ESG Strategy & Corporate Sustainability
Level 2 — Scope 3 Inventory · SBTi Targets · ISAE 3410 Assurance

This unit builds on the financial materiality concept from F1 and the regulatory applicability overview in F3 to establish the full EFRAG double materiality framework. It covers the regulatory basis in CSRD Article 19a and ESRS 1 Section 3, explaining that CSRD requires entities to disclose information material from an impact perspective, a financial perspective, or both. The unit maps the ESRS 1 definitions of material impact, risk, and opportunity to practical examples from manufacturing and financial services, illustrating how the same sustainability topic can be material from one perspective but not the other, or from both simultaneously.

The unit covers the five-stage EFRAG assessment process at the overview level: scoping the universe of sustainability matters, collecting evidence through stakeholder engagement, scoring impact materiality, scoring financial materiality, and consolidating results into a final determination. Subject matter experts should draw primarily on EFRAG's ESRS 1 Basis for Conclusions and the EFRAG Implementation Guidance on Double Materiality Assessment as the authoritative specification.

This unit covers the first stage of the double materiality process: identifying all sustainability matters that could potentially be material. The unit covers the ESRS topic structure (ten topic standards, E1 through G1) and the ESRS sub-topic lists within each standard as the starting universe, then covers the tools used to narrow and prioritise: ESRS sector-specific guidance, SASB industry standards from F1, and peer company reporting analysis.

The unit also covers value chain scoping as a distinct element of the universe identification step. ESRS 1 requires organisations to consider impacts, risks, and opportunities from upstream and downstream activities, not only from own operations. The unit introduces the concept of a value chain map for materiality purposes — distinct from a supply chain risk map (covered in Track 6) — which identifies which stages of the chain are relevant for which potential topics.

This unit covers the design and execution of a stakeholder engagement process for double materiality evidence collection. The unit identifies the four primary stakeholder categories: affected stakeholders, users of sustainability statements, trade unions and employee representative bodies, and regulatory bodies and standard setters. For each, it covers appropriate engagement formats and the evidence each format generates for impact and financial materiality scoring.

The unit places particular emphasis on documentation requirements for assurance purposes. An ISAE 3000 limited assurance engagement requires that the assessor can trace each material topic determination to a documented stakeholder input or sector-based evidence source. The unit specifies the components of an assurance-ready engagement file: stakeholder identification record, engagement method description, input summary per stakeholder group, and the mapping between stakeholder inputs and each topic's materiality score.

This unit covers the quantitative and semi-quantitative scoring process for both impact materiality and financial materiality. For impact materiality, the EFRAG framework scores each actual or potential impact on severity (scale, scope, and for negative impacts, irremediability) and likelihood (for potential impacts only). For financial materiality, scores are applied on the magnitude of potential financial effect and likelihood of the effect crystallising within the reporting horizon. The unit covers the three ESRS 1 time horizons: short-term (up to one year), medium-term (one to five years), and long-term (beyond five years). The capstone of this unit is a completed scoring table and materiality matrix for the case organisation.

This unit covers consolidating impact and financial materiality scores into a final list of material topics, documenting the determination for board approval, and preparing the evidence file for external assurance. The unit covers common edge cases: a topic that is financially material but where impact materiality evidence is weak; a topic where stakeholder input drives high impact materiality scores but sector analysis suggests low financial materiality; and a topic where the organisation argues for exclusion on the ESRS 1 proportionality principle. The board approval requirement under CSRD Article 29 is addressed, covering the format of a board materiality paper. The module capstone deliverable is the complete double materiality assessment package: scoping universe, engagement summary, scoring tables, consolidated matrix, final topic list, and a one-page board summary.

This unit covers the GHG Protocol Scope 3 Standard structure, the 15 category definitions, and the relevance screening process that determines which categories require full calculation versus simplified estimation. The 15 categories are divided into upstream categories (1 through 8) and downstream categories (9 through 15). The unit covers the GHG Protocol relevance criteria: size (likely to be one of the largest sources), influence (whether the organisation can affect the outcome), risk (associated with financial, regulatory, or reputational exposure), and stakeholder expectations.

The relevance screening exercise uses a cross-sector template that learners complete for the case organisation, applying quantitative size indicators (spend in category relative to total spend, estimated emission intensity of the sector) and qualitative influence and risk indicators to produce a prioritised category list. The unit emphasises that the screening output is a starting hypothesis that is revised once initial calculations have been performed.

