Scope 3 for SMEs: How to Start Your GHG Protocol Baseline

The conversation about Scope 3 emissions has shifted in 2026. Three years ago it was a niche topic for listed multinationals. Today, the request is reaching small and mid-sized companies through three different doors at the same time: large customers preparing their first CSRD reports, banks underwriting sustainability-linked credit, and investors revising their due diligence checklists.

For most SME leaders, the response so far has been the same: pause, ask internally who owns this, and send a polite holding email to whoever is asking. That works once. By the second or third request — usually from a customer that is otherwise a top-five revenue line — the holding pattern starts to cost real business.

This article sets out a method that works in practice for SMEs of roughly 50 to 250 employees who have never produced a Scope 3 baseline before. It is not a replacement for the GHG Protocol. It is a sequence for getting the first defensible number on the page, in weeks rather than years.

Why Scope 3 paralyses SMEs

The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard defines 15 categories of indirect emissions — everything from purchased goods and services to franchises and investments. For a finance leader or operations director who has never opened the standard, the list reads as an exhaustive (and exhausting) checklist.

The problem is not that the standard is wrong. The problem is that companies treat it as a checklist instead of a framework for materiality-based scoping. They try to measure everything, find data for almost nothing, and end up disclosing nothing.

The GHG Protocol itself never required this. It explicitly allows — and expects — companies to apply a materiality test, scope the inventory to the categories that drive impact, and document why other categories were excluded. The “minimum boundary” tables in the standard are guidance, not a mandate to chase every supplier in every category.

Step 1 — Choose three categories, not fifteen

For most SMEs, three categories account for the overwhelming majority of Scope 3 emissions. The exact mix depends on the business model, but the common patterns are clear.

For manufacturing and product-based SMEs:

Category 1 — Purchased goods and services. Usually the single largest category, often 60 to 80 percent of total Scope 3.
Category 4 — Upstream transportation and distribution. Material when goods travel by road, sea, or air across borders.
Category 6 — Business travel. Disproportionately visible because it is easy to measure and easy for customers to challenge.

For services, consultancies, and software firms:

Category 1 — Purchased goods and services (cloud, professional services, equipment).
Category 6 — Business travel.
Category 7 — Employee commuting, particularly post-pandemic with hybrid working patterns to model.

The exclusion of the other categories is not a failure. It is a deliberate scoping decision, and it must be documented in the methodology section of your inventory. When a customer’s CSRD reporter or a bank’s ESG team asks why Category 11 (use of sold products) was excluded, the answer is a one-line entry in your methodology: not material based on revenue contribution and operational data; will be reassessed in year two.

That answer, in writing, is what your stakeholders actually need.

Step 2 — Start spend-based, not activity-based

This is the step that separates companies who deliver a baseline this year from companies who are still planning one in 2028.

Activity-based data — actual kilograms of steel purchased, actual kilometres driven, actual kilowatt-hours of supplier electricity — is more accurate. It is also far harder to collect, particularly for upstream suppliers who do not yet measure their own emissions.

Spend-based emission factors solve the cold start. You take your category 1 spend by supplier or supplier type, multiply by a published emission factor (DEFRA in the UK, ADEME in France, the EPA factors in the US, or Exiobase for multi-region coverage), and you have a defensible directional number. The same approach works for Categories 4, 6, and 7 with the corresponding factor libraries.

The number will be imperfect. It will also be auditable, comparable year over year, and good enough to satisfy almost every current Scope 3 disclosure request from customers, banks, and investors.

The refinement path is straightforward: in year two, switch your top 20 suppliers (typically 80 percent of spend) from spend-based to activity-based primary data, while leaving the long tail on spend-based factors. This is the approach the GHG Protocol’s Technical Guidance for Calculating Scope 3 Emissions recommends as a maturity progression — not a one-time perfectionist exercise.

A directional number you can defend this quarter beats a perfect number you will never finish.

Step 3 — Lock the consolidation boundary first

Before any data is collected, the company must choose a consolidation approach: operational control, financial control, or equity share. This is the same decision that drives Scope 1 and Scope 2 reporting, but it is often overlooked at the start of a Scope 3 project because Scope 3 feels like a “different exercise”.

