What Counts as Scope 1 vs Scope 2 Emissions for SMEs?

When small and medium-sized enterprises (SMEs) start looking at sustainability reporting, one of the first hurdles is understanding what counts as Scope 1 and Scope 2 greenhouse gas (GHG) emissions.

The good news: for most SMEs, these categories are straightforward. Scope 1 usually means fuel and heating. Scope 2 usually means electricity. Let’s break it down.

Scope 1: Direct Emissions You Control

Scope 1 emissions come from sources your business directly owns or operates. If you are burning fuel, running engines, or using equipment that releases greenhouse gases, those emissions are Scope 1.

Examples for SMEs:

• Fuel used in your company vans or cars (diesel, petrol, natural gas).
• Gas boilers for heating your offices, shops, or workshops.
• On-site generators running on diesel or gas.
• Refrigerant leaks from air conditioning or cold storage.

Think of Scope 1 as the “smoke from your own chimney”.

Scope 2: Indirect Emissions from Purchased Energy

Scope 2 emissions are indirect — they occur at a power station or district heating plant, but they exist because you purchased that energy. Without your consumption, those emissions would not have happened.

Examples for SMEs:

• Electricity from the grid (for lighting, IT equipment, machinery).
• Purchased steam or district heating (common in some European cities).
• Purchased cooling (less common, but used in some industrial parks).

Even if you never see the smoke, your business is still responsible for these emissions because you use the energy.

Quick Example: Turning Bills into Emissions

Let’s say your electricity bill shows 10,000 kWh of consumption for the year. To convert this into emissions, you multiply by the emission factor for your country’s electricity grid.

• Example: France (2022 average) = 0.073 kg CO₂ per kWh
• Calculation: 10,000 × 0.073 ÷ 1,000 = 0.73 tonnes CO₂e

That’s your Scope 2 electricity footprint. Tools like the SME Climate Hub calculator can automate this.

Why This Distinction Matters

The Voluntary Sustainability Reporting Standard for SMEs (VSME) requires SMEs to report both Scope 1 and Scope 2 emissions as part of the Basic Module. Large companies under the Corporate Sustainability Reporting Directive (CSRD) will also expect suppliers to provide this data.

By separating emissions into Scope 1 and Scope 2, banks, clients, and regulators can compare businesses more fairly — whether you generate your own heat, or just plug into the grid.

FAQs SMEs Often Ask

Do I need to report Scope 3 emissions (like business travel or supplier impacts)? Not under the VSME Basic Module. But some banks or large clients may request it later, especially if they are themselves reporting under CSRD.

What if I don’t have perfect data? Start with what you have — fuel invoices, utility bills, or estimates. Being transparent about your method is more important than being 100% precise.

Where should I focus first? For most SMEs, electricity (Scope 2) and vehicle fuel (Scope 1) make up the bulk of emissions. Tackling these gives the biggest impact with the least effort. See our step-by-step guide to reporting Scope 1 and 2 emissions and how to report electricity use for practical guidance.

Key Terms

• Corporate Sustainability Reporting Directive (CSRD) — An EU law that requires large companies — and eventually some medium-sized ones — to report on their environmental and social impacts. Smaller suppliers are not directly in scope but may be asked for CSRD-style data by banks or bigger clients.
• Voluntary Sustainability Reporting Standard for SMEs (VSME) — A simplified framework designed to help SMEs share sustainability information. It is voluntary but can help SMEs respond to client or bank requests.
• Basic Module — The minimum set of sustainability disclosures under the VSME. It covers essential topics such as energy use, greenhouse gas emissions, waste, workforce data, and basic governance issues.
• European Sustainability Reporting Standards (ESRS) — The detailed reporting rules that apply to large companies under CSRD. The VSME is a simplified, proportionate version for smaller businesses.
• SME (Small and Medium-sized Enterprise) — A business with fewer than 250 employees, a turnover under €50 million, or a balance sheet total under €25 million.
• Scope 1 emissions — Direct greenhouse gas emissions from sources a company owns or controls, such as fuel burned in vehicles or gas boilers.
• Scope 2 emissions — Indirect greenhouse gas emissions from purchased energy, such as electricity, heating, or cooling.

Once you understand Scope 1 and 2, you may also need to identify which Scope 3 categories apply to your business:

This tool will help you determine which indirect emissions categories are relevant to your operations.