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Spend-Based vs Activity-Based Emissions Reporting

Scope 3 is the part of the emissions inventory that many reporters have not previously had to disclose. AASB S2 provides entities with relief in their first annual reporting period, and as Treasury’s consultation paper notes, Scope 3 disclosures only become mandatory in the second reporting year. That runway is shorter than it looks, and one of the first decisions you will need to make is how to calculate the numbers. 

For that, there are two main approaches: spend-based and activity-based. Activity-based data is generally preferred because it provides a more specific picture of actual emissions. However, collecting reliable supplier data takes time, and not every organisation is mature enough to do it across its entire value chain. 

For entities still developing their reporting maturity, a hybrid approach using activity-based data where it is available and spend-based estimates for the rest, is the most sensible place to start. Importantly, hybrid should be a deliberate transition strategy, not a decision to rely on spend-based estimates indefinitely. 

The Two Approaches, Explained 

Spend-based estimation involves multiplying the amount spent in a particular category by an average emissions factor for that sector. It is relatively quick and uses data that finance teams already have on hand. 

Activity-based estimation starts with physical quantities or supplier-reported data, such as kilograms purchased, kilometres freighted or emissions reported directly by a supplier. It takes longer but is closer to what actually happened. 

In GHG Protocol terms, activity-based is our shorthand for the supplier-specific method, while spend-based is a separate method in its own right. 

Both have a role in Scope 3 reporting. The question is, which provides the most appropriate and reliable data for each emissions category?

What AASB S2 Actually Expects 

AASB S2 does not prescribe a particular calculation method, so spend-based estimates are an available option. Entities must disclose their measurement approach, inputs and assumptions, and use all reasonable and supportable information available without undue cost or effort when selecting them. 

However, the standard points towards more specific and reliable data. Entities must prioritise inputs based on four characteristics: direct measurement, data from specific value-chain activities, timely data representing the relevant jurisdiction and technology, and verified data. 

Entities must also disclose information that enables users to understand the extent to which their Scope 3 emissions are measured using inputs from specific activities within the entity’s value chain, and the extent to which they are measured using puts that are verified. Treasury’s consultation paper further notes that measurement uncertainty must be disclosed where estimates are used.   

In practice, this means spend-based estimates are permitted but should not be the default where better information is reasonably available. 

Why Activity-Based is Better 

Spend-based estimation is fast, but blunt. It applies a sector average, so it cannot reflect the actual practices of a specific supplier. The GHG Protocol also acknowledges that the economic input-output data underpinning spend-based methods generally lacks the specificity and accuracy of process-based approaches. 

Activity-based data is generally more accurate, provided the underlying supplier data is reliable. The GHG Protocol is clear, however, that greater specificity does not automatically mean greater accuracy. 

It also provides a stronger foundation for assurance. A figure supported by traceable records gives an auditor more to test than a sector average applied to dollars. Reasonable assurance is legislated to apply from 1 July 2030, although Treasury has consulted on changing this requirement. Treasury’s consultation paper also notes that assuring estimated Scope 3 data to a reasonable assurance standard can significantly increase assurance costs. 

Why a Hybrid Approach is the Right Start 

For entities with lower levels of reporting maturity, moving to a fully activity-based approach from day one is rarely realistic. 

The GHG Protocol’s technical guidance supports a staged approach. It recommends initial screening because collecting supplier data can add considerable time and cost and allows different methods to be used for different purchased goods and services within the same category. 

In practice, a hybrid approach means using activity-based data for the suppliers and categories where it is available and spend-based estimates or other secondary data where supplier-specific information is not reasonably available. The GHG Protocol’s hybrid method follows a similar logic for purchased goods and services, combining supplier-specific activity data, where available, with secondary data to fill the gaps. 

Importantly, hybrid is not simply a permanent combination of two calculation methods. It is a structured approach to improving data quality over time. Spend-based estimates establish an initial picture where better information is not yet available, while supplier engagement and improved data collection progressively increase the proportion of emissions calculated using activity-based information. 

This is consistent with AASB S2’s ‘without undue cost or effort’ requirement and provides a pathway towards more specific and reliable reporting. 

The modified liability period prevents private legal action over statements about Scope 3 emissions in sustainability reports for financial years commencing between 1 January 2025 and 31 December 2027. It also gives reporters some room to learn by doing. However, it should not be a reason to defer improving data quality. 

We have already covered Treasury’s recent consultation, which closed on 2 October 2026. It explored the same trade-off, although its proposals have not been approved as changes to the requirements. 

Treat Spend-based as Scaffolding  

ReGen recommends starting with a Readiness Assessment of your data and supplier maturity. Then complete a Scope 3 Materiality Assessment across all 15 categories, using spend-based screening only where spend data is meaningful and the GHG Protocol provides a spend-based method, such as purchased goods and services and capital goods. This helps identify relevant categories, where emissions are concentrated and where better data collection will have the greatest impact. 

Prioritise supplier engagement, starting with the largest suppliers and categories contributing most significantly to your emissions inventory. Seek supplier-specific activity data where possible and use secondary data to fill gaps. 

Track what proportion of your Carbon Inventory is based on supplier-specific activity data, other secondary data and spend-based estimates. Set measurable targets to improve these proportions over successive reporting periods. 

As supplier data improves, replace spend-based estimates methodically. Keep boundaries, base year and emissions factor sources consistent from year to year, but update the boundaries and base year when the business changes materially, for example when new assets are purchased or calculation methods change significantly. Avoid double counting and document each decision in your Data Management and Basis of Preparation. 

This creates a defensible starting point and a clear record of how reporting methodology improves over time. Allens reported in June 2026 that audit firms had challenged a number of entities’ Scope 1 and 2 inventory approaches. Reporters should expect similar scrutiny of Scope 3. 

The Point of Getting This Right  

Activity-based data is where you want to end up. Hybrid is how you get there without waiting for perfect data. A documented plan to progressively reduce reliance on spend-based estimates is what makes the journey credible. 

The objective is not simply to produce a Scope 3 number for the first reporting year. It is to build an emissions inventory that becomes more accurate, transparent and defensible over time. 

This is the work ReGen does.

We help clients understand where they stand through a Readiness Assessment and Climate Materiality Assessment, build the Climate Governance, Climate Change Risk Assessment and Climate Scenario Analysis that underpin their disclosures, and establish a sound reporting foundation through Carbon Inventory work and Data Management and Basis of Preparation. 

From there, we support Emissions Reduction, Transition Planning and Net Zero, and Sustainability Report Preparation. 

We bring technical depth in policy and disclosure, established relationships across government, and a genuine understanding of how supply chains and community’s work. 

If you’re weighing up how to get started, we can help.