What is the difference between scope 1, 2 and 3 emissions for retailers?

Agnè Baltakienė · 06 Oct 2026

Scope 1, 2, and 3 emissions are three categories that together cover the full carbon footprint of a business. Scope 1 covers direct emissions from sources you own or control, Scope 2 covers indirect emissions from the energy you buy, and Scope 3 covers all other indirect emissions across your value chain. For retailers, Scope 3 is by far the largest and most complex category, typically accounting for the vast majority of total emissions. The sections below break down each scope in practical terms and explain what they mean for retail sustainability reporting.

Why do scope 1, 2, and 3 emissions require separate accounting?

Scope 1, 2, and 3 emissions require separate accounting because they represent fundamentally different relationships between a business and its carbon output. Without separating them, it is impossible to identify where emissions actually come from, who is responsible for reducing them, and which levers are within your control.

The three-scope framework was developed by the Greenhouse Gas Protocol, the global standard for corporate carbon measurement. It exists to prevent double-counting across supply chains and to give companies a structured way to assign accountability. If every company in a supply chain counted the same emissions, the numbers would be meaningless.

For retailers specifically, the separation matters because each scope requires a completely different reduction strategy. Scope 1 emissions respond to operational changes, Scope 2 responds to energy procurement decisions, and Scope 3 requires influencing suppliers, customers, and third parties. Treating them as one category would make it nearly impossible to build a credible retail sustainability reporting framework or set meaningful targets.

What are scope 1 emissions in retail?

Scope 1 emissions in retail are direct greenhouse gas emissions from sources that a retailer owns or directly controls. These include fuel burned in company-owned vehicles, natural gas used to heat stores or warehouses, refrigerant leaks from cooling systems, and any on-site fuel combustion in owned facilities.

For most retailers, Scope 1 is the smallest of the three scopes. A fashion retailer with leased store space and outsourced logistics will have relatively limited Scope 1 exposure. However, grocery retailers and food businesses with large refrigeration systems can have significant Scope 1 emissions from refrigerant leakage, which is a potent source of greenhouse gases.

Scope 1 emissions are the most straightforward to measure because they come from sources the business directly operates. Common reduction actions include switching company vehicles to electric, converting heating systems from gas to heat pumps, and improving refrigerant management. Because you own or control these sources, you can act on them without needing to coordinate with external partners.

What are scope 2 emissions and how are they calculated for retailers?

Scope 2 emissions are indirect greenhouse gas emissions from the generation of purchased electricity, heat, steam, or cooling that a retailer buys and consumes. They are called indirect because the actual combustion or generation happens at a power plant or utility facility, not on your premises, but the emissions are attributed to you as the end consumer of that energy.

There are two accepted methods for calculating Scope 2 emissions:

Location-based method: Uses the average emissions intensity of the national or regional electricity grid where you consume energy. This reflects the actual mix of generation sources in your area.
Market-based method: Uses the emissions factor of the specific electricity product or supplier you have contracted. If you have purchased renewable energy certificates or signed a green energy contract, this method allows you to report lower or even zero Scope 2 emissions.

For retailers with large store networks, Scope 2 can be substantial. Lighting, heating, ventilation, and air conditioning across dozens or hundreds of locations adds up quickly. Switching to renewable energy tariffs, installing solar panels, or purchasing verified renewable energy certificates are the most direct ways to reduce your Scope 2 retail carbon footprint.

What does scope 3 include for a retail business?

Scope 3 emissions for a retail business include all indirect emissions that occur across the value chain, both upstream and downstream, that are not captured in Scope 1 or Scope 2. This covers everything from raw material extraction and manufacturing of products you sell, to customer travel to your stores, product use, and what happens to goods after customers are done with them.

The GHG Protocol identifies 15 categories of Scope 3 emissions. For retailers, the most relevant typically include:

Purchased goods and services (the manufacturing of products you stock and sell)
Transportation and distribution (inbound freight from suppliers and outbound to customers)
Business travel and employee commuting
Waste generated in operations
Use of sold products (energy consumed by products during customer use)
End-of-life treatment of sold products
Capital goods (store fixtures, display equipment, and fit-out materials)

For most fashion and general merchandise retailers, the purchased goods category dominates. The emissions embedded in manufacturing the products you sell, including the raw materials, production energy, and logistics involved, typically represent the largest single share of a retailer’s total GHG emissions. This is why retail Scope 3 emissions are both the biggest number and the hardest to influence.

