There are many reasons why companies must disclose greenhouse gas (GHG) emissions across their value chain. 

Beyond the Corporate Sustainability Reporting Directive (CSRD) and its European Sustainability Reporting Standards (ESRS), disclosures are also required or expected under the Science Based Targets initiative (SBTi), EcoVadis, the upcoming VSME standard, ISSB, and GRI. 

On top of that, robust Scope 1–3 calculations can help companies access better financing terms from banks and investors.

One of the biggest questions sustainability managers face is how to calculate those emissions in practice: should you use an activity-based method, a spend-based method, or both?

This article explains the two approaches, their strengths and weaknesses, and how to decide which is right for your business. It also shows how a hybrid approach can support Scope 1–3 reporting that is both compliant and audit-ready.

What is the activity-based carbon calculation method?

The activity-based method, as defined by the GHG Protocol, uses measured activity data (e.g. liters of fuel consumed, tonnes of waste generated, or kWh of electricity purchased) multiplied by an appropriate emission factor.

Example:

According to commonly used emission factor datasets such as DEFRA (UK), diesel combustion releases 2.68 kg CO₂e per liter. So, if your company buys 10,000 liters of diesel, you multiply this by the diesel emission factor (2.68 kg CO₂e per liter, per DEFRA) to get the associated emissions.

Strengths:

• High accuracy and granularity.
• Aligns closely with reduction targets, since results reflect actual operational data.
• Preferred for audit-proof reporting under ESRS E1, as well as frameworks like SBTi (which requires activity-based data to show real decarbonization), ISSB, GRI, and EcoVadis, all of which push companies toward more granular, verifiable reporting.

Limitations:

• Requires detailed primary data collection, which can be time-consuming and resource-intensive.
• Can be challenging for Scope 3 categories where suppliers are unwilling or unable to share data.

What is the spend-based carbon calculation method?

The spend-based method, also covered in the GHG Protocol’s guidance, calculates emissions by multiplying the financial value of a purchase by a sector-average emission factor from an economic input–output database.

Example:

If your business spends €100,000 on IT equipment, you multiply this by an emission factor for “manufacturing of computer and electronics” to estimate emissions.

Please note, the emission factor database allows one search and beyond that you need to make a free account.

Strengths:

• Easy to implement, even with limited data.
• Useful for quickly screening all 15 Scope 3 categories to identify carbon hotspots.
• Low upfront resource requirement, especially helpful for SMEs.

Limitations:

• Relies on average sector values, which may not reflect supplier-specific performance.
• Not ideal for tracking reductions over time, since emissions may fall without spend declining.
• Less transparent and harder to defend during audits.
  
  

Certain GHG Protocol categories lend themselves better to one approach than the other. For instance, Scope 1 fuel use and Scope 2 purchased electricity should always be activity-based, while purchased goods and services or capital goods often start as spend-based until supplier data matures.

When should businesses use spend-based vs. activity-based methods?

The right choice depends on your business’ data maturity, supplier engagement, and reporting requirements:

• If you’re an SME with limited supplier data it’s best to start with spend-based to cover all categories, then gradually replace it with activity data for major suppliers.
• If you’re part of a multinational with mature procurement systems, make sure to prioritize activity-based for high-impact Scope 3 categories such as purchased goods, transport, and use-phase emissions.

Other decision factors include:

• Regulatory expectations: Under ESRS E1, auditors expect activity data where feasible.
• Stakeholder needs: Large customers increasingly require supplier-specific data. Take a look at why your biggest customers now expect Scope 3 reporting.
• Resources and timelines: Spend-based may be more practical for first-time reporters with limited time before CSRD disclosures.

Can businesses combine both methods for Scope 1–3 reporting?

Yes. Both the GHG Protocol and ESRS E1 acknowledge that hybrid approaches are not only allowed but encouraged.

Example of a hybrid approach:

• Spend-based for upstream purchased goods and capital goods.
• Activity-based for direct operations, energy use, and logistics.
  

This ensures comprehensive coverage while focusing accuracy where it matters most. Businesses should also set a recalculation policy, updating spend-based estimates with activity data as supplier engagement improves.

What are the implications for CSRD and audit-proof reporting?

CSRD requires companies to report in line with ESRS E1, which sets expectations for data quality, traceability, and auditability. Auditors will scrutinize whether emission factors are documented, data sources are consistent, and assumptions are transparent.

• Activity-based data is generally preferred, as it provides a clear link to actual operations.
• Spend-based data is accepted but considered lower-quality and should be phased out over time where possible.
• Platforms like Coolset ensure audit readiness by applying TÜV-certified methodologies, logging emission factor sources, and maintaining automated audit trails.

Checklist: How to choose the right calculation method for your business

1. What data do you have?
   
   • Only invoices or financials → start with spend-based.
   • Detailed operational data → use activity-based.
     
     
2. What’s your reporting scope?
   
   • Full Scope 1–3 disclosure under CSRD → combine methods.
     
     
3. What’s your timeline?
   
   • Tight deadline → start spend-based, then refine.
     
     
4. What resources are available?
   
   • Dedicated sustainability team → invest in activity-based.
   • Limited capacity → rely more on spend-based initially.
     
     
5. What’s your evolution path?
   
   • Plan to shift from spend- to activity-based as supplier engagement matures.
     

For finance teams preparing sustainability data, take a look at how to prepare accounting for sustainability reporting.

So, what’s the final verdict?

The choice between activity-based vs. spend-based carbon calculation isn’t binary. Most businesses will use both, applying spend-based for early coverage and activity-based for accuracy and audit-readiness. Under CSRD, the expectation is clear: move toward supplier-specific, traceable data wherever possible.

By starting with spend-based and building toward activity-based, sustainability managers can meet today’s reporting obligations while laying the foundation for credible, future-proof disclosures.

Ready to simplify carbon calculations?

Most companies end up using a mix of spend-based and activity-based data, but managing that in spreadsheets is messy and tough to defend in an audit. Coolset applies TÜV-certified methodology to handle both in one place, so you stay CSRD-compliant without the stress. 

Talk to Coolset about your carbon calculation needs today.

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Frequently Asked Questions (FAQs)

Let’s take a look at some of the most commonly asked questions when it comes to carbon calculation methods.

Which method is more accurate for Scope 3 emissions?

Activity-based is more accurate because it reflects supplier-specific data, while spend-based relies on averages.

Is spend-based reporting accepted under CSRD?

Yes, but ESRS E1 expects companies to improve data quality over time. Spend-based is acceptable as a starting point but should be supplemented or replaced with activity data.

Can companies switch from spend-based to activity-based later?

Yes, and this is encouraged by the GHG Protocol. Companies should set a clear recalculation policy to ensure comparability when methods change.

How do auditors view spend-based vs. activity-based data?

Auditors prefer activity-based because it provides transparency and traceability. Spend-based is harder to justify unless supported by robust emission factor documentation.

What’s the role of emission factor databases in each method?

Both approaches require emission factors. Spend-based relies on input–output databases, while activity-based uses sector- or process-specific datasets such as DEFRA or ecoinvent.