Scope 3 category 2: capital goods

Category 2 covers the emissions from making the long-lived assets your company buys: machinery, IT hardware, vehicles, furniture, buildings and fit-outs. It is part of the 15 Scope 3 categories.

What the guidance says

"This category includes all upstream (i.e., cradle-to-gate) emissions from the production of capital goods". The emissions from using those assets, such as the fuel a machine burns or the electricity a server draws, are in Scopes 1 and 2, not here.

Category 1 or category 2?

The guidance ties the boundary to your accounts: "In financial accounting, capital goods are treated as fixed assets or as plant, property, and equipment (PP&E)." Companies "should follow their own financial accounting procedures" to decide whether an item is a capital good or a purchased good or service, and must not count it in both categories.

A practical rule: if it is capitalised on the balance sheet, it goes to category 2; if it is expensed, category 1.

No depreciation

This is where carbon accounting differs from financial accounting. The guidance says "companies should not depreciate, discount, or amortize the emissions from the production of capital goods over time"; the full emissions are reported "in the year of acquisition". A new production line therefore makes category 2 spike in the year you buy it. Explain such spikes in your report rather than smoothing them, and consider them when choosing a base year.

Methods

The guidance lists four methods, the same family as category 1:

• Supplier-specific: cradle-to-gate data from the manufacturer, for example an environmental product declaration for a building product or a product carbon footprint for a server.
• Hybrid: supplier data where available, secondary data for the rest.
• Average-product: physical quantities (tonnes of steel, square metres of building) times average factors.
• Average spend-based: capital expenditure by asset type times a spend-based factor.

Most companies start with spend-based factors applied to the fixed-asset additions in the year, then replace the largest items with supplier or product data. See category 1 for how spend-based factors and currency conversion work.

Data to collect

• The fixed-asset register additions for the reporting year, with cost and asset class.
• For large items, the manufacturer's product carbon footprint or environmental product declaration, if available.