Which emission scope is hardest for retailers to reduce?

Scope 3 is by far the hardest emission scope for retailers to reduce. Unlike Scope 1 and Scope 2, where you control the sources or the energy contracts, Scope 3 requires you to influence the behavior and practices of suppliers, manufacturers, logistics providers, and even your own customers, none of whom you directly manage.

The challenge is structural. A retailer might source products from hundreds of different suppliers across multiple countries, each with their own manufacturing processes, energy sources, and reporting capabilities. Getting consistent, verified emissions data from that network is genuinely difficult, and changing how those suppliers operate requires sustained engagement, contractual incentives, and often significant lead time.

Downstream Scope 3 is equally complex. You cannot control how a customer uses a product, how they travel to your store, or what they do with an item once they no longer want it. You can encourage better choices through product design and take-back schemes, but you cannot mandate them.

The most effective strategies retailers use to tackle Scope 3 include setting supplier codes of conduct with emissions requirements, prioritizing suppliers with verified sustainability credentials, shifting to nearshore or regional supply chains to reduce freight distances, and designing products for durability and recyclability from the outset.

How do sustainable materials and product choices affect scope 3 emissions?

Sustainable materials and product choices directly reduce Scope 3 emissions by lowering the carbon intensity of the goods and services a retailer purchases and sells. Because purchased goods typically represent the largest Scope 3 category for retailers, decisions made at the product design and sourcing stage have a disproportionate impact on total emissions.

Choosing materials that require less energy to produce, sourcing from suppliers who use renewable energy, selecting recyclable over single-use materials, and prioritizing regional suppliers over distant ones all reduce the embedded emissions in your product range. These are upstream Scope 3 decisions, and they can meaningfully shift your retail carbon footprint before a product ever reaches a store shelf.

Capital goods used in retail environments, such as store fixtures, display equipment, and visual merchandising materials, also fall within Scope 3. Retailers often overlook these. Choosing display solutions made from recyclable materials, produced locally with low-emission manufacturing processes, contributes to Scope 3 reduction in a way that accumulates across an entire store network over time.

Durability matters too. A product or fixture that lasts longer means fewer replacement cycles and fewer embedded emissions over time. Recyclability at the end of a product’s life supports circular economy principles and can reduce the Scope 3 emissions associated with waste and end-of-life treatment.

What regulations require retailers to report scope 1, 2, and 3 emissions?

Several regulations now require retailers to report Scope 1, 2, and 3 emissions, with the most significant being the EU Corporate Sustainability Reporting Directive (CSRD) and the accompanying European Sustainability Reporting Standards (ESRS). Under CSRD, large companies and listed SMEs operating in the EU must disclose detailed sustainability information, including greenhouse gas emissions across all three scopes, as part of their annual reports.

The CSRD phased in from 2024 and applies to an expanding group of companies over subsequent years. By 2026, the directive covers a broad range of large EU companies and non-EU companies with significant EU revenue. This makes retail sustainability reporting a legal requirement, not just a voluntary commitment, for a growing share of the industry.

Beyond the EU, other relevant frameworks include:

The GHG Protocol: The foundational global standard that defines Scope 1, 2, and 3 categories and underpins most national and voluntary reporting frameworks.
Science Based Targets initiative (SBTi): A voluntary but widely adopted framework that requires companies to set emissions reduction targets aligned with climate science, including Scope 3.
CDP (formerly Carbon Disclosure Project): A widely used voluntary disclosure platform that many large retailers and their suppliers report through, often as a requirement from investors or customers.
UK Streamlined Energy and Carbon Reporting (SECR): Mandatory for large UK companies, covering Scope 1 and 2 with encouraged Scope 3 disclosure.

The regulatory direction of travel is clear: Scope 3 disclosure is moving from optional to expected to mandatory for larger retailers. Building the data infrastructure and supplier engagement programs needed to report accurately takes time, which is why starting early gives retailers a genuine advantage when compliance deadlines arrive.

At IDW Display, we take our own emissions accountability seriously. We measure Scope 1 and Scope 2 emissions annually, source electricity exclusively from renewable energy, and have set binding reduction targets. Our initial 3-year target, set in 2019, aimed to cut GHG emissions by at least 25% below 2019 levels and was achieved ahead of schedule. In 2022, we set a new 5-year target to reduce emissions per standard mannequin by at least 10% below 2022 levels. Our nearshoring approach keeps supply chains regional, reducing transportation-related emissions for our clients too. If you want to understand more about how we approach sustainable mannequin production, or if you are looking for a display partner whose Scope 3 footprint you can actually stand behind, we would love to hear from you.

