK SRS S2 climate disclosures would be mandatory excluding Scope 3, and a company may elect a one-year transitional relief from Scope 3 disclosure.
Electing it requires only a statement in the annual financial report that the disclosures have not been made; no further explanation is required, because use of the UK SRS transitional reliefs does not engage the FCA's proposed "explain" provisions.
Companies already disclosing Scope 3 may continue to do so.
For accounting periods beginning on or after 1 January 2028 the relief has expired and Scope 3 sits on a comply-or-explain basis.
The draft instrument contains no sunset date, so comply-or-explain is the permanent position for Scope 3 rather than a staging post to full mandation.
Which Scope 3 categories matter — by sector
Under UK SRS S2, in-scope companies must disclose Scope 3 emissions across all 15 GHG Protocol categories where material. The materiality lens means most companies will only have a handful of dominant categories. This matrix shows where the weight typically sits — though every company's exact profile differs.
Last verified 12 May 2026 · Indicative · Companies must conduct their own materiality assessment
| Scope 3 category | Oil & Gas | Financial Services | Utilities | Manufacturing | Real Estate | Retail / Consumer | Tech / Software | Pharma | Transport |
|---|---|---|---|---|---|---|---|---|---|
| Upstream categories | |||||||||
| 1Purchased goods & servicesUpstream | Med | Med-low | Med | Very high | Med | Very high | High | Very high | Med |
| 2Capital goodsUpstream | Med-low | Low | Med | Med | High | Med-low | Med | Med | High |
| 3Fuel- & energy-relatedUpstream | High | Low | High | Med | Med-low | Med-low | Med-low | Med-low | High |
| 4Upstream transportationUpstream | Med | — | Low | High | Low | High | Low | Med | Very high |
| 5Waste in operationsUpstream | Med-low | — | Med-low | Med-low | Med-low | Med-low | Low | Med-low | Low |
| 6Business travelUpstream | Low | Med | Low | Low | Low | Low | Med | Med | Low |
| 7Employee commutingUpstream | Low | Med | Low | Med-low | Low | Med-low | Med | Med-low | Med-low |
| 8Upstream leased assetsUpstream | Low | Med-low | Low | Low | — | Med-low | Med-low | Low | Med-low |
| Downstream categories | |||||||||
| 9Downstream transportationDownstream | Med | — | Low | Med | — | High | Low | Med | Very high |
| 10Processing of sold productsDownstream | Med | — | Med-low | Med | — | Med-low | — | Low | — |
| 11Use of sold productsDownstream | Very high | — | High | High | — | High | Med | Med-low | Med-low |
| 12End-of-life of sold productsDownstream | Med | — | Low | Med | Low | Med | Med-low | Med-low | — |
| 13Downstream leased assetsDownstream | Low | Med-low | Low | Low | Very high | Low | Low | — | Low |
| 14FranchisesDownstream | — | — | — | — | Low | Med | Low | — | Low |
| 15Investments (financed emissions)Downstream | Low | Very high | Low | — | Low | — | — | — | — |
Most sectors have 2–3 dominant categories
The materiality lens means companies don't need to disclose all 15 categories with equal rigour. Oil & gas concentrates in Category 11 (use of sold products — i.e. customers burning the fuel). Financial services concentrates in Category 15 (investments — financed emissions). Real estate concentrates in Category 13 (downstream leased assets — tenant energy use). Retail typically spans Categories 1, 4, 9, and 11.
Financial institutions get a specific safety valve
Where a financial institution cannot fully comply with Category 15 (financed emissions) disclosure, paragraph B59A of UK SRS S2 requires explanation of the measurement approach taken and the plan to meet full requirements. This was added in the final version of UK SRS S2 specifically because PCAF and bank balance-sheet data limitations are widely recognised.
Low materiality must still be assessed
UK SRS S2 requires assessment of all 15 categories. A category marked "low" or "not typical" here is not automatically immaterial for a specific company — only that it's unlikely to be material across the sector. Companies must conduct their own materiality assessment and disclose the basis of any categories excluded as immaterial.
What Scope 3 covers under UK SRS S2
Scope 3 emissions are all indirect emissions that occur in an entity's value chain, excluding Scope 2 emissions (purchased energy).
