Carbon Footprint Reporting for SMEs: Scope 1 and 2

Scope 1 and Scope 2 are the parts of a business’s carbon footprint it directly controls — and they’re the numbers most often requested in customer due diligence questionnaires, ESG surveys, and supplier qualification frameworks. Getting them right is not complex for most SMEs. Getting them wrong — or being unable to produce them at all — is increasingly a commercial problem, not just a reporting gap.

What Scope 1 and Scope 2 Actually Mean

Scope 1 emissions are direct: they come from combustion that occurs within your own operations. Natural gas burned in your boiler, diesel in your company vehicles, LPG in your process equipment, petrol in your fleet — all of these are Scope 1. You’re burning the fuel yourself, and the CO₂ released is directly attributable to your business. The calculation uses emissions factors published by the UK government (BEIS/DESNZ) annually. For natural gas, the current factor is approximately 0.183 kg CO₂e per kWh. For diesel, it’s approximately 2.52 kg CO₂e per litre.

Scope 2 emissions are indirect: they come from the electricity your business purchases and consumes. You’re not burning anything — the combustion (or renewable generation) happened at the power station. But the generation of that electricity produced emissions, and those emissions are attributed to the consumers who purchased it.

Market-Based vs Location-Based Scope 2

The GHG Protocol Corporate Standard provides two methods for calculating Scope 2, and the distinction matters for businesses on green tariffs. The location-based method uses the average emissions factor for the national grid — in the UK, currently approximately 0.207 kg CO₂e/kWh. Every kilowatt-hour you consume produces 0.207 kg of CO₂e, regardless of what tariff you’re on.

The market-based method uses the emissions factor of your specific contracted supply. If you’re on a REGO-backed renewable electricity tariff, the market-based emissions factor is zero — because your electricity is contractually attributed to renewable generation with no associated CO₂e. The practical implication is direct: switching to a REGO-backed green tariff reduces your market-based Scope 2 emissions to zero without changing your physical consumption. This is why the choice of energy contract is a sustainability reporting decision as much as a cost decision.

SECR: When Reporting Becomes a Legal Obligation

The Streamlined Energy and Carbon Reporting (SECR) framework requires large UK companies — those qualifying as large under the Companies Act (250+ employees, or £36m+ turnover and £18m+ balance sheet total) — to report their energy consumption and associated greenhouse gas emissions annually in their directors’ report. SECR requires disclosure of: UK energy consumption in kWh, Scope 1 and Scope 2 GHG emissions in tonnes CO₂e, an intensity ratio, and a description of energy efficiency actions taken during the year.

For SMEs below the SECR threshold, mandatory reporting doesn’t apply — but voluntary disclosure is increasingly expected. The driver isn’t regulatory; it’s commercial. Major customers, particularly in retail, construction, and professional services, are increasingly including carbon reporting requirements in their supplier qualification processes.

The Procurement Connection: Your Contract Determines Your Number

The link between energy procurement and Scope 2 reporting is exact and immediate. Switch from a standard electricity contract to a REGO-backed renewable tariff, and your market-based Scope 2 figure drops to zero on the day the new contract starts. Renew a well-negotiated contract with a better unit rate, and your costs fall — if your procurement has also driven consumption reduction, Scope 1 actually falls too. This is why we tell clients that energy procurement is sustainability strategy, not just cost management. The numbers are the same numbers.

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FAQ

We’re a small business with five employees. Do we really need to report carbon emissions? Not legally — SECR doesn’t apply to you, and there’s no other mandatory carbon reporting obligation for a business of that size. But the commercial pressure is real and growing. If you supply to large retailers, public sector bodies, or multinational businesses, you may find carbon disclosure requirements appearing in supplier questionnaires within the next one to two years. Building the habit of calculating and recording your Scope 1 and 2 figures now, even informally, means you’re not starting from scratch when the request arrives.

Our company has a fleet of vehicles. How do company car and van emissions fit into the Scope categories? Fuel burned in vehicles owned or operated by your business is Scope 1. If your drivers use their own vehicles and are reimbursed for mileage, those emissions fall into Scope 3 (Category 6: business travel). Electric company vehicles are more nuanced: charging them at your premises produces Scope 2 emissions; charging them at public charge points sits in Scope 3.

We submitted carbon figures to a customer last year and they’ve now asked for a more detailed breakdown by emission source. What does that mean in practice? It means they want more granularity than a single Scope 1 and Scope 2 total. A source-level breakdown would typically separate: Scope 1 into gas combustion, process fuel combustion, and fleet fuel; Scope 2 into electricity (possibly split by site). This level of detail requires that you’ve been tracking consumption by source rather than just reading from bills — but it’s manageable with 12 months of organised energy data.