Spend-based emissions: A shortcut or a dead end for accurate Scope 3 reporting?

Spend-based emissions calculations have become a go-to method for companies starting their Scope 3 reporting. It’s fast, easy, and doesn’t require deep engagement with suppliers. But the convenience comes at a cost. As regulatory pressure builds and stakeholders demand more transparency, the limitations of spend-based methods are becoming harder to ignore. So the question is: are spend-based emissions a useful stepping stone — or are they a dead end for credible Scope 3 disclosure?

Let’s break it down.

Why spend-based emissions became popular

Spend-based emissions calculations use economic input-output (EEIO) models to estimate emissions based on how much a company spends in different purchasing categories. For example, if a business spends $100,000 on IT services, a corresponding emissions factor (e.g., kg CO₂e per dollar spent on IT) is applied to estimate the impact.

This method became popular because it's scalable and doesn’t require granular data. It also offers broad coverage across all Scope 3 categories, especially purchased goods and services (Category 1), which often account for the largest share of emissions.

For organizations just starting their emissions accounting journey, this method is appealing. It avoids the complexity of supplier-specific data and allows a company to fill in major data gaps without having to rebuild their procurement systems.

The accuracy problem

The convenience of spend-based methods comes with significant limitations. EEIO models rely on broad averages, often based on national or regional datasets. They don’t reflect the actual emissions intensity of a company’s specific supply chain. That means two companies buying the same product from different suppliers may report the same emissions — despite potentially massive differences in supplier practices, energy mix, or transport modes.

This lack of specificity is a problem. As more companies begin to decarbonize, they need to identify real emissions hotspots. Spend-based methods can point in the general direction, but they won’t show you where emissions are actually coming from or which suppliers are driving them. That makes it hard to prioritize action, set supplier-specific targets, or measure progress year over year.

Why it matters for Scope 3 strategy

If your goal is to meet regulatory requirements, such as those emerging in Australia (ASRS AASB S2), the EU (CSRD) or California (SB 253 / SB 261), then data quality matters. These regulations increasingly expect companies to demonstrate that they are improving their emissions data over time and taking action based on what they find.

In this context, a purely spend-based approach starts to look like a short-term solution rather than a long-term strategy. It’s unlikely to satisfy stakeholder expectations around transparency or support robust emissions reductions across the supply chain.

Investors and customers want to see that companies understand their supply chain risks and are engaging with suppliers to decarbonize. Spend-based data doesn't help with that. It's generic by design. Without a plan to improve data quality and transition to activity-based or supplier-specific data, companies risk being seen as greenwashing or falling behind peers who are investing in more accurate methods.

When spend-based still makes sense

That said, there are still valid uses for spend-based calculations — especially as a starting point. For companies with complex, global supply chains and limited emissions data, spend-based estimates can help map out the emissions landscape and identify high-impact categories.

This can be the foundation for a phased improvement strategy. Companies can begin by calculating emissions broadly using spend-based factors, then prioritize key categories where more accurate, activity-based data can be collected. For example, a company might identify that most of its emissions come from contract manufacturing or logistics, then work to collect primary data from those suppliers.

Used this way, spend-based methods aren’t a dead end — they’re a baseline. The key is to treat them as a temporary solution, not a permanent fixture in your emissions accounting.

What a better approach looks like

The GHG Protocol encourages companies to improve emissions estimates over time using a hierarchy of data quality. Supplier-specific activity data is considered the gold standard, followed by hybrid methods (which combine activity and spend data), with EEIO-based estimates at the bottom.

A mature Scope 3 reporting program blends different approaches. Spend-based data can cover lower-risk, lower-emissions categories, while priority categories get more attention. With the right tools, companies can automate this data quality assessment and direct resources where they matter most.

Modern platforms like Avarni help organizations move beyond spend-based methods by integrating supplier engagement, primary data collection, and emissions modeling — all in one place. This is where the real value lies: not just reporting emissions, but using the data to reduce them.

Summary

• Spend-based emissions offer a quick and scalable way to estimate Scope 3 emissions, especially for purchased goods and services.
• These methods rely on broad averages and don’t reflect supplier-specific emissions, which limits their usefulness for decision-making or decarbonization.
• Regulations and stakeholder expectations are pushing companies to improve emissions data quality over time, making spend-based methods less viable as a long-term solution.
• When used as a starting point, spend-based data can help identify hotspots and prioritize areas for deeper data collection.
• A hybrid approach that combines spend-based methods with activity-based and supplier-specific data leads to more accurate reporting and actionable insights.

Ready to move beyond spend-based reporting?

Avarni helps you accelerate the shift from estimates to accuracy. Whether you're just starting with Scope 3 or looking to refine your supply chain data, our platform gives you the tools to engage suppliers, collect high-quality emissions data, and drive real decarbonization.

Contact us today and see how Avarni can take your Scope 3 reporting to the next level.