"Scope 4" is a term that is used frequently, but which no standard defines. Behind the term lies something more concrete: avoided emissions, i.e. the emission reductions that occur at the customer's end when they use a company's product or service. A growing number of companies want to communicate their climate benefits, but without the right methodology, they risk being accused of greenwashing. This article clarifies what avoided emissions are, how they are calculated, and what is required for the reporting to hold up under scrutiny.
An increasing number of listed companies report avoided emissions. For companies whose products contribute to the climate transition, traditional emissions reporting doesn't always give the full picture of climate impact. Investors and customers are therefore increasingly demanding information about the climate benefit created by products or services that replace more emission-intensive alternatives at the customer's end. Avoided emissions fill that gap, and for companies that calculate and communicate them according to current methodology, this can turn into a competitive advantage.
At the same time, the absence of a formalised standard is a problem. Without clear rules for how avoided emissions should be calculated and communicated, the risk of greenwashing accusations is tangible, and for a listed company, that reputational risk is nothing to take lightly. It is therefore important to be careful about which methodology is used in the calculation.
What is Scope 4?
The term Scope 4 is often used as a synonym for avoided emissions, but is actually misleading since it implies that avoided emissions are a fourth category within the same system as Scope 1, 2, and 3. Unlike Scope 1, 2, and 3, which are actual emissions that have been caused and can be measured, avoided emissions are not included in a company's own emissions accounting, but instead describe emission reductions that occur at customers or other actors in the value chain as a result of its products or services. Avoided emissions are an estimate of what would have happened if the customer had chosen a more emission-intensive alternative, and are in other words hypothetical, not actual, emission reductions. Therefore, they cannot be used to offset or compensate for the company's own emissions. It is this confusion about offsetting and compensation that most often results in incorrect reporting.
The World Business Council for Sustainable Development (WBCSD), which has produced the leading guidance in this area, therefore recommends the term avoided emissions to be used instead, and this is the term used throughout this article.
There are two main types of climate solutions that enable avoided emissions:
- The product replaces a more emission-intensive product (end-use solution):
The product is consumed directly by the end user in its current form and replaces a more emission-intensive alternative. The comparison is made against the most likely alternative without the solution, for example avoided emissions from using an electric car instead of a petrol car, a heat pump instead of a gas boiler, or LED lighting instead of incandescent bulbs. - The product enables emission reductions elsewhere (intermediate solution):
The product is an input in the manufacturing of other products or services and requires further processing or is part of another solution before it reaches the end user. It does not directly replace a more emission-intensive alternative at the end user but instead creates the conditions for emission reductions further down the value chain, for example batteries for electric cars, turbine blades for wind turbines, or software that optimizes energy use in buildings.
The difference is that the end-use solution itself generates the emission reduction, while the intermediate solution enables someone else downstream in the value chain to do so.
Frameworks and Organizations
The GHG Protocol is the global framework that defines Scope 1, 2, and 3. The framework has not, however, formalised Scope 4, and there is thus no overarching standard describing how avoided emissions should be calculated and reported. Instead, the World Business Council for Sustainable Development (WBCSD), the World Resources Institute (WRI), and other organisations have filled the vacuum with their own guidance.
World Resources Institute (WRI)
WRI is the organisation that coined the term Scope 4 in 2013 as an informal extension of the GHG Protocol. In 2019, WRI published a methodology analysis that mapped the key challenges in calculating and reporting avoided emissions, including the choice of reference scenario, system boundaries, and how results should be aggregated at portfolio level. However, WRI never formalised its own framework, and WBCSD has since filled that vacuum with its own guidance.
World Business Council for Sustainable Development (WBCSD)
WBCSD is a global organisation with around 200 member companies that develops guidance and standards for sustainable business. In 2023, they produced the first version of guidance on avoided emissions, and after a period of open consultation and revision together with industry organisations, the second version was released in July 2025 (Guidance on Avoided Emissions). The guidance on avoided emissions covers four main areas: how avoided emissions are defined and where the boundaries lie, how a claim is assessed as credible enough to be communicated, a step-by-step methodology for calculating avoided emissions, and finally how the result is reported and communicated in a way that enables independent verification.