Frequently Asked Questions

How do we get started with measuring our scope 3 emissions if we have never done it before?

The most practical starting point is a high-level carbon footprint screening using spend-based data, where you apply emissions factors to your procurement spend by category to identify which areas are likely your largest sources. This gives you a rough but actionable picture without requiring detailed supplier data upfront. From there, you can prioritise which Scope 3 categories to measure more precisely, typically starting with purchased goods and services, since that is where most retailers find the majority of their emissions. Tools like the GHG Protocol’s Scope 3 Evaluator or working with a specialist sustainability consultant can help structure the process.

What is the difference between the location-based and market-based methods for scope 2, and which one should we report?

The location-based method reflects the average carbon intensity of the electricity grid in your region, while the market-based method reflects the specific electricity product you have contracted, such as a renewable energy tariff or certificates. Most reporting frameworks, including the GHG Protocol and CSRD, require you to disclose both figures rather than choosing one, so you should calculate and report them in parallel. The market-based figure is the one that rewards active procurement decisions like switching to a green energy tariff, but the location-based figure provides important context about your actual grid impact.

How do we handle scope 3 data when our suppliers cannot or will not share their emissions figures?

When supplier-specific data is unavailable, you can use secondary data sources such as industry-average emissions factors from databases like Ecoinvent, the UK Government’s conversion factors, or sector-specific datasets published by industry bodies. These are less accurate than primary supplier data but are an accepted and practical interim approach under the GHG Protocol. In parallel, it is worth building supplier data requests into your procurement and onboarding processes so that over time you are replacing estimated figures with verified ones. Framing the request as a mutual benefit, particularly for suppliers who want to retain large retail customers with sustainability commitments, can improve response rates.

Can purchasing renewable energy certificates (RECs) or guarantees of origin really bring our scope 2 emissions to zero?

Under the market-based method, purchasing verified renewable energy certificates or guarantees of origin does allow you to report zero or near-zero Scope 2 emissions, and this is an accepted approach within the GHG Protocol framework. However, it is worth understanding that certificates do not physically change the electrons flowing into your building; they represent a financial support for renewable generation elsewhere on the grid. Many sustainability frameworks and investors are increasingly scrutinising the quality and additionality of certificates, so pairing them with on-site generation, power purchase agreements, or genuine grid-connected renewables where possible will give your Scope 2 claims greater credibility.

What is a common mistake retailers make when setting scope 3 reduction targets?

One of the most common mistakes is setting a percentage reduction target without first establishing a reliable, consistent baseline, which means there is no credible starting point to measure progress against. Another frequent error is focusing only on the categories that are easiest to measure, such as business travel, while leaving purchased goods largely unaddressed, even though it typically represents the majority of a retailer’s emissions. Targets should be set in line with recognised frameworks like the Science Based Targets initiative (SBTi) to ensure they are ambitious enough to be meaningful and structured enough to be verifiable. Starting with a thorough materiality assessment helps ensure your targets are focused where they will have the greatest impact.

How do retail store fixtures and visual merchandising materials fit into our emissions reporting?

Store fixtures, display equipment, and visual merchandising materials fall under the capital goods category of Scope 3 emissions, which is one of the 15 categories defined by the GHG Protocol. These are often overlooked by retailers focused on product and logistics emissions, but for businesses with large or frequently refreshed store networks, the embedded carbon in fixtures and fit-out materials can be material. Choosing suppliers who manufacture locally, use recycled or low-carbon materials, and can provide verified emissions data for their products directly reduces this Scope 3 category and makes it easier to report accurately.

How far in advance should we start building our scope 3 reporting infrastructure before a regulatory deadline?

Most sustainability reporting specialists recommend beginning at least two to three years before a compliance deadline, because the foundational work, establishing data collection systems, engaging suppliers, selecting a reporting methodology, and running an initial baseline calculation, takes considerably longer than most businesses anticipate. For retailers subject to CSRD, those who have not yet started should treat this as urgent, since the directive is already in force for the largest companies and expanding to additional groups in the coming years. Starting early also gives you time to identify and address data gaps before they become a compliance risk, and it allows you to set more credible targets based on a properly measured baseline rather than estimates.