Unpacking Scope 3: Category 8 – Hidden emissions in Upstream Leased Assets

GHG Scope 3 Upstream activites | Category 8 – Leased assets

Let’s spend a couple of minutes on the GHG emissions associated to “leased assets”, which is of a paramount importance for the real estate industry. In fact, for most organisations this is still the only Scope 3 material topic in their corporate GHG reporting, beyond Scopes 1 & 2 of course.

First of all, let’s shed some light about the difference between Upstream Leased Assets (Category 8) and Downstream Leased Assets (Category 13). Yep, although many companies, especially in buildings’ construction and asset management, very often simply refer to “leased assets” as their only Scope 3 GHG emissions category, we would like to remind our blog readers that actually there are TWO separate categories that need to be taken into account and that shouldn’t be confused with each other.

Also the term “assets” goes beyond real estate assets, as it includes rented equipment – another misleading occurrence that is often overlooked.

First things first though, let’s start with some basic definitions and relevant context.

Many organisations lease offices, warehouses or equipment rather than owning them. While these assets may not appear on the balance sheet in the same way as owned property, they still generate GHG emissions that sit within their value chain.

Scope 3 Category 8: Upstream Leased Assets captures the emissions from assets that your company uses but does not own, and that are not already included in Scope 1 or Scope 2.

What does Category 8 include?

This category covers emissions from leased assets used in day-to-day operations, such as:

• Rented office spaces
• Leased warehouses or storage facilities
• Rented equipment like printers, forklifts or machinery

If your company does not have operational control over the asset’s energy use (e.g. a serviced office where the central plant is under landlord’s responsibility and users may only adjust indoors temperatures within their workplace), these emissions typically fall under Scope 3 Category 8.

Why it matters

For service-based and office-heavy organisations, leased assets can account for a significant share of energy consumption. Measuring these emissions helps companies:

• Improve transparency across shared or rented spaces
• Engage landlords on energy efficiency and renewable sourcing
• Make more informed leasing and location decisionsEnsure regulatory compliance with legislation such as ESOS or SECR in the UK

Understanding Category 8 also supports better long-term planning, especially as building performance standards tighten across markets.

How to reduce emissions from Upstream Leased Assets

• Request energy and emissions data from landlords
• Prioritise buildings with strong energy performance ratings
• Encourage energy-efficient lighting, heating and equipment
• Include sustainability criteria in future lease negotiations

Leased assets: Category 8 vs Category 13

So, what’s the difference then between Upstream and Downstream Leased Assets? The distinction is simple:

• Category 8 (Upstream Leased Assets) refers to assets that your company leases and uses but does not own.
  Example: Office space that your company rents for its employees: their monthly rents represent a significant item in the company’s P&L but the asset is not part of the organisation’s balance sheet.
• Category 13 (Downstream Leased Assets) instead refers to assets that your company owns but leases out to others.
  Example: A building that your company owns but rents out to tenants – hence a real estate financial asset that generates ongoing revenue for the organisation.

We’ll explore Category 13 – Downstream Leased Assets in more detail in an upcoming article as part of this Scope 3 series, for example what happens when during the reporting period the space intended for lettings remains vacant: how should the associated GHG emissions be classified in that instance? When to take into account operational control instead of financial control?

Key takeaway

Leased assets are part of your operational footprint, even when ownership is shared. Understanding Category 8 ensures your emissions’ reporting reflects how your business truly operates.