Scope 3 Category 1 is purchased goods and services. Category 2 is capital goods. Both are calculated from your general ledger.
This article covers which accounts belong in each, and what to leave out.
The split between the two
Category 1 is what you consumed in the period. Category 2 is what you capitalised.
If the cost went to the profit and loss, it is Category 1. If it went to the balance sheet as an asset, it is Category 2.
Your finance team already made this decision. Follow their treatment rather than making a second judgement.
Include
Include accounts that represent a payment to a supplier for goods or services:
Materials, stock and consumables
Professional services, consulting and contractors
IT, software and subscriptions
Marketing and advertising
Repairs and maintenance
Office costs, cleaning and security
Capital purchases, as Category 2
Exclude
Exclude these, with the reason to give your auditor:
Exclude | Reason |
Payroll and employee costs | Not a purchase from a supplier |
Tax, GST and government levies | A transfer, not a purchase |
Intercompany charges | Nets out within the group |
Accruals and provisions | A timing entry, not a transaction |
Refunds and rebates | Reverses spend already counted |
Interest, dividends and financing | No goods or services received |
Depreciation and amortisation | Not a cash purchase. The asset itself is Category 2 |
The judgement calls
These come up on nearly every implementation.
Rent and leases. Lease payments are not Category 1. A leased asset belongs in Category 8, upstream leased assets, and its energy is usually already in your Scope 1 and 2. Putting rent into Category 1 overstates your footprint. See Leased sites, landlords and tenants.
Leasehold improvements. Capitalised, so Category 2.
Work in progress. If the cost is later capitalised into a project, treat it as Category 2. If it is expensed, Category 1.
Temporary staff and labour hire. A service purchased from an agency, so Category 1. Your own payroll is excluded.
Contractors and consultants. Category 1, even when the work resembles employment.
Cost of goods sold. Include it only if the underlying purchases are not already captured in another account. Check for double counting first.
Insurance and reinsurance. A purchased service, so Category 1. If you sell insurance, premiums you receive are revenue and excluded.
Food, drink and kitchen costs. Category 1. These often sit inside a general office supplies account, so split the account if you need the detail.
Watch for double counting
Where you also hold activity data, exclude the matching spend. The commonest cases:
Electricity and gas invoices, where the spend also sits in a utilities account
Fuel cards, where the spend also sits in a motor vehicle account
Waste contractor reports, where the spend also sits in a waste account
Paper or consumables you uploaded separately
Sense-check the result
After your first run, look at the largest categories. A number that is an order of magnitude out usually points at one of three things: rent in Category 1, an opening balance included as spend, or an intercompany account left in.