This unit covers the spend-based and average-data calculation methods for upstream Scope 3 categories where primary supplier data is not available. The spend-based method multiplies financial spend in each procurement category by an EEIO emission factor expressed in kg CO2e per unit of monetary spend. The unit covers the US EPA Supply Chain Greenhouse Gas Emission Factors dataset (covering over 400 industry sectors) and the Exiobase multi-regional input-output database (covering 44 countries and five rest-of-world regions), explaining how to select the appropriate factor for a given procurement category and how to adjust for currency differences and supply chain geography.

The average-data method uses physical quantity data combined with average emission intensity factors for the relevant material or transport mode. The unit covers the approach for Categories 1, 2, and 4, and addresses the accuracy limitations of both methods, noting that they are not appropriate as the primary calculation method for categories identified as high-materiality in the relevance screening.

This unit covers the primary data and supplier-specific calculation methods for the three categories most likely to represent the largest Scope 3 shares for manufacturing, consumer goods, and retail companies: Category 1 (purchased goods and services), Category 4 (upstream transportation and distribution), and Category 11 (use of sold products). For Category 1, the primary data method requires obtaining actual GHG emissions data from suppliers through direct data requests or through third-party programmes such as CDP Supply Chain. The unit covers the data request template design, the minimum data quality requirements for supplier-provided data, and the methodology for combining supplier-specific data with spend-based estimates for the remaining supply base.

For Category 11, the unit covers the product lifecycle emissions calculation approach for energy-consuming products, fuel-combusting products, and non-energy products where emissions occur through chemical transformation during use. The use of sold products category is particularly material for automotive, appliance, and fossil fuel companies, and the unit uses one case from each of these sectors.

This unit covers the Scope 3 Category 15 (investments) calculation methodology for financial institutions using the PCAF Standard, which is the sector-specific implementation of the GHG Protocol Scope 3 Standard for financial sector entities. Category 15 is the dominant Scope 3 category for banks, insurers, and asset managers; its calculation methodology differs from all other Scope 3 categories because it involves attribution of borrower and investee emissions to the financial institution based on financial exposure relative to the total financing of the counterparty.

The unit covers the PCAF attribution factor formula and works through the calculation for three asset classes: corporate loans (using the PCAF attribution factor and the borrower's reported or estimated Scope 1 and 2 emissions), listed equity (using the PCAF attribution factor and investee Scope 1 and 2 emissions), and project finance (using 100 percent attribution of project-level emissions for the financing institution's share of the capital structure). The PCAF data quality scoring system, which rates the quality of the emissions data used for each counterparty on a five-point scale, is covered as the framework for documenting inventory quality for Category 15.

This unit covers the design of a primary data collection programme for the highest-materiality Scope 3 categories and the assembly of the complete 15-category inventory. The primary data programme design covers the supplier or customer data request template, which must specify the emissions reporting boundary, the calculation methodology, the data format, and the assurance level accepted. The unit addresses the practical challenges of supplier engagement: response rates, data quality variability, and the process for validating supplier-provided data against spend-based benchmarks to identify outliers requiring follow-up.

The inventory assembly brings together the results from Units 2.1.2 through 2.1.4 into a complete summary table, applying the GHG Protocol formatting requirements: category number and name, total CO2e, calculation method classification, data quality rating, and boundary notes. The unit covers the recalculation policy for Scope 3 inventories when methodology or boundary changes occur between reporting periods. The capstone deliverable is the complete 15-category inventory table with supporting calculation documentation.

This unit covers the SBTi Corporate Standard and Corporate Net-Zero Standard architecture, distinguishing the two commitment pathways: the near-term target commitment (covering the period to 2030) and the net-zero commitment (covering the period to 2050, requiring near-term targets as a prerequisite). It explains the validation process: an organisation submits a target to SBTi, SBTi's validation team reviews the workbook submission against the Standard requirements, and the organisation receives either approval (listed on the SBTi Companies Taking Action dashboard) or conditional approval with required changes. The typical validation timeline, the fee structure by organisation size, and the submission format requirements are covered as operational context.