UK SRS S2 requires entities to measure and disclose Scope 3 emissions using the GHG Protocol Corporate Value Chain (Scope 3) Standard, which categorises value chain emissions into 15 distinct categories.
The standard requires disclosure of:
- Absolute gross Scope 3 emissions in metric tonnes of CO2 equivalent for the reporting period
- Categories included — which of the 15 categories are included in the entity's measurement
- Methodology — the measurement approach used, data quality, and key assumptions
- Significant changes — material changes in methodology or scope from the previous period
Entities must disclose Scope 3 emissions where the categories are assessed as material.
The materiality assessment must consider both the magnitude of potential emissions and the entity's ability to influence emissions reduction across the value chain.
The 15 GHG Protocol Scope 3 categories
UK SRS S2 adopts the full GHG Protocol framework, requiring entities to evaluate all 15 categories for materiality:
Upstream activities (Categories 1-8)
**1.
Purchased goods and services** — emissions from the production of goods and services purchased during the reporting period
**2.
Capital goods** — emissions from the production of capital equipment and infrastructure purchased during the reporting period
**3.
Fuel- and energy-related activities** — emissions from the production of fuels and electricity purchased that are not included in Scope 1 or 2
**4.
Upstream transportation and distribution** — emissions from transportation and distribution services purchased, including inbound logistics
**5.
Waste generated in operations** — emissions from waste disposal and treatment for waste generated in operations
**6.
Business travel** — emissions from employee air, rail, road, and other transportation for business purposes
**7.
Employee commuting** — emissions from employee transportation between home and work
**8.
Upstream leased assets** — emissions from the operation of assets leased by the reporting entity (not included in Scope 1 or 2)
Downstream activities (Categories 9-15)
**9.
Downstream transportation and distribution** — emissions from transportation and distribution services not paid for by the entity
**10.
Processing of sold products** — emissions from processing of intermediate products sold by the entity
**11.
Use of sold products** — emissions from the use of products sold by the entity over their expected lifetime
**12.
End-of-life treatment of sold products** — emissions from waste disposal and treatment of products sold at the end of their life
**13.
Downstream leased assets** — emissions from the operation of assets owned by the entity and leased to other entities
**14.
Franchises** — emissions from the operation of franchised assets
**15.
Investments** — emissions associated with the entity's investments not included in Scope 1 or 2
Category 15 for financial institutions
Financial institutions must calculate financed emissions as part of Category 15, using methodology specific to asset management, commercial banking, and insurance activities as set out in UK SRS S2 paragraphs 31-34.
Timeline and comply-or-explain framework
Unlike Scope 1 and Scope 2 emissions, which are proposed to be mandatory for in-scope listed companies from accounting periods beginning 1 January 2027, Scope 3 is proposed to sit outside the hard obligation in the first year and on comply-or-explain thereafter:
Phase 1: S2 climate mandatory excluding Scope 3 (1 January 2027)
Listed companies in scope must disclose Scope 1 and Scope 2 emissions from accounting periods beginning 1 January 2027.
Scope 3 is not part of the hard obligation in that first year: a company may elect the one-year transitional relief and simply state in its annual financial report that the Scope 3 disclosures have not been made.
That statement does not engage the "explain" provisions, and a company that already discloses Scope 3 is free to keep doing so.
Phase 2: Scope 3 comply-or-explain (1 January 2028)
From accounting periods beginning 1 January 2028, listed companies must either:
- Comply — disclose Scope 3 emissions across all material categories using the GHG Protocol methodology, or
- Explain — provide a detailed explanation of why Scope 3 disclosure is not practicable, including specific constraints and plans for addressing them over time
Transition reliefs available
The reliefs are elective, and they run out — there is no route to deferring Scope 3 comply-or-explain beyond accounting periods beginning 1 January 2028:
Elective one-year Scope 3 relief — for accounting periods beginning in 2027, an in-scope company may omit Scope 3 disclosures entirely on a statement that they have not been made.
The relief expires for accounting periods beginning on or after 1 January 2028.
