What's New in Scope 3 Reporting for 2026?
Scope 3 emissions disclosure is transitioning from voluntary to mandatory across major jurisdictions in 2026. Singapore's MAS requires Scope 3 reporting under ISSB standards with transitional relief for FY2026, while Australia's AASB introduces phased Scope 3 disclosure requirements for large entities. Malaysia's Bursa Malaysia continues its sector-based phased approach, requiring public listed companies in high-impact industries to report material Scope 3 emissions.
California's SB-253 now mandates Scope 3 disclosure for companies with over $1 billion in revenue, while the EU's CSRD requires comprehensive Scope 3 reporting where material. Most significantly, 2026 marks a shift from estimated Scope 3 figures to evidence-based, validated data as regulators and investors demand audit-ready disclosures.
Key changes in 2026:
- Singapore: MAS ISSB-aligned Scope 3 disclosure with transitional relief
- Australia: AASB phased Scope 3 requirements for large entities
- Malaysia: Bursa sector-based Scope 3 disclosure continues
- US: California SB-253 mandatory Scope 3 for $1B+ revenue companies
- Global: Shift from estimates to evidence-based, validated Scope 3 data
What are Scope 3 Emissions?
Scope 3 emissions are indirect greenhouse gas emissions that occur in a company's value chain, both upstream and downstream from its direct operations. These emissions are not owned or directly controlled by the company but result from its business activities.
Scope 3 encompasses all indirect emissions beyond Scope 1 (direct emissions from owned sources like company vehicles) and Scope 2 (indirect emissions from purchased electricity). This includes emissions from purchased goods and services, business travel, employee commuting, transportation and distribution, waste disposal, use of sold products, and end-of-life treatment.
For Malaysian companies, Scope 3 typically represents 70-90% of total carbon footprint, making it the largest source of climate impact. Under Bursa Malaysia's Enhanced Sustainability Reporting requirements, public listed companies must now disclose material Scope 3 emissions with phased implementation based on sector and company size.
The 15 Categories of Scope 3 Emissions
The GHG Protocol divides Scope 3 emissions into 15 categories:
Upstream Categories (1-8)
1. Purchased Goods and Services: Emissions from production of purchased items—often the largest category for most businesses.
2. Capital Goods: Emissions from production of purchased capital equipment, buildings, and machinery.
3. Fuel and Energy-Related Activities: Upstream emissions from fuel production and electricity transmission losses not in Scope 1 or 2.
4. Upstream Transportation and Distribution: Emissions from transporting purchased products from suppliers.
5. Waste Generated in Operations: Emissions from third-party waste disposal and treatment.
6. Business Travel: Emissions from employee business travel in vehicles not owned by the company.
7. Employee Commuting: Emissions from employees commuting between home and work.
8. Upstream Leased Assets: Emissions from leased assets not already in Scope 1 or 2.
2. Capital Goods: Emissions from production of purchased capital equipment, buildings, and machinery.
3. Fuel and Energy-Related Activities: Upstream emissions from fuel production and electricity transmission losses not in Scope 1 or 2.
4. Upstream Transportation and Distribution: Emissions from transporting purchased products from suppliers.
5. Waste Generated in Operations: Emissions from third-party waste disposal and treatment.
6. Business Travel: Emissions from employee business travel in vehicles not owned by the company.
7. Employee Commuting: Emissions from employees commuting between home and work.
8. Upstream Leased Assets: Emissions from leased assets not already in Scope 1 or 2.
Downstream Categories (9-15)
9. Downstream Transportation and Distribution: Emissions from transporting sold products to customers.
10. Processing of Sold Products: Emissions from processing intermediate products sold by the company.
11. Use of Sold Products: Emissions from end-use of products sold, such as energy consumption of appliances.
12. End-of-Life Treatment: Emissions from disposal of sold products at end of life.
13. Downstream Leased Assets: Emissions from assets owned by the company and leased to others.
14. Franchises: Emissions from franchise operations.
15. Investments: Emissions from investments—critical for financial institutions reporting financed emissions.
Why Scope 3 Emissions Matter
Majority of Total Emissions
For most companies, Scope 3 emissions constitute 70-90% of total carbon footprint. Manufacturing companies often find that raw materials and supply chain emissions dwarf their operational emissions. Service companies typically see business travel and employee commuting as major contributors. Retailers face significant downstream emissions from product use.
Regulatory Requirements in 2026
- Malaysia: Bursa Malaysia requires material Scope 3 disclosure for high-impact sectors including energy, manufacturing, plantation, construction, and transportation.
- Singapore: MAS mandates Scope 3 under ISSB standards for all listed companies.
- California: SB-253 requires annual Scope 3 disclosure for companies with $1B+ revenue operating in the state.
- European Union: CSRD requires comprehensive Scope 3 reporting where material, with mandatory third-party assurance.
- Australia: AASB introduces phased Scope 3 requirements for large entities starting in 2026.
Investor Pressure
Institutional investors need complete emissions data—including Scope 3—to calculate portfolio emissions, set net-zero targets, and comply with their own disclosure requirements. Companies without credible Scope 3 data face reduced access to ESG-focused capital and higher cost of capital.
Supply Chain Risk Management
Measuring Scope 3 reveals supply chain dependencies, vulnerabilities, and emission hotspots. This visibility enables companies to identify high-risk suppliers, diversify sourcing, and engage suppliers on decarbonization—reducing both climate and operational risk.