The unit covers the target boundary requirements in detail. The SBTi requires that near-term targets cover at least 95 percent of Scope 1 and 2 emissions from all operations. For Scope 3, the SBTi requires targets covering at least two-thirds of total Scope 3 emissions if the total Scope 3 footprint exceeds 40 percent of the combined Scope 1, 2, and 3 total — which is the case for the majority of manufacturing, consumer goods, and service companies.

This unit covers the three pathway methodologies available for near-term target setting. The Absolute Contraction Approach (ACA) is the default method, requiring a minimum 4.2 percent annual absolute reduction in Scope 1 and 2 emissions on a linear trajectory from the base year to the target year. ACA is sector-agnostic and applies to all organisations where sector-specific guidance is not available or where the organisation chooses not to use a sector method.

The Sectoral Decarbonisation Approach (SDA) applies sector-specific pathways developed by the IEA for industries where the physical intensity of production is the appropriate metric. SDA pathways exist for power generation, iron and steel, cement, pulp and paper, commercial buildings, and residential buildings. The Economic Intensity Contraction (EIC) method, which sets targets as a percentage reduction in GHG emissions per unit of economic value added, applies to service-sector organisations with highly variable physical output. The unit covers the conditions under which EIC is permitted and its calculation methodology.

This unit guides learners through completion of the SBTi Corporate Manual workbook for the near-term target submission. The workbook requires input of the base year inventory data (Scope 1, 2, and 3 totals with boundary documentation), the pathway methodology selection, the target year, and the resulting absolute or intensity-based reduction commitment. The unit works through each workbook tab in sequence, covering the data entry requirements, the validation checks built into the workbook, and the common errors that cause conditional rather than full approval: misclassified Scope 2 emissions, Scope 3 boundaries that exclude categories in scope of the materiality threshold, and base year selections that do not reflect a representative operational year.

The unit also covers the Scope 3 target-setting options and their workbook entries. Organisations can meet the SBTi Scope 3 requirement through: a percentage reduction target against a base year inventory, a supplier engagement target, a customer engagement target, or a combination approach. The unit works through the workbook entries for a percentage reduction target and a supplier engagement target, and explains the different evidence requirements for each approach during validation.

This unit covers the SBTi Corporate Net-Zero Standard requirements for long-term targets. A net-zero commitment requires that the organisation reduces Scope 1, 2, and 3 emissions to a level consistent with the Paris Agreement's maximum residual emissions budget — typically no more than 5 to 10 percent of the base year footprint for most sectors — and neutralises any remaining residual emissions through permanent carbon removal. The unit covers the definition of permanent carbon removal (forestry-based removals are not accepted as permanent; the Standard requires geological sequestration or other durable approaches), the SBTi's neutralisation guidance, and the interim milestones required between the near-term target year and 2050.

The unit covers the distinction between near-term operational reductions, long-term value chain transformation, and residual emissions neutralisation as three distinct elements of a credible net-zero pathway. It illustrates why organisations that rely primarily on offsetting to meet near-term targets cannot achieve SBTi net-zero validation: the Standard requires that neutralisation applies only to residual emissions that are technically or economically infeasible to eliminate.

This unit covers the preparation of the complete SBTi submission package and the obligations that follow from target validation. The submission package components are: the completed workbook, a supporting letter explaining any non-standard boundary or methodology decisions, the base year recalculation policy (specifying conditions under which the base year will be restated), and the inventory documentation from Module 2.1 for verifier reference. The unit works through the submission review criteria that SBTi's validation team applies, drawing on the published SBTi validation procedures to specify which workbook entries attract most scrutiny.

Post-validation obligations are covered as essential operational context: validated targets must be disclosed publicly within two years of commitment, progress must be reported annually, and targets must be updated if the organisation's emissions boundary changes materially. The unit covers the implications of target validation for CSRD disclosure (the target must be disclosed in ESRS E1-4 with specific mandatory data points), for CDP scoring (SBTi validation achieves the highest ambition recognition in the CDP targets and performance section), and for institutional investor engagement. The capstone deliverable is the complete SBTi submission package for the case organisation.

This unit covers the ISAE 3410 standard structure, the roles and responsibilities of the engaging party and the assurance provider, and the process architecture of a GHG limited assurance engagement. It explains the five phases of a typical engagement: planning (scope agreement, materiality threshold setting, and risk identification), documentation review (examination of the boundary memo, methodology documentation, and data quality records), analytical procedures (reasonableness testing against prior periods, benchmarks, and cross-checks), testing of controls (verification of the quality review process documented in Module 1.2), and evidence evaluation and conclusion.

