by In today’s world, companies are no longer measured solely by their profits or losses; their commitments to environmental, social, and governance (ESG) have acquired significant strategic weight. A key concept in this context is a recurring question: What is meant by “top” and “bottom” in ESG? This question is not merely an academic inquiry; it provides an introduction to understanding how emissions are calculated and their impact across the value chain. This article aims to clearly clarify this concept, presenting practical examples, explaining Scopes 1, 2, and 3, and analyzing the role of upstream and downstream emissions in sustainability. We will also highlight measurement challenges and the importance of these concepts for investors and policymakers, while linking them to the global innovation discussed at IDCE 2025.
What is upstream and downstream in ESG?
Understanding upstream and downstream is essential for clearly reading sustainability reports. The concept is simple, yet it carries profound implications for the value chain.
- Upstream (source):
Includes activities prior to direct production, such as raw material extraction and electricity generation, which determine product emissions.
- Downstream (downstream):
Includes activities after production, such as transportation, distribution, consumer use, and disposal or recycling, which are most visible to society.
So, distinguishing between upstream and downstream helps companies and investors understand the product life cycle from start to finish, and makes environmental transparency more comprehensive.
Understanding ESG Emissions and Scopes
Emissions are typically divided into three basic scopes used globally in reporting. These scopes illustrate where upstream and downstream emissions fall from an ESG perspective.
- Scope 1:
Direct emissions from company activities, such as gases from factories.
- Scope 2:
Indirect emissions from energy consumption, such as electricity and heating.
- Scope 3:
Emissions across the supply chain and use until product disposal.
By combining the three scopes, it becomes easier to see how upstream and downstream relate to each other within a comprehensive picture.
Practical examples of upstream and downstream
To understand the question: What is an example of upstream and downstream? It’s important to consider real-world examples from different sectors.
- Upstream:
A car company buys steel, and the emissions from extracting and smelting the steel at suppliers are counted as part of its footprint, even though they are invisible to the consumer.
- Downstream:
When using the car after it’s sold, the consumer produces hundreds of kilograms of carbon dioxide annually, which are recorded as downstream in the ESG.
- Example:
Oil and gas: Upstream includes drilling and initial transportation, while downstream is the combustion of the fuel at the end consumer.
Upstream and downstream are tangible realities that define corporate responsibility for their environmental and social impacts, not just theoretical concepts.
Lifecycle Perspective and Sustainability
For a broader understanding, upstream and downstream can be linked to the concept of a product’s life cycle. What is upstream and downstream in sustainability? It simply means tracing the impact from cradle to grave.
- What is the downstream lifecycle?
It begins from the moment the product leaves the factory, all the way through to its use, recycling, or disposal.
- What is the downstream process?
It includes transportation to stores, sales, and then waste management. Each stage carries emissions or social impacts that must be measured.
- What is an example of a Scope 3 downstream emissions?
Emissions from operating electrical appliances after purchase fall into this category.
From this perspective, we see that upstream and downstream complement each other to paint an accurate picture of the overall environmental footprint.
Challenges in Measuring Impact
Despite the clarity of the theoretical framework, companies face practical difficulties in measuring upstream and downstream impact.
- Data Collection and Reliability:
Obtaining accurate data from suppliers is complex, especially when suppliers are distributed across multiple countries and do not adhere to the same disclosure standards.
- Complex Supply Chains:
The longer and more intertwined the supply chain, the more difficult it is to track emissions.
- Lack of Standardization:
Reporting standards vary from country to country and from organization to organization, making comparisons between companies difficult.
- Balancing Transparency with Competitive Advantage:
Some companies are afraid of full disclosure for fear of revealing their trade secrets or strategies.
Overall, these challenges make it essential to have agreed-upon global standards, which IDCE 2025 seeks to develop.
The Importance of ESG for Investors and Policymakers
Focusing on upstream and downstream is no longer a cosmetic option for companies; it’s a necessity demanded by investors and policymakers.
- Investors evaluate companies:
through ESG reporting, which reveals full responsibility across the value chain, to determine transparency and sustainable practices.
- Adherence to global reporting standards:
such as the GRI, ISSB, and TCFD enhances companies’ credibility and increases investor confidence in their accuracy and transparency.