The Scope 3 Measurement Challenge
Data Availability and Quality
The fundamental challenge with Scope 3 is that emissions occur outside company control. Obtaining actual emissions data from thousands of suppliers, logistics providers, and customers is often impossible, leading companies to rely on estimates.
The Data Quality Hierarchy:
- Supplier-specific data: Actual emissions from suppliers (best quality, rarely available)
- Secondary data: Industry average emission factors (common, less accurate)
- Spend-based estimates: Emissions calculated from financial spend (easiest, least accurate)
The Validation Gap
Even when companies collect Scope 3 data, it often lacks evidence trails needed for third-party assurance. Auditors require:
- Source documentation (invoices, supplier declarations, bills of lading)
- Clear calculation methodologies aligned with GHG Protocol
- Data quality assessments and confidence scores
- Traceable links from source evidence to reported figures
Most companies can calculate Scope 3 but cannot prove their figures when auditors request evidence. This gap becomes critical in 2026 as assurance requirements take effect under CSRD, ISSB implementation, and Bursa Malaysia's phased approach.
Scope 3 in Malaysia: Bursa Requirements
Phased Implementation
Phase 1 (Current - 2026):
High-impact sectors must disclose material Scope 3 categories. These include energy, utilities, manufacturing, plantation, agriculture, construction, property, and transportation.
Phase 2 (2027-2028):
Expanded coverage to additional sectors with more detailed category-level breakdowns and reduction targets.
Phase 3 (2028+):
Third-party assurance requirements for Scope 3 data, aligned with ISSA 5000 sustainability assurance standards.
Materiality Assessment
Malaysian PLCs must conduct materiality assessments to identify which of the 15 Scope 3 categories are significant. Materiality considers both size (percentage of total footprint) and influence (company's ability to reduce emissions).
ASEAN Supply Chain Context
Malaysian companies with regional operations face unique Scope 3 challenges across ASEAN supply chains, where supplier ESG capabilities vary significantly. Companies must engage suppliers across multiple countries with different disclosure maturity levels, requiring flexible data collection approaches and potentially supporting supplier capacity building.
How to Measure Scope 3 Emissions
Step 1: Identify Relevant Categories
Review all 15 Scope 3 categories and determine which apply to your business. Not all categories are relevant for every company. Manufacturing companies typically focus on Categories 1, 4, and 11. Service companies prioritize Categories 6 and 7. Financial institutions concentrate on Category 15.
Step 2: Collect Activity Data
Gather data on relevant activities from across the organization. This includes purchasing records from procurement, travel bookings from finance, employee surveys for commuting data, product usage information from customer service, and waste disposal records from facilities management.
Step 3: Apply Emission Factors
Use emission factors from recognized sources like DEFRA, EPA, or GHG Protocol databases. For Malaysian context, consider local grid emission factors and transportation-specific factors for the region.
Step 4: Calculate and Validate
Multiply activity data by appropriate emission factors to calculate emissions. The critical step: validate calculations, document data sources, assess data quality, assign confidence scores, and create audit trails. This is where evidence-based validation becomes essential.
Frequently Asked Questions
What's the difference between Scope 1, 2, and 3?
Scope 1 covers direct emissions from owned sources (company vehicles, facilities). Scope 2 includes indirect emissions from purchased electricity and energy. Scope 3 encompasses all other indirect emissions in the value chain, both upstream (suppliers) and downstream (products, customers).
Is Scope 3 reporting mandatory in Malaysia?
Yes, for Bursa Malaysia public listed companies in high-impact sectors. Scope 3 disclosure is required where material, with phased implementation based on sector and company size. Third-party assurance will be required in later phases.
Why is Scope 3 so difficult to measure?
Scope 3 emissions occur outside company control across complex value chains involving thousands of suppliers, logistics providers, and customers. Data must come from external parties who may not track emissions, leading to reliance on estimates and industry averages.
How can companies improve Scope 3 data quality?
Engage suppliers directly for emissions data, use supplier-specific information rather than industry averages where possible, implement validation processes for all data inputs, maintain clear documentation and audit trails, and use technology platforms that link data to source evidence.
What is the biggest Scope 3 category for most companies?
Category 1 (Purchased Goods and Services) is typically the largest for manufacturing and retail companies. Service companies often see Category 6 (Business Travel) or Category 7 (Employee Commuting) as significant. Financial institutions focus on Category 15 (Investments and financed emissions).
Conclusion
Scope 3 emissions represent the majority of most companies' carbon footprints and are now subject to mandatory disclosure requirements across major jurisdictions in 2026. As Malaysia, Singapore, Australia, and other markets implement ISSB-aligned standards, companies must move beyond estimates to evidence-based, audit-ready Scope 3 data.
Key Takeaways:
• Scope 3 covers all value chain emissions beyond direct operations
• 15 categories span upstream suppliers to downstream product use
• Scope 3 typically represents 70-90% of total company emissions
• 2026 regulations require validated, audit-ready Scope 3 disclosure
• Malaysian PLCs must comply with Bursa's phased Scope 3 requirements
Next Steps for Malaysian Companies:
1. Identify material Scope 3 categories through assessment
2. Establish supplier engagement processes for data collection
3. Implement validation systems for audit-ready evidence trails
4. Align reporting with GHG Protocol, ISSB, and Bursa requirements
How Carbon AI Can Help:
Carbon AI transforms unstructured Scope 3 evidence (supplier invoices, bills, logistics data) into validated, confidence-scored datasets ready for audit and assurance. Our AI-powered platform ensures your Scope 3 disclosures meet 2026 regulatory requirements and ISSA 5000 assurance standards.
