The Hidden Growth Engine - Unlocking Value through Scope 4 Emissions

In the climate-change conversation, business leaders often hear terms like Scope 1, Scope 2 and Scope 3 emissions. These categories explain where a company’s greenhouse gas (GHG) emissions come from – direct operations, purchased energy and the wider value chain. Over recent years a new term has emerged: Scope 4 emissions, also known as avoided emissions. While not yet part of formal regulation, understanding Scope 4 can help executives show how their products and services help clients reduce emissions and position their companies as climate solution providers. This article explains what Scope 4 means, why it matters, how to calculate it and the challenges involved. It draws on guidance from respected organisations such as the World Resources Institute (WRI), the World Business Council for Sustainable Development (WBCSD) and the Net Zero Initiative, and includes practical insights for board members and senior management.

Before looking at Scope 4, it is important to recall the existing emission categories:

• Scope 1 covers direct emissions from sources owned or controlled by the company, such as fuel burned in company vehicles or boilers.
• Scope 2 includes indirect emissions from the generation of purchased energy – for example electricity, steam or cooling.
• Scope 3 encompasses all other indirect emissions across the value chain, both upstream (e.g., from suppliers) and downstream (e.g., from the use of sold products). This is often the largest category and is challenging to quantify because it involves suppliers, customers and waste disposal.

These three scopes form the backbone of corporate carbon accounting. Many companies including those subject to India’s Business Responsibility and Sustainability Reporting (BRSR) regime or international frameworks such as the EU Corporate Sustainability Reporting Directive are focusing their efforts on Scopes 1 to 3. However, they tell only part of the story: they measure what a company’s activities emit, but they do not capture the emissions avoided because of a company’s products or services. That is where Scope 4 enters the conversation.

Scope 4 refers to greenhouse gas emission reductions that take place beyond a product’s life cycle or value chain, directly caused by the way the product or service is utilized. It is about the emissions that never happen because a company offers a more efficient or low carbon solution. Consider these examples:

• A teleconferencing system replaces business travel. The emissions saved by not flying or driving are considered avoided emissions.
• An energy efficient washing machine uses less electricity and water than standard models. The energy saved by users translates into emissions avoided by the manufacturer.
• Electric vehicles (EVs) generate fewer lifetime emissions than petrol or diesel cars. Although their production is emissions intensive, over their lifetime EVs avoid emissions relative to conventional vehicles.

The term Scope 4 sometimes covers a broader set of impacts, as pointed out by Thomson Reuters. Besides avoided emissions, there are facilitated, advised and advertised emissions:

For simplicity, many organisations use the term Scope 4 mainly for avoided emissions. This article focuses on avoided emissions but recognises that the concept can extend to other forms of influence.

Traditional emissions accounting shows what a company’s operations emit. Scope 4 looks at what a company enables others to save. By reporting avoided emissions, executives can present a more complete picture of their organisation’s impact on climate change. Plan A’s analysis notes that including Scope 4 provides a comprehensive view of a company’s environmental impact by highlighting the positive externalities of its products. This can be valuable for companies that develop low carbon technologies, such as renewable energy providers, efficient appliance makers or digital platforms that reduce travel. Customers, investors and regulators increasingly want evidence that companies are part of the solution to climate change. Reporting avoided emissions showcases innovation and highlights a strong dedication to sustainability. The Financial Times notes that companies like Aveva, Pacific Gas & Electric and Renew Energy Global have already started disclosing avoided emissions. FactSet reports that more than 70 percent of companies surveyed by CDP in 2017 claimed to offer products that help users reduce emissions. Clearly, demand for quantifying positive impact is growing. Although Scope 4 reporting is voluntary, it may soon influence policy and investment decisions. Investors use avoided emissions data to evaluate the decarbonisation potential of portfolios. WBCSD’s guidance aims to align avoided emissions accounting with major frameworks like the IPCC and ISO standards. For Indian companies seeking overseas investment or participating in global supply chains, demonstrating avoided emissions could enhance competitiveness.

Calculating Scope 4 is not straightforward. It requires comparing a low carbon product or service with a baseline scenario where that product or service does not exist. There are two main approaches:

1. Consequential approach The consequential approach looks at the system wide change in emissions triggered by a particular decision or product. For example, when a company introduces an energy efficient appliance, this method assesses how the overall energy grid emissions change because of the new appliance’s widespread adoption. It takes into account secondary impacts, market dynamics and consumer behaviour. This holistic view is comprehensive but data intensive.
2. Attributional approach The attributional approach is simpler. It compares the life cycle emissions of a product with those of a reference product performing the same function. The difference between the two represents the avoided emissions. For example, comparing an electric vehicle’s manufacturing, use and end of life emissions against a petrol car shows the avoided emissions from using the EV. This method is easier to apply but may overlook broader market effects.