The Three Eligibility Gates According to WBCSD's Guidance
Prior to beginning the calculation, a company needs to ensure that the solution passes three eligibility gates. Gate 1 concerns the company's climate action: the company must have a climate strategy with emissions targets aligned with the 1.5°C goal. Gate 2 concerns the solution's climate benefit: it must be supported by the latest climate science and must not be linked to the extraction, production, or sale of fossil fuels. Gate 3 concerns causality: the solution must achieve measurable and significant emission reductions that are directly attributable to that specific solution. Only once a solution has passed all three gates is it justified to proceed with the calculation.
Calculation – Five Steps According to WBCSD's Guidance
WBCSD's guidance takes, as its starting point, the GHG Protocol's six principles for climate calculation and reporting: transparency, conservativeness, accuracy, relevance, completeness, and consistency. These principles also permeate WBCSD's methodology for calculating avoided emissions, which is built on the following five steps:
Step 1 – Identify the timeframe: Decide whether the solution's avoided emissions should be calculated year by year or as a forward-looking projection. The timeframe should be consistent with how the solution's emissions are reported in the company's other climate reporting.
Step 2 – Define the reference scenario: The reference scenario describes what would have happened without the solution, i.e. the most likely alternative that the solution replaces. The choice depends on how and where the solution is used.
Step 3 – Assess the solution's and reference scenario's life cycle emissions: Calculate emissions across the entire life cycle for both the solution and the reference scenario.
Step 4 – Assess the solution's avoided emissions: The difference in emissions between the solution and the reference scenario, across the entire life cycle, gives the avoided emissions, measured in tonnes of CO2e.
Step 5 – Validate contribution legitimacy: Check that the calculation meets WBCSD's criteria for a credible and well-founded claim about avoided emissions.
Example – heat pump compared to gas boiler: A property owner installs a heat pump instead of continuing to use a gas boiler. The reference scenario then becomes continued use of the gas boiler. Life-cycle emissions for both alternatives are calculated, including manufacturing, use, and end-of-life. If the heat pump gives rise to 5 tonnes of CO₂e over its lifetime while the gas boiler would have caused 20 tonnes of CO₂e, the avoided emissions amount to 15 tonnes of CO₂e. The result, however, depends on the reference scenario being realistic and the same system boundaries being used for both alternatives.
Two Methodological Approaches for Calculating Avoided Emissions
When calculating life-cycle emissions, i.e. emissions from the product's life cycle, from raw material extraction to end-of-life, for the solution and the reference scenario, two different methodological approaches can be used: the attributional or the consequential approach.
The attributional approach compares the life-cycle emissions of the solution with the life-cycle emissions of the reference scenario, based on actual activity data and average emission factors. It is a relatively practical method that most companies use today.
The consequential approach goes further and attempts to capture systemic effects that arise as a result of the solution being introduced to the market. This can, for example, involve rebound effects, where a more energy-efficient product leads to increased use, or the solution affecting the market by causing other actors to adapt their behaviour. The consequential approach is methodologically more complete but also more resource-intensive, and the necessary data is often lacking.
WBCSD's guidance allows both the attributional and consequential approaches, and highlights that they can be combined. This can be done, for example, by using the attributional approach to calculate life-cycle emissions and the consequential approach to assess rebound effects. In practice, this means that most companies use the attributional method, but with a well-justified and conservative reference scenario that takes into account what the customer would realistically have done without the solution. The reference scenario should therefore not consist of the worst conceivable alternative but should be chosen so that it gives a fair picture of the actual climate benefit.
Once the calculation has been made, what remains is how the result should be reported and communicated.
How Should the Result Be Reported and Communicated?
Claims about avoided emissions must follow 14 requirements according to WBCSD's guidance, which can be summarized in three overarching principles.
Separation: Avoided emissions must always be reported separately from the company's own emissions in Scope 1, 2, or 3, from carbon sinks, and from climate compensation such as carbon credits. ESRS E1 Climate Change is explicit on this point: climate targets must be gross-based, meaning that GHG reductions, carbon credits, and avoided emissions may not be included as a way of achieving the targets. SBTi (Science Based Targets initiative) says the same. Avoided emissions may not be used to compensate for a company's own emissions or to claim that a company or product is climate neutral or has Net Zero emissions. This applies regardless of whether the company is subject to CSRD or has set climate targets under SBTi. Offsetting avoided emissions against a company's own emissions goes against fundamental principles in WBCSD's guidance.