The unit covers the concept of materiality as applied in a GHG assurance engagement. The assurance provider sets a materiality threshold — typically 5 percent of total reported emissions for limited assurance — below which individual errors or omissions will not affect the assurance conclusion. The unit explains how this threshold affects the level of evidence the organisation must provide for different source categories: high-materiality sources require primary activity data and documented calculation methodology; lower-materiality sources may be supported by spend-based estimates with documented uncertainty.

This unit guides learners through the preparation of an organisational boundary memo, which is the foundational document for the assurance engagement. The boundary memo specifies: the legal entities included in the reporting boundary and the basis for their inclusion (equity share, financial control, or operational control), the treatment of joint ventures where the organisation holds a non-controlling interest, the treatment of acquisitions or disposals during the reporting year, the treatment of outsourced operations, and any deviations from the prior year boundary with explanatory rationale.

The unit works through the boundary memo template for the case organisation, which includes three subsidiaries at different equity levels, one 50-50 joint venture, and one facility transferred to a third-party operator mid-year. These complexities are deliberately included because they are the boundary situations that assurance providers scrutinise most carefully. The unit explains the GHG Protocol guidance on each situation and the documentation required to demonstrate consistent application of the boundary-setting approach.

This unit covers the preparation of the emission factor register, which documents every emission factor applied in the inventory with the source, version, and selection rationale. The register format specifies for each entry: source category identifier, emission factor value and unit, GHG gas or CO2e conversion used, database source and publication year, the version of the specific document within that database, and where the factor is an organisation-specific or supplier-specific value, the basis for its derivation. The register connects the inventory calculation to the supporting documentation in a format that allows the assurance provider to independently verify each factor.

The unit also covers the documentation requirements for the calculation itself beyond the emission factor register: the activity data values and their source, the formula applied, and the rounding conventions. It covers the GHG Protocol guidance on base year recalculation documentation, specifying the evidence required if any base year figures were restated relative to prior disclosures. The worked example uses the Scope 1 and 2 inventory from Module F2 and extends it with the Scope 3 categories from Module 2.1.

This unit covers the preparation of the uncertainty assessment required by ISAE 3410 and the data quality evidence file that supports the assurance provider's control testing. The uncertainty assessment applies the GHG Protocol uncertainty guidance, classifying each emission source on two dimensions: activity data uncertainty (meter-read data carries low uncertainty; spend-based proxies carry high uncertainty) and emission factor uncertainty (factors based on direct measurement carry lower uncertainty than average database factors). The unit works through the classification for each source category in the case inventory and produces the inventory-level combined uncertainty range using the error propagation formula specified in the GHG Protocol.

The data quality evidence file is the organisational record of all quality controls applied to the inventory data, structured to enable the assurance provider to test the controls during the engagement. It includes: the completed data ownership matrix from Module 1.2, a log of the completeness, reasonableness, consistency, and authorisation controls with their outcomes, documentation of any data corrections made during the review process, and the sign-off records from designated data owners. The unit explains what the assurance provider will look for when testing controls and which gaps in the evidence file are most likely to generate findings.

This unit covers the preparation of the management representation letter, which is a formal document signed by the organisation's senior management (typically the CFO or CSO) confirming specific representations to the assurance provider. The representations required under ISAE 3410 include: that all information relevant to the engagement has been provided, that the GHG statement has been prepared in accordance with the stated criteria (the GHG Protocol Corporate Standard), that all known or suspected errors have been disclosed, that the boundary and methodology are consistent with prior periods or that any deviations have been disclosed, and that management is responsible for the design and implementation of internal controls over the GHG inventory.

The unit covers the practical aspects of managing the assurance engagement interface: the timeline from engagement commencement to assurance report issuance (typically eight to twelve weeks for a limited assurance engagement on a Scope 1 and 2 inventory, longer for Scope 3), the format of findings and the remediation process for material findings, and the disclosure requirements when a qualified conclusion is issued. The capstone deliverable assembled across all five units is the complete verification pack, assessed against the ISAE 3410 evidence requirements checklist.