80% of GHG emissions are from Scope 3 and that is a staggering figure that undermines the net zero ambition of an organization that does not measure Scope 3 emissions.
Carbon Neutrality commitments made by Fortune 500 sees a three-fold rise in net-zero targets. There is a 50 % increase in the companies targeting net zero by 2030.This mounts pressure on companies to measure, manage and report the GHG emissions. Currently more than 1000 companies are actively setting emission reduction targets aligned with SBTi.
The companies have been working on decarbonizing their operations with a few having eradicated their scope 1 and scope 2 through decarbonization of their facilities, operations and purchased energy as it is easier. The Scope 3 emissions reside in an organization’s supply chain which is not directly under the company’s direct management and hence is harder to see.
Who is responsible for the emissions from the goods that a company purchases to the disposal of the products that it sells? Majority of the total corporate emissions come from scope 3 sources that most companies miss out on losing significant opportunities for improvement.
For companies concerned about profitability, Scope 3 should be taken seriously as it goes hand in hand with uncovering risks and opportunities.
What are Scope 3 emissions?
Scope 3 emissions are the indirect emissions that are not accounted in the Scope2 that makes up the company’s operations. Right from how the employees get to work, business travel or all the way to the products and services an organization buys or sells. Scope 3 emissions are broken down into upstream and downstream emissions and according to the GHG Protocol are separated into 15 categories.
Let us take an example of a fashion brand that produces clothing. The emissions from the production and processing of raw material that is cotton, emissions from the sale of the garment manufactured along with the packaging, distribution and transportation. In case the employees commute by car, bus or train or take a flight to visit customers and suppliers, they get counted as scope 3 emissions. Once the customer buys the garment, then its laundering and drying also comes under scope 3. At the end of the garment’s life, when the product is disposed or recycled they also generate emissions in the scope 3 category. Hence scope 3 emissions are important to control.
According to CDP, on an average about 80% of a reporting organization’s GHG comes from their Scope 3 emissions.
GHG Protocol uses a world standard to measure and manage GHG emissions of companies and their value chains. The ‘ purchased goods and services and use of sold products’ are the most vital.
What is the Scope 3 standard?
The Scope 3 standard is also known as the GHG Protocol Corporate Value Chain Accounting and Reporting Standard developed by the WRI and the WBCSD that provides requirements and guidance for companies preparing and reporting GHG emission inventories that include indirect emissions resulting from value chain activities. In other words, the Scope 3 standard complements and builds upon the GHG Protocol Corporate Accounting and Reporting Standard to promote completeness and consistency in ways companies account for their indirect emissions from value chains.
The Scope 3 standard groups scope 3 emissions into 15 distinct categories which are intended to provide companies a framework to understand and report the diverse activities within a corporate value chain. The Carbon Neutral certifications adopt this framework to ensure consistency of reporting between the two. All applicable scope 3 emissions should be included in the assessment of the subject’s GHG emissions as a best practice. The Protocol requires inclusion of certain scope 3 emissions like the waste generated in operations and business travel for certain certifications.
Why would businesses need to disclose Scope 3 emissions?
Measuring and reporting only Scope 1 and 2 emissions leaves businesses with over 80 % of emissions unrecorded. This leads to only a partial assessment of the entire carbon footprint which makes it difficult to evaluate the climate related risks and opportunities throughout the value chain. One cannot compare the sustainability impact of various manufacturers without looking at the value chains.
As Scope 3 falls outside the company’s direct ownership and control, organizations do not take the responsibility of these indirect emissions and choose to focus only on direct emissions. Global sustainability reporting frameworks are important drivers for reporting of Scope 3 emissions. The CDP has increased the scope of these scope 3 standards making businesses aware of their impacts. Also, the emission reduction commitments such as Science Based Targets and Net zero pathways have driven the necessity for measuring Scope 3 emissions. The SBTi requires companies to set targets, if its Scope 3 emissions account for more than 40% of the overall emissions. In order to reach their net zero goals, businesses need not only to disclose and understand their Scope 3 emissions but also take an accurate approach to enable them to reduce the emissions.