First-year relief on comparatives — no comparative Scope 3 information is required in the first year of application
FCA-proposed UK SRS S1 relief window — separately, under the FCA's proposed rules a company may omit UK SRS S1 non-climate disclosures until accounting periods beginning on or after 1 January 2029. This two-year figure is a feature of the FCA's proposed rules (CP26/5 paragraph 3.9), not of UK SRS S1 itself — appendix E of the Standard carries no time limit of its own.
All the FCA's proposed transitional relief windows have run by then.
Alternative measurement methods — entities may use measurement approaches other than the GHG Protocol in the first year if they were using those methods previously, provided they disclose the methodology and plan for alignment
Acceptable explanations under comply-or-explain
Where entities choose to explain rather than comply with Scope 3 disclosure, UK SRS S2 and FCA CP26/5 establish that explanations must be specific, detailed, and include plans for future compliance.
Acceptable explanations include:
Data availability constraints — suppliers or value chain partners unable or unwilling to provide primary emissions data, particularly in complex international supply chains
Commercial sensitivity — situations where detailed value chain emissions disclosure would reveal competitively sensitive information about supplier relationships, pricing, or business model
Technical measurement challenges — categories where emissions calculation methodology is particularly complex or uncertain, such as the lifetime use emissions of certain products
Resource and system constraints — insufficient internal resources or systems infrastructure to conduct comprehensive value chain data collection, particularly for smaller listed entities
However, explanations must include:
- Specific category analysis — which of the 15 categories the entity has assessed and why particular categories cannot be disclosed
- Improvement plans — concrete steps the entity is taking to address constraints and improve disclosure over time
- Timelines — realistic timelines for achieving fuller Scope 3 disclosure
- Governance oversight — how the board or appropriate committee is overseeing Scope 3 readiness
Comply-or-explain is the permanent regime for Scope 3 under the draft instrument, which is written without a sunset date.
Explaining is a legitimate long-run position rather than a temporary indulgence, but the drafting requires a company that explains to identify the specific paragraphs not disclosed, the reasons, and the steps it is taking to be able to disclose in future.
Materiality assessment for Scope 3 categories
UK SRS S2 requires entities to assess all 15 Scope 3 categories for materiality, but allows entities to exclude categories that are genuinely not material to their business.
The materiality assessment must consider:
Quantitative factors:
- Size of emissions relative to total Scope 1, 2, and 3 emissions
- Size of emissions relative to industry benchmarks
- Absolute magnitude of emissions regardless of relative size
Qualitative factors:
- Entity's ability to influence emissions reduction in the category
- Stakeholder concern and expectations for disclosure
- Risk exposure from regulatory or market changes affecting the category
- Strategic importance of the activities generating the emissions
Common materiality patterns by sector
Manufacturing and industrial — Categories 1 (purchased goods and services) and 11 (use of sold products) typically material; employee commuting often not material unless very large workforce
Financial services — Category 15 (investments) typically the most material category; business travel and employee commuting may be material for large institutions
Technology and software — Categories 1, 3, and 11 typically material; physical product companies also consider category 12 (end-of-life treatment)
Retail and consumer goods — Categories 1, 4, 9, 11, and 12 typically material due to complex supply chains and product lifecycles
Professional services — Categories 6 (business travel) and 7 (employee commuting) often among the few material categories
Entities should document their materiality assessment methodology and review it annually as business activities and value chains evolve.
Data collection strategies and methodology
Successful Scope 3 implementation requires structured data collection strategies that balance accuracy, cost, and practicality:
Primary data collection
Supplier engagement programmes — direct collection of emissions data from key suppliers, typically focused on the largest suppliers by spend or emissions impact
Customer and downstream partner engagement — collaboration with customers and distributors to collect use-phase and end-of-life emissions data
Technology platforms — supplier portals and data management systems that enable systematic data collection and validation
Primary data provides the highest accuracy but requires significant investment in supplier relationships and systems infrastructure.
Most entities focus primary data collection on categories representing the largest emissions or where they have the most influence.
Secondary data and calculation approaches
Spend-based calculations — using procurement spend data combined with emissions factors to estimate supplier emissions
Activity-based calculations — using physical activity data (quantities, distances, energy use) combined with appropriate emissions factors
Industry averages and benchmarks — using sector-specific emissions factors for categories where specific data is not available
Hybrid approaches — combining primary data from key suppliers with secondary data calculations for smaller suppliers or categories
The GHG Protocol Scope 3 Standard provides detailed methodology guidance for each approach, including data quality requirements and uncertainty assessment.