1. Define the reference scenario – Identify what would have happened without the low carbon product. This could be the previous situation (e.g., older technology) or the current market average.
2. Use a life cycle perspective – Include emissions from production, transport, use and end of life, both for the new product and the reference product.
3. Consider future changes – Account for the decarbonisation of electricity grids and other dynamic factors over the life of the product.
4. Adjust for precision – Choose the level of detail based on available data: product specific, company level or market average. More precision requires more data but yields more accurate results.
5. Separate categories – Report avoided emissions from products and services separately from those achieved through investments or financing external projects.
WBCSD’s Guidance on Avoided Emissions v2.0 (published in July 2025) adds extra rigour: it proposes eligibility gates to ensure claims are credible, standardised templates for reporting and alignment with global standards. The guidance also provides sector specific tools and emphasises transparency to prevent greenwashing.

The GHG Protocol remains the benchmark for carbon accounting. It mandates reporting of Scope 1 and Scope 2 emissions and provides guidance for Scope 3. It does not recognise Scope 4, meaning there is no mandatory requirement to report avoided emissions. ClimatePartner notes that there are currently no recognised standards for Scope 4 accounting. Companies must prioritise accurate reporting of Scope 1–3 emissions before venturing into Scope 4.

Despite the absence of regulations, several voluntary guidelines have emerged:

• WRI / GHG Protocol working paper – The 2019 working paper outlines principles for estimating comparative emissions impacts and provides a neutral framework. It is used by industry associations to develop sector specific guidance.
• WBCSD’s Guidance on Avoided Emissions v2.0 – This publication sets out a robust methodology, eligibility criteria, reporting templates and implementation tools. It aims to harmonise approaches across sectors and align with frameworks such as the IPCC and ISO.
• Net Zero Initiative (NZI) Pillar B guide – Carbone 4’s guide provides a toolbox and methodological sheets for sectors like mobility, construction and energy. It emphasises that avoided emissions should be reported separately and not deducted from a company’s carbon footprint.

Some companies and sectors have taken the lead in measuring and reporting avoided emissions:

• Renewable energy – Renewable energy providers naturally have high Scope 4 impacts because their technologies replace fossil fuel based energy. Renewable Energy Global, an Indian company, is cited by Plan A as one of the early adopters that disclosed specific figures for avoided emissions.
• Technology and electronics – Companies producing energy efficient appliances or software that enables remote working are considering Scope 4. Aveva, a FTSE 100 technology company, plans to develop a baseline and target for customer saved and avoided emissions by 2025.
• Logistics and transport – In the logistics sector, businesses compete to report how fuel efficiency reduces delivery emissions. The Financial Times notes that transport companies are using Scope 4 to highlight improved lorry fuel economy. Rail companies highlight that shifting freight to rail reduces overall transport emissions, even though their own emissions may rise.
• Telecommunications and digital services – Teleconferencing companies emphasise that digital meetings reduce travel emissions. Cloud service providers are also positioning their offerings as less energy intensive than on premises data centres.

While Scope 4 offers opportunities, it also presents challenges. Executives should be aware of the following:

• Lack of standardisation and comparability: Because there is no unified standard for Scope 4, different companies may use different methodologies. This makes comparing claims difficult and can create confusion. Sector specific guidance from WBCSD and NZI may mitigate this, but widespread adoption is still some years away.
• Data availability and quality: Reliable Scope 4 calculation requires detailed data on emissions across product life cycles and on the baseline scenario. Assumptions about fuel mixes, consumer behaviour and operational efficiency can significantly affect results. Without transparent data and assumptions, companies risk accusations of greenwashing.
• Complexity and cost: Calculating avoided emissions is resource intensive. It involves life cycle assessments, market analysis and modelling. Credible calculations require establishing a baseline, performing comparative life cycle assessments and undertaking holistic analyses. This may be beyond the current capability of many firms, especially small and medium sized enterprises.
• Risk of miscommunication: Focusing on avoided emissions without simultaneously reducing actual emissions can be misleading. Experts caution that giving more prominence to avoided emissions than to Scopes 1 3 may result in greenwashing. The SBTi advises that avoided emissions should not count towards near or long term emissions reduction targets.

Scope 4 or avoided emissions offer a promising way to recognise the climate benefits of low carbon products and services. Understanding this concept can support strategic decision making, stakeholder communication and innovation. However, it is not a substitute for robust Scope 1-3 reporting and should be approached with care. There are no mandatory requirements yet, but voluntary frameworks from organisations like WRI, WBCSD and the Net Zero Initiative provide guidance for those ready to lead. By adopting rigorous methodologies, collecting high quality data, and communicating transparently, companies can demonstrate how they are not only reducing their own emissions but also enabling their customers and society to move toward a low carbon future.