It is not. The boundary must be consistent.

This single decision is where a large share of Scope 3 projects get re-done a year later. The reason is almost always the same: nobody made the call explicitly, and three departments (finance, operations, sustainability) each used a slightly different definition for inclusion. By the time the inconsistency is noticed, twelve months of data has been collected on a foundation that won’t survive review.

The fix is administrative, not technical. Decide the consolidation approach in week one. Write it into your methodology. Apply it consistently across Scope 1, Scope 2, and the chosen Scope 3 categories.

What the audit trail actually needs to contain

When a customer’s CSRD reporter or an external assurance provider reviews your Scope 3 inventory, they are not looking for a perfect number. They are looking for transparency on five things:

Boundary — which entities are included and on what basis (operational, financial, or equity).
Scope — which Scope 3 categories are included, and which are excluded with a documented materiality justification.
Methodology — spend-based, activity-based, or hybrid, and which emission factor source was used for each category.
Data quality — primary versus secondary data, with a known plan to improve coverage year over year.
Recalculation policy — when and how the baseline will be restated if scope, methodology, or company structure changes materially.

A short methodology document covering these five items, attached to a directional first-year number, is a more defensible disclosure than a high-precision number with no methodology behind it. It is also what auditors and external assurance providers (under the EU CSRD limited assurance regime) expect to see.

The business case is no longer abstract

Three years ago, a Scope 3 baseline was a “nice to have” that signalled sustainability ambition. In 2026, it has become a transactional document. Three concrete pressures are now driving SME action:

CSRD value-chain reporting. Large customers in scope of CSRD must report on upstream value-chain emissions. Your numbers either feed their report or you exit their preferred-supplier list.
Sustainability-linked loans. Most major Dutch and EU banks now offer interest-rate adjustments tied to Scope 1, 2, and (increasingly) 3 performance. No baseline means no eligibility.
Investor due diligence. Private equity and growth investors are routinely including Scope 3 maturity in commercial DD. A defensible baseline is now part of the standard data room.

In each case, the cost of inaction is concrete: contracts lost, financing margins missed, valuations adjusted. The cost of a first directional baseline, by contrast, is modest — typically six to twelve weeks of structured work with the right method and the right scoping discipline.

A common-approach summary

A first Scope 3 baseline, done well, follows roughly this sequence:

Weeks 1–2 — Lock the consolidation boundary. Run a materiality screen across the 15 categories. Choose three categories to include in year one and document the exclusion rationale for the rest.
Weeks 3–6 — Collect spend data by category. Map to recognised emission factors. Build the calculation model with version control.
Weeks 7–9 — Draft the methodology document. Internal review with finance, operations, and (where present) sustainability.
Weeks 10–12 — Produce the first-year inventory with disclosed methodology, data quality assessment, and a recalculation policy.

This is the same sequence used for an enterprise-level baseline. The difference for an SME is scoping discipline at the start, not the underlying method.

Closing thought

The companies winning Scope 3 in 2026 are not the ones with the cleanest data. They are the ones who picked a defensible scope, used recognised emission factors, and put a number on the page. Their customers can include them in CSRD reporting. Their banks can sign off on sustainability-linked credit. Their boards can stop asking the same question every quarter.

Perfectionism is the enemy of disclosure. A directional baseline, documented and defended, is the asset that unlocks the next set of business decisions.

Need a Scope 3 baseline within the next 90 days?

Royaal Project runs a structured Scope 3 scoping sprint for Dutch and EU SMEs: materiality assessment, consolidation boundary, spend-based first-year baseline, and a roadmap to activity-based data for your top suppliers. Independent, framework-aligned with the GHG Protocol and the EU CSRD assurance expectations, and designed to be auditable from day one.

Book an introduction at royaalproject.com.

This article reflects best practice based on the GHG Protocol Corporate Value Chain (Scope 3) Standard and current EU CSRD assurance expectations. It does not constitute legal advice or a guarantee of audit outcomes. Companies should validate scoping decisions with their assurance provider and, where applicable, their legal counsel.