Scope 3 Category 1 Explained: Purchased Goods and Services

When companies measure their greenhouse gas emissions, they typically start with what comes out of their own operations — burning fuel in their buildings, running their fleets. These are Scope 1 and Scope 2 emissions, and most organisations have frameworks for them already.

Scope 3 is different. It covers indirect emissions — everything upstream and downstream of a company's own operations. Category 1, Purchased Goods and Services, is where the biggest numbers usually live.

What is Scope 3 Category 1?

Category 1 of the GHG Protocol Corporate Value Chain (Scope 3) Standard covers the emissions associated with producing all goods and services a company purchases or acquires. This includes raw materials, components, products, and services bought from third-party suppliers.

For most companies, Category 1 is the single largest source of Scope 3 emissions — and in many industries, it exceeds the entire Scope 1 and Scope 2 footprint combined. A retailer buying physical goods, a manufacturer sourcing components, or a professional services firm purchasing software licences all have Category 1 emissions embedded in those transactions.

The GHG Protocol defines Category 1 as covering activities from the extraction of raw materials through to the point of sale to the reporting company — the so-called "cradle-to-gate" boundary.

The Spend-Based Method

There are several ways to calculate Category 1 emissions. The most commonly used is the spend-based method, which the GHG Protocol describes as multiplying supplier spend by an economic emission factor.

The formula is straightforward:

Emissions (kgCO₂e) = Spend (USD) × Emission Factor (kgCO₂e per USD)

The emission factors come from environmentally extended input-output (EEIO) databases — the most widely used is EXIOBASE, which provides sector-level factors covering most global economies. The EPA also publishes a US-specific EEIO dataset.

When to use the spend-based method

The spend-based method is appropriate when:

• You do not have supplier-specific emission data
• You are completing an initial inventory or screening exercise
• The spend category can be matched to a sector in your chosen EEIO database

Limitations

The spend-based method has real limitations the GHG Protocol is explicit about. Economic emission factors are averages — they reflect the typical emissions intensity of a sector, not the specific practices of any individual supplier. Two suppliers in the same sector with very different environmental profiles will produce the same emission estimate under a spend-based approach.

The method is also sensitive to price fluctuations. If a commodity price rises without any change in physical emissions, your calculated footprint increases. This is a structural limitation of any spend-based approach.

For reporting and target-setting, these limitations mean that spend-based estimates are suitable for identifying material categories and establishing a baseline — they are not sufficient to claim emissions reductions from supplier engagement unless primary data is used.

GHG Protocol Data Quality Tiers

The GHG Protocol distinguishes between primary and secondary data, and has a preference for data that is closer to the actual emissions source.

• Primary data is collected directly from activities in the value chain — supplier-specific energy consumption, process data, or product-level lifecycle assessments (LCAs). This is the highest quality but also the most resource-intensive to collect.
• Secondary data includes industry-average data, published databases, and EEIO factors. The spend-based method relies on secondary data.

The GHG Protocol's Corporate Value Chain Standard uses a data quality scoring approach. Higher-quality data improves the reliability of your inventory and is expected by auditors reviewing CSRD-related disclosures.

In practice, most companies begin with secondary data across the full supplier base and progressively collect primary data from their highest-spend, highest-emission categories.

CSRD and ESRS E1 Requirements

The EU Corporate Sustainability Reporting Directive (CSRD) and its accompanying standard ESRS E1 (Climate Change) require in-scope companies to disclose their Scope 1, 2, and 3 greenhouse gas emissions. Category 1, as typically the largest Scope 3 category, is a material disclosure for most companies subject to CSRD.

ESRS E1 requires:

• Disclosure of total Scope 3 emissions by category
• Description of the methodology and data quality used
• Explanation of the boundary and any exclusions
• Targets and transition plan alignment where applicable

CSRD applies from January 2025 for the largest EU companies (those previously subject to the Non-Financial Reporting Directive), with phased application extending to smaller listed companies and, eventually, third-country companies with EU-based subsidiaries or listed securities meeting certain thresholds.

Importantly, CSRD does not require primary data for Category 1 from day one. A well-documented, methodologically sound spend-based inventory is accepted for initial disclosure, provided the data quality and methodology are clearly described. Auditors will expect to see the calculation methodology, the emission factors used and their source, and the spend data mapped to each factor.

What an Audit-Ready Category 1 Inventory Looks Like

For your disclosure to hold up to third-party assurance, your Category 1 inventory needs more than a spreadsheet with totals. Auditors expect to see:

1. Every invoice or purchase record that feeds the calculation
2. The EEIO sector each spend line was classified into, and why
3. The emission factor applied, its source, and the version
4. The resulting emission estimate per line
5. A summary by category and total
6. A confidence assessment — which lines are well-matched, which are uncertain

The chain of custody matters. If an auditor asks you to trace a particular emission figure back to its source invoice, you need to be able to do that. A summary figure without lineage will not satisfy a third-party assurance engagement.

See also our post on what to do when a customer asks for your Scope 3 data — the supplier perspective on what buyers actually need.