- Companies that manage :
their upstream and downstream consciously
achieve greater adaptability to market changes and environmental legislation, supporting their long-term sustainability.
This demonstrates that upstream and downstream are no longer just environmental concepts, but rather strategic tools in risk management and investment.
Upstream and Downstream Sustainability Strategies
Leading companies are not content with measuring, but rather are adopting clear strategies to manage their impact both upstream and downstream.
- Upstream strategies:
include engaging suppliers in sustainability plans, choosing less polluting raw materials, and adopting renewable energy sources.
- Downstream strategies:
include redesigning products to be recyclable, raising consumer awareness of sustainable use, or adopting circular economy models.
Combining these two strategies gives companies a real competitive advantage and demonstrates their commitment to sustainability to investors and customers alike.
Connecting ESG to the Systems Development Life Cycle (SDLC)
It may seem strange to link ESG to SDLC, but the similarities are profound. What does SDLC mean? It stands for System Development Life Cycle.
- The seven phases of SDLC are:
planning, analysis, design, development, testing, implementation, and maintenance. Each phase represents a step in the product life cycle.
- Is SDLC a gradual or agile process?
It can be both; gradual follows strict steps, while agile is flexible. The same applies to ESG reports, which can be traditional or flexible and reactive.
- What is a bug life cycle?
Like the product life cycle, bugs also have phases: discovery, documentation, fixing, and retesting.
This connection helps us realize that sustainability is simply an integrated life cycle that requires systematic management, such as systems management.
ESG Measurement and Testing Tools
To ensure the accuracy and reliability of environmental and social reporting, concepts can be borrowed from the world of software testing.
- User Acceptance Testing (UAT):
Measures investor satisfaction with the clarity of ESG reports. If the data is not understandable, the report will not be accepted.
- Verification and Validation (V&V):
Verification ensures the system is built accurately, while verification proves that it meets its purpose. In ESG, it means collecting accurate data that reflects reality.
- Black Box Testing:
Focuses on the final results without considering how the data was collected, as some ESG investors do.
- Quality Assurance (QA) and Quality Control (QC):
QA establishes a system to prevent errors in advance, while QC reviews the results. In ESG, the former builds transparency, while the latter checks for accuracy.
These tools make ESG reporting more reliable and reduce the chances of manipulation or errors.
Industries Most Impacted by Upstream and Downstream
Some sectors clearly demonstrate the importance of upstream and downstream sectors more than others.
- Oil and Gas:
Upstream includes drilling and primary transportation, while downstream occurs when fuel is burned by consumers.
- Automotive Industry:
Upstream includes the manufacturing and assembly of components, while downstream occurs in emissions from driving.
- Consumer Products:
Upstream includes raw materials and manufacturing, while downstream occurs in use and waste management.
These examples underscore that considering upstream and downstream is not a luxury, but a true necessity in sustainability management.
IDCE 2025: The Global Sustainability Platform
IDCE 2025 will be a global event bringing together companies, governments, and investors to discuss the latest ESG strategies.
- Conference objectives:
To promote dialogue on sustainability and digital transformation and establish unified standards for ESG reporting.
- Importance of the conference:
To provide a platform for exchanging expertise across the oil and gas, automotive, and technology sectors.
- Expected outcomes:
To develop practical recommendations to support corporate sustainability and steer investments toward sustainable models.
This conference will be a fundamental step in building a future where environmental, social, and governance (ESG) are integrated with innovation.
Conclusion
After this journey, it became clear that the question: What is meant by upstream and downstream ESG? It goes beyond being a mere term to become a cornerstone of understanding sustainability. Upstream captures companies’ impact upstream, while downstream captures their responsibility after the product reaches the consumer. Across all three domains, especially Scope 3, impact can be measured more accurately. Despite the challenges in data collection and standardization of reporting, innovative strategies are opening the door to comprehensive solutions. IDCE 2025 will be the catalyst for this transformation, as experts convene to build global standards that achieve greater transparency and place sustainability at the heart of the economy. Combining upstream and downstream is not just a theoretical framework, but a tool for building a responsible and balanced green future.