As the world races toward net-zero targets, one challenge looms large for governments, businesses, and investors: How to measure and manage Scope 3 emissions.

Scope 3 refers to indirect emissions across a company’s value chain — those from suppliers, customers, and everything in between. For most companies, Scope 3 is the most significant part of their carbon footprint and the hardest to track.

But the clock is ticking.

In Hong Kong, the Securities and Futures Commission, the Hong Kong Stock Exchange, and the Monetary Authority are mandating climate disclosures aligned with the International Sustainability Standards Board.

From January 2026, large-cap listed companies must report Scope 3 emissions. By 2028, all listed public-interest entities, banks, and financial institutions will be required to comply with the new Hong Kong Sustainability Disclosure Standards.

Despite these requirements, reliable Scope 3 data remain elusive. These emissions are embedded in various uses, such as power use, transportation, services, and supply chains. Most companies lack the systems or incentives to track them.

The result: a central blind spot that undermines climate action.

A group of university researchers has proposed a practical way forward through a new method called scope-based emissions (SBEs). This approach doesn’t try to capture every detail of Scope 3 but instead offers an intelligent proxy that focuses on the most critical parts.

The insight is simple: In cities like Hong Kong, it’s the service economy — banks, real estate, retail, restaurants, logistics — that consumes most of the electricity, even though the emissions show up on the books of power companies.

Traditional accounting records these emissions under Scope 1 for the energy producers, letting the users off the hook. SBEs correct this distortion by reallocating those emissions to the sectors that drive demand.

The method uses available economic and energy data to reassign responsibility. It’s based on internationally accepted definitions: Scope 1 (direct emissions), Scope 2 (energy use), and Scope 3 (other, indirect emissions).

SBEs start with Scopes 1 and 2 but then apply a set of calculations to highlight the hidden emissions that should be linked to actual users, without double-counting or relying on hard-to-get product-level data.

This gives a much clearer, fairer picture of which sectors are really responsible for emissions in an urban economy.

Applied to Hong Kong, the results are striking. The services sector, which appears low-emitting on paper, is actually responsible for over a third of total emissions once electricity use is accounted for. Behind sleek office towers, hotels, restaurants, and shopping malls lie significant but overlooked carbon footprints.

The researchers also explored policy scenarios. They found that if emissions are reassigned more accurately and sectors work together, cities can cut emissions far more effectively.

Coordinated action could reduce emissions by 37.3 percent by 2050, compared to only 19.1 percent if each sector acted alone.

Take vehicles, for example. Electrifying cars sounds green, but unless the power grid is decarbonized too, which it will be in Hong Kong over time, the emissions are just moved, not eliminated.

Similarly, making buildings more efficient has a limited effect unless we know who’s responsible for using that energy and align incentives to cut use.

This matters because climate efforts often happen in silos. Power utilities are regulated. Building owners are nudged to make upgrades. But the energy demand created by businesses and consumers — the real driver — is often ignored. That’s the blind spot SBEs help illuminate.

The beauty of SBEs is that they are scalable and don’t require complex or expensive tracking. They use readily available data and can be applied at the city or company level. For Hong Kong, which is about to enforce Scope 3 reporting, this approach could be a timely solution.

The research team behind SBEs argues that large enterprises, especially multinationals operating in global cities, should use this approach to understand and reduce emissions across their value chains. They can work with suppliers, identify energy risks and inefficiencies, and even engage employees, such as by lowering commute-related emissions.

Policymakers may want to consider how this approach could support compliance and better target climate actions.

And it’s not just Hong Kong. Cities like Tokyo, Singapore, and London face the same challenge: service-heavy economies with relatively low local production but high levels of consumption. Their current carbon accounting systems underplay their actual climate impact. SBEs offer a way to reconcile this, linking production and consumption in a practical, usable framework.

The bottom line is simple: We can’t manage what we don’t measure. While full Scope 3 accounting may be out of reach for many, we don’t have to wait. The SBEs method makes Scope 3 more visible, actionable, and fair.

As disclosure rules tighten and the pressure to cut emissions grows, cities and companies need tools that reflect the real economy. SBEs are one such tool — rigorous, realistic, and ready to use.

Hong Kong could lead the way, not just in complying with international standards, but in shaping how the world measures and manages what matters most.

Zhang Xiaoling is professor and director of the Sustainability X-Lab in the Faculty of Architecture at the University of Hong Kong. 

Christine Loh is chief development strategist at the Hong Kong University of Science and Technology’s Institute for the Environment.

The views do not necessarily reflect those of China Daily.