Transparency in the calculation: The company must disclose which time horizon and reference scenario were chosen and why, the life-cycle emissions for both the solution and the reference scenario, the assumptions and limitations underlying the figures, and an assessment of the uncertainty in the result.
Contextual information: The company must state what proportion of total revenue the solutions with avoided emissions represent, whether the results have been verified by an independent party, and whether any negative side effects or rebound effects have been identified. In addition, the company must report whether restatements have occurred due to significant changes. Avoided emissions should be reported in a separate section from the emissions accounting in the sustainability report.
Common Pitfalls and How to Avoid Them
Avoided emissions have long been used in a misleading way. The most common issue is that companies choose an unrealistic reference scenario to make the outcome appear as large as possible, for example comparing their solution to a fossil alternative that isn't the actual alternative in the relevant market. Another common mistake is using avoided emissions to offset a company's own emissions and claim climate neutrality or Net Zero at the company or product level.
This goes against frameworks such as ESRS and the GHG Protocol.
It also happens that companies report avoided emissions for products that have no direct causal link to actual emission reductions at the customer's end. What all these mistakes have in common is that they undermine credibility, not just for the individual company, but for the concept of avoided emissions as a whole.
Different Starting Points Depending on Industry
Avoided emissions are not relevant to all companies in the same way. For a company whose business model is built on replacing more emission-intensive alternatives, such as wind turbine manufacturers, heat pump producers, or suppliers of electrified vehicles, the question is not whether they should report avoided emissions, but how to do so credibly.
Hexagon, a global technology and software company, is one example. Unlike companies whose products replace fossil alternatives, more methodological rigor is required to show how software solutions avoid emissions at the customer's end. Hexagon follows WBCSD's guidance and has established three qualifying criteria that every solution must meet before avoided emissions can be reported. They report selected customer cases, are transparent that the figures represent a lower bound of the actual climate benefit, and state that avoided emissions up to and including 2025 amount to 49 million tonnes of CO2e. The company clearly separates avoided emissions from its own SBTi-validated climate targets.
Vestas is another illustrative example, a company whose products directly replace fossil alternatives. The company reports avoided emissions separately from its Scope 1 and 2 emissions, and states that the turbines produced during 2025 are expected to avoid 463 million tonnes of CO2e over their lifetime.
For companies with a more mixed product portfolio, the picture is more complex. Some products may give rise to avoided emissions, others not. Communicating climate benefit at group level therefore requires consistent methodology per product and careful handling of aggregation. For service companies and consumer goods companies, avoided emissions are in most cases not applicable. Attempting to claim climate benefit without a clear causal link to actual emission reductions at the customer's end risks being classified as misleading marketing.
From 27 September 2026, the new EU directive EmpCo (Empowering Consumers Directive) will begin to apply within the EU, tightening the requirements on environmental claims aimed at consumers and increasing the risk of enforcement action against misleading communication. Even though avoided emissions are primarily communicated to investors and B2B customers, it is worth keeping in mind. Read more about the directive on our website.
Summary
Avoided emissions lack a formalised standard but are increasingly used to highlight the climate benefit of products and services. For companies whose products contribute to the climate transition, avoided emissions can be a powerful complement to traditional emissions reporting. At the same time, the absence of a standard places high demands on methodology, transparency, and documentation. The greater the climate benefit being communicated, the more important it becomes that the calculations are based on reasonable assumptions and can withstand independent scrutiny.
AVA Corporate Communications is a leading agency in financial communications, investor relations, and sustainability reporting. We help listed companies navigate complex regulatory frameworks, including the revised ESRS, CSRD, CSDDD, and the EU Taxonomy – from strategic frameworks and double materiality assessments to structuring, content production, design, and production of complete sustainability reports, including reporting on avoided emissions. Contact us to discuss how we can support you ahead of the upcoming reporting year.
