Scope One And Two Emissions: What Are They And Why They’re Important for Investors to Watch

Investors have long known that emissions have been a problem and increasingly scruitanised, but they may not know what so-called Scope One and Two Emissions are. But one thing that has brought these to the forefront is the new climate reporting regime that began in 2025.

Firms with at least $500m in consolidated revenue, at least $1bn in gross assets or at least 500 employees now need to disclose Scope 1 and 2 emissions and then scope 3 emissions from 2026. Had Peter Dutton and the Coalition won the election, this would’ve been unwound, but with their resounding defeat, these laws are here to stay.

So, What are Scope One And Two Emissions?

Scope 1 and Scope 2 emissions are categories used in greenhouse gas (GHG) accounting to help companies (listed and non-listed) measure and manage their carbon footprint. These scopes are defined by the Greenhouse Gas Protocol, the most widely used international standard for emissions reporting.

Scope 1 Emissions are direct GHG emissions that occur from sources owned or controlled by the company. Examples include fuel consumed in company vehicles, emissions from on-eiste energy generators, emissions from industrial processes and fugitive emissions (i.e. leaks from air conditioning or refrigeration equipment). In a nutshell, Scope 1 emissions come from fuel burned directly or emitted from assets the company owns.

What about Scope 2 emissions? These are indirect GHG emissions from the generation of purchased electricity, steam, heating, or cooling consumed by the reporting organisation. These include (but aren’t limited to) emissions from power plants that produce the electricity the company pays for and perhaps district heating or cooling systems (if the energy source emits GHGs).

Some companies voluntarily reported Scope 1 and 2 emissions to comply with other regulations, meeting ESG goals, or participate in carbon disclosure initiatives. But since early 2025, at least in Australia, these must be disclosed by larger companies and smaller companies may need to down the track.

What about Scope 3 emissions?

Scope 3 emissions are all other indirect greenhouse gas emissions that occur in a company’s value chain, both upstream and downstream, not included in Scope 1 or 2. These are often the largest part of a company’s carbon footprint—sometimes over 70-90%. And this is why next year we’ll see large Australian companies need to report these too.

Examples of Scope 3 Emissions include purchased goods and services (emissions from making things the companys buy), Capital goods (equipment, buildings, machinery), Fuel- and energy-related activities (not already in Scope 1 or 2), Transportation and distribution (in vehicles not owned by your company), Business travel (flights, hotels, etc.), Employee commuting and waste generated in operations. And it may even include a company’s investments and how sold products are used and treated at the end of their lives (i.e. are they recycled or sent to landfill?)

You’ll be hearing more in the years ahead…

…as reporting standards increase. By mid-2027, companies meeting 2 of the 3 following criteria will need to report Scope 1 and 2 emissions (and perhaps Scope 3 too). $50m revenue, $25m EOFY consolidated gross assets and 100 or more employees. Specifically Scope 3 will needed to be reported from the second year of reporting, whenever that is for a company dependant on their revenue, asset or employee thresholds.

The US SEC was going to force companies to do this, but backed down due to concerns over reliability of the data and compliance costs. Meanwhile, the hope for companies was Labor being defeated at the election and that did not happen. So like the $3m super tax, this will be going ahead seemingly.

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