Technology and systems considerations
Scope 3 data collection increasingly relies on technology solutions that can manage the complexity and volume of value chain data:
Enterprise sustainability platforms — integrated systems that handle data collection, calculation, and reporting across all Scope 3 categories
Supply chain management integration — links between sustainability data collection and existing procurement and supply chain systems
Industry collaboration platforms — sector-specific initiatives that enable coordinated data sharing and methodology development
Assurance and verification tools — systems that support data quality control and preparation for external assurance
Financial institution requirements
UK SRS S2 paragraphs 31-34 impose additional specific requirements on financial institutions for Scope 3 Category 15 (investments).
These requirements vary by type of financial activity:
Asset management entities
Must disclose:
- Absolute gross financed emissions disaggregated by Scope 1, 2, and 3
- Total assets under management included in the calculation
- Percentage of total AUM represented by the disclosed emissions
- Methodology used for calculating financed emissions and the allocation approach
Commercial banking entities
Must disclose:
- Absolute gross financed emissions by Scope and by industry classification
- Gross lending exposure for each industry by asset class
- Percentage of gross exposure included in the calculation
- Methodology and allocation approach used
Insurance entities
Must disclose:
- Absolute gross financed emissions by Scope for each industry by asset class
- Gross underwriting exposure for each industry
- Percentage of gross exposure included in calculations
- Methodology and allocation approach
UK SRS S2 includes a UK-specific provision allowing financial institutions to report financed emissions for a different reporting period than their financial statements where alignment is impracticable, provided they disclose the reasons, measurement approach, and timeline for alignment.
| Scope | Timeline | Requirement Type | First-Year Relief | Sector Focus |
|---|---|---|---|---|
| Scope 1 | 2027 proposed mandatory | Full disclosure | No comparative data | All sectors |
| Scope 2 | 2027 proposed mandatory | Full disclosure | No comparative data | All sectors |
| Scope 3 | Elective relief in 2027; comply-or-explain from 2028, permanently | Comply or explain | No comparative data + elective one-year relief for 2027 | Varies by category |
| Financed emissions | Same as Scope 3 | Category 15 specific methodology | Same as Scope 3 | Financial institutions only |
Implementation planning
Given the comply-or-explain timeline and the complexity of value chain data collection, entities should begin Scope 3 preparation well ahead of accounting periods beginning 1 January 2028:
12-18 months before effective date: Materiality assessment, supplier engagement strategy, technology platform selection
6-12 months before effective date: Supplier engagement programme launch, data collection pilot programmes, internal systems development
3-6 months before effective date: Full data collection implementation, methodology documentation, internal controls testing
Pre-reporting period: Board and audit committee education, assurance provider engagement, disclosure drafting
Companies that wait until 2027 to begin serious Scope 3 preparation are likely to find themselves relying on the explain option rather than disclosing in 2028.
Early Voluntary Adoption
Consider disclosing Scope 3 for accounting periods beginning in 2027 rather than electing the transitional relief — the FCA's rules would not prevent a company that already discloses Scope 3 from continuing to do so, and it tests systems and processes before comply-or-explain takes effect in 2028.
Assurance considerations
While sustainability assurance is not mandatory under FCA CP26/5, Scope 3 emissions present particular challenges for assurance providers and entities considering voluntary assurance:
Data source verification — assurance over supplier-provided data requires coordination between the entity's assurance provider and supplier systems
Methodology appropriateness — assurance providers must evaluate whether the entity's choice of primary vs secondary data approaches is appropriate for each category
Completeness assertions — verifying that all material categories have been identified and included in the measurement
Comply-or-explain evaluation — for entities choosing to explain, assurance providers evaluate the adequacy of explanations and improvement plans
The ISSA (UK) 5000 standard provides the framework for sustainability assurance, but practical guidance specific to Scope 3 assurance is still developing as market practice evolves.
For implementation guidance that integrates Scope 3 preparation with broader UK SRS compliance planning, see UK SRS compliance guide, UK SRS S2, and UK SRS timeline.