Carbon Reporting in the GARP SCR Exam: Understand Scope 1, 2, 3 and Financed Emissions Fast

Carbon Reporting in the SCR Exam: Understand Scope 1, 2, 3 and Financed Emissions Fast

Carbon reporting is one of the most technical yet essential components of the GARP Sustainability and Climate Risk (SCR) exam. As the global financial system shifts toward transparency and climate accountability, understanding how greenhouse gas (GHG) emissions are categorized, calculated, and disclosed is a must for anyone seeking SCR certification. This guide breaks down the key reporting scopes, demystifies financed emissions, and ties it all back to what matters most for your success in the April 2025 exam.

Why Carbon Reporting Matters in the SCR Exam

Carbon reporting is deeply integrated across several chapters of the SCR curriculum, most notably in Chapter 10: Transition Planning and Carbon Reporting, but also builds on knowledge from earlier chapters like Chapter 1 (Climate Change Foundations) and Chapter 4 (Climate Policy and Governance). The exam tests not only your ability to recall definitions but your understanding of how carbon accounting fits into broader climate strategies, financial disclosures, and regulatory expectations.

Candidates can expect multiple-choice and case study questions that:

Define Scope 1, 2, and 3 emissions.
Apply organizational boundary methods.
Analyze reporting challenges and disclosure requirements.
Evaluate financed emissions in financial institutions.
Connect carbon data to net zero strategies and transition planning.

The Basics: What Are Scope 1, 2, and 3 Emissions?

These categories originate from the Greenhouse Gas Protocol, the globally recognized standard for carbon accounting. Each scope refers to a different type of emissions source:

Scope 1: Direct Emissions

Emissions from sources owned or controlled by the company. These include:

Fuel combustion in owned facilities and vehicles
On-site power generation
Chemical processing emissions

In practice: A manufacturing plant's fuel-burning boiler is a Scope 1 emission source. These emissions are the most straightforward to track and reduce.

Scope 2: Indirect Emissions from Energy Use

Emissions generated during the production of electricity, heat, or cooling that a company purchases and consumes.

Electricity purchased from utilities
District heating or cooling systems

In practice: Although a company doesn't emit these gases directly, its operations drive energy demand. The emissions from generating that power are attributed to the company.

Scope 3: All Other Indirect Emissions

The broadest and most complex category. Scope 3 includes upstream and downstream emissions in a company’s value chain:

Purchased goods and services
Transportation and distribution
Waste disposal
Business travel and employee commuting
Use of sold products
Investments (financed emissions)

Scope 3 often represents over 70% of a company’s total emissions footprint, especially in service-heavy or financial sectors.

Organizational Boundaries: How to Define What You Report

SCR candidates must understand two key approaches for defining boundaries:

1. Equity Share Approach

Report emissions in proportion to the company’s share of ownership.
If Company A owns 30% of a joint venture, it reports 30% of that JV’s emissions.

2. Control Approach

Report 100% of emissions from operations under control.
Operational control means the company has authority over operations.
Financial control means the company controls financial policies and outcomes.

This distinction is critical in multinational corporations with varied ownership structures. SCR exam questions may involve selecting the correct boundary based on a case description.

Deep Dive: What Are Financed Emissions?

For banks, asset managers, and insurance firms, operational emissions (Scope 1 and 2) are small. The majority of their climate impact lies in financed emissions — the emissions tied to companies and projects they fund.

Financed Emissions Fall Under Scope 3:

Loans to carbon-intensive sectors
Equity investments in polluting industries
Underwriting services for fossil fuel firms

Measured Using the PCAF Standard:

The Partnership for Carbon Accounting Financials (PCAF) framework provides a standardized method for calculating emissions:

Allocates emissions proportionally to the size and nature of the financial exposure
Supports multiple asset classes (corporate loans, project finance, equities, etc.)
Uses emissions intensity metrics (e.g., CO2 per $M invested)

Example: If a bank funds 10% of a coal plant’s value, it attributes 10% of the plant’s emissions to its own Scope 3 inventory. GARP SCR Exam , Carbon Reporting in the GARP SCR Exam , Scope 1, 2, 3

Reporting Standards You Must Know GARP SCR Exam , Carbon Reporting in the GARP SCR Exam , Scope 1, 2, 3

Understanding carbon reporting also means knowing the key standards shaping disclosures:

GHG Protocol (Corporate Standard)

Global foundation for carbon accounting
Introduces Scope 1, 2, and 3 definitions
Emphasizes transparency, consistency, and completeness

TCFD (Task Force on Climate-related Financial Disclosures)

Recommends including GHG emissions in climate risk disclosures
Key focus on governance, risk, and strategy
Supports scenario analysis and target setting

ISSB (International Sustainability Standards Board)

Introduced IFRS S1 & S2 standards for consistent global sustainability disclosures
S2 covers climate-related disclosures, including emissions and transition risks

PCAF for Financial Institutions

Methodology to measure financed emissions
Helps financial firms align with Net Zero and Science-Based Targets

Challenges in Carbon Reporting

Carbon reporting is technically demanding and presents real challenges:

Data Gaps: Especially in Scope 3, where supplier or customer emissions data is unavailable
Estimation Models: Companies must use proxies, emission factors, and assumptions
Overlap and Double Counting: Multiple companies may report the same emissions
Dynamic Portfolios: Financed emissions require frequent updating due to market movements
Regulatory Mismatch: Differing disclosure rules across jurisdictions complicate compliance

Realistic SCR Exam Questions: Could include:

Choosing the correct emissions scope for a given business activity
Calculating emissions using a simplified data table
Identifying the most suitable reporting boundary for a joint venture
Assessing transition risks from financed emissions exposure

Role of Carbon Reporting in Transition Planning

Accurate emissions reporting is the backbone of transition strategies. It enables:

Setting and validating Net Zero targets
Creating Science-Based Targets (e.g., 50% emissions reduction by 2030)
Aligning portfolios with Paris Agreement pathways
Supporting green bonds, sustainability-linked loans, and ESG funds

Example from SCR Curriculum: A financial firm uses financed emissions data to assess its exposure to high-carbon sectors. It sets a reduction goal, reallocates capital toward clean energy, and discloses its progress under TCFD guidelines.

Practical Prep Tips for SCR Candidates

Memorize GHG Protocol's Scope 1, 2, and 3 categories with examples.
Learn the organizational boundary frameworks: equity share vs. control.
Understand the PCAF methodology and how it applies to lending and investment.
Review TCFD and ISSB’s role in regulatory and voluntary disclosure.
Practice interpreting emissions graphs, metrics, and impact summaries.
Familiarize yourself with Scope 3 categories, especially financed emissions.

Master This to Lead in Climate Finance

Carbon reporting is not just a compliance exercise — it's a strategic imperative. In the SCR exam, this topic tests your technical skills, strategic thinking, and real-world application of climate risk frameworks. Beyond the exam, it positions you to lead in ESG roles, sustainable finance, and regulatory compliance.

By deeply understanding Scopes 1, 2, and 3, financed emissions, and the relevant standards, you're preparing not just to pass the exam, but to shape the future of climate-aware financial decision-making.

Enhance your GARP SCR exam preparation with our comprehensive study packages —get started today to achieve success in 2025 exam window!