Manufacturers need a clear view of emissions across their value chain to identify hotspots, manage risk and meet reporting requirements. The challenge is that supply chains are complex, with limited visibility beyond direct suppliers.

This makes scope 3 emissions difficult to quantify. Unlike scope 1 and scope 2, they are rarely measured directly and rely on estimates. Data is often incomplete or unavailable, especially early on. Waiting for perfect data is not realistic.

This is where spend-based emission factors come in. They use financial data to estimate emissions, allowing organisations to build a complete scope 3 baseline from the data they already have.

Using financial data to get emissions insight

Spend-based emission factors link financial data to greenhouse gas emissions. They express the average emissions associated with a dollar spent in a given category.

This approach uses national economic data and emissions data to estimate the average emissions per dollar spent. In practice, it allows manufacturers to use their existing spend data to estimate scope 3 emissions.

This is exactly how many organisations begin. Financial data is readily available, structured and complete. Using it as a starting point enables a rapid, economy-wide view of emissions without waiting for supplier engagement.

 

Photo by Cooper Hofmann on Unsplash

Why this approach resonates with manufacturers

Manufacturers operate across complex supply chains, often with a mix of domestic and imported inputs. Understanding upstream emissions in detail is challenging, particularly early on.

Spend-based emission factors address this by providing full coverage. Because they are built on national economic accounts and include import data, they capture emissions across both domestic production and international supply chains.

This completeness is one of their defining strengths. Every dollar spent is linked to emissions somewhere in the value chain.

They are also efficient. Organisations can apply them using existing accounting data, making them particularly suited to scope 3 categories such as purchased goods and services and capital goods

Starting with what already exists

In practice, most manufacturers start with their general ledger or supplier spend data.

GL codes are commonly used because they reflect the type of spend and align with internal financial processes.

Getting the boundaries right

Another area that is important is defining what is included. Spend-based emission factors are cradle-to-gate. This means they cover all upstream emissions associated with producing a good or service, including direct and indirect emissions and those embedded in imports. They do not cover downstream use or end-of-life impacts.

This makes them well suited to scope 3 categories such as purchased goods and services, but it also means that organisations need to be clear about exclusions in their own data.

Common steps include removing:

• employee salaries
• intercompany transactions
• items already captured in scope 1 or scope 2

This helps avoid double counting and supports consistency with reporting standards.

Focusing effort where it adds value

Another consistent lesson is the importance of materiality. In most cases, a relatively small number of categories drive the majority of emissions. Companies are encouraged to focus on these high-impact areas first and apply more detailed mapping where it matters most.

For the remaining lower-impact categories, a simplified approach can be used, such as applying an average emission factor derived from the main spend categories.  This balances effort with usefulness and reflects how many organisations apply the method in practice.

Understanding the limitations

Spend-based emission factors are based on industry averages and are not product-specific.  This means results can sometimes reflect price differences rather than physical changes. For example, paying more for the same product can result in higher reported emissions. This is a known limitation of the method and is important to understand when interpreting results.

From baseline to better data

As organisations mature, we recommend the apportion of a hybrid approach.

Spend-based emission factors are used to establish a complete baseline and maintain coverage across all categories. Over time, organisations replace them with more specific data where it improves accuracy.

This typically involves:

• engaging suppliers to obtain product or supplier-specific emissions data
• using activity data for emissions-intensive categories such as fuel and transport
• updating methodologies where higher-quality data becomes available

This approach aligns with reporting frameworks and good practice. It balances completeness with accuracy and supports continuous improvement.

Building a process that stands up to scrutiny

The initial effort is usually higher in the first year, but becomes more efficient over time.

Spending categories and mapping approaches tend to remain stable, even as emission factors are updated annually.

Documenting decisions, assumptions and exclusions helps ensure consistency and

A practical path forward

Spend-based emission factors provide a practical, well-established method to build a complete emissions profile using data that already exists within the business. They are grounded in national statistics, aligned with reporting standards and widely used in practice.

From there, organisations can refine their approach, focusing on the areas that matter most and improving data quality over time.

Ready to go further?

Download thinkstep-anz’s latest Emission Factors for New Zealand and explore in our updated FAQ how they can support your scope 3 reporting and decision-making.

www.thinkstep-anz.com