The Benefits of Measuring Scope 3 emissions
Scope 3 emissions account for more than 70% of the organization’s carbon Footprint.
Measuring and Managing Scope 3 emissions can
- Identify Emission hotspots in the value chain
- Identify opportunities to engage with suppliers and increase sustainability performance
- Partnering with suppliers and other companies boosts productivity with reduction in costs.
- The improvement in ESG performance gives a competitive edge
- Helps to identify resource and energy risks in the value chain
- Helps organizations to evaluate their performance and focus on generating value from their strategies.
- Cutting indirect emissions enhances brand image and supply chain performance.
- Opens doors to innovation and improvement with a global impact.
How can you get Started Measuring Scope 3?
The pressure on companies to mitigate climate impact ill only keep increasing and its time to get onboarded to the supply chain with sustainability initiatives.
- Measuring scope 3 emissions is difficult and inaccurate with very little data available
- The consultancy costs are high and the process is time consuming
- There may be hesitancy in sharing data among the stakeholders in the supply chain
- Lack of transparency and greenwashing
- Most of the data is presented on underlying assumptions without a baseline
- Insufficient knowledge in GHG accounting
Value Chain and Supply Chain Sustainability
Focusing on supply chain carbon emissions results in improved efficiency, reduced costs and a step towards resilience.
90 % of an organization’s environmental impact lies in the value chain which could be upstream activities or the downstream activities. Targeting the value chain is a vital step to become sustainable and reach a low carbon economy.
To help businesses report their Scope 3 emissions, the GHG protocol has framed the following resources
- Guidance for calculating Scope 3 emissions which includes guidance on required data, data collection methods and quantification methods
- A list of available data sources for calculating scope 3 emissions including over 80 emission factor databases covering sectors and geographies.
- Step by step guide with electronic sheets to help companies calculate GHG emissions from specific sources.
An holistic view of resources and energy use helps businesses to understand their impact and risks across the value chain. Value chains are complex and dynamic and scope 3 emissions are separated into 15 distinct categories spanning thousands of business partners. Companies need tools and expertise to identify opportunities, engage suppliers and implement viable projects for reductions.
Data can be evaluated using a wide range of metrics including supplier, materials, brand, region, life cycle stage and packaging. This helps to foster better collaboration across the stakeholders. There can be an analysis done on the impact of different strategies for different regions, how the decisions impact the supply chain and which suppliers are at risk and the sustainable alternatives
Principles of GHG accounting
Mapping of upstream and downstream activities helps to understand where goods and services are purchased and acquired and how the products are being used and disposed at the end of their life cycle. This helps to prioritize the emissions that needs to be addressed first in the company’s target to net zero.
Risk assessment across the value chain identifies the financial, regulatory, supply chain, product, customer risks related to climate. It recognizes the potential opportunities for GHG compensation and neutralization. This gives a better understanding on carbon credits and renewable energy certificates available. Stakeholder engagement is vital to drive investments and make purchasing decisions which can shape their long term viability.
GHG emissions within the value chain paves way for net zero targets
Carbon Footprint Measurement and Analysis
Measuring and analyzing the company’s carbon and environmental impact should include the product, organization and value chain footprint. Footprinting provides a baseline to implement an effective carbon reduction strategy. It boosts sales and enhances brand image resulting in reduction of wastes and costs.
The GHG Protocol recommends a hybrid approach to calculate emissions. This involves using spend based data to calculate the initial emissions and then refining with the activity based data beginning with the biggest sources of emissions.
Scope 3 is the future
In steps towards Carbon Neutrality, governments and businesses across the globe are expected to be diligent and transparent while addressing their carbon footprint. Tackling the scope 3 can yield rich rewards for companies and climate advocates at large. Carbon Accounting software provide the right solutions for measuring, managing and reporting value chain emissions. A one stop carbon management platform helps to score a business’s entire supply chain, set supplier requirements and strengthen relationships. Knowing a company’s footprint with the Scope 3 emissions helps to make data driven decisions.
TraceX is building Carbon Management solutions on the blockchain to enable companies accelerate their decarbonization journey’s. Capturing and tracking of data along with verification with standards brings accountability and transparency in the system.
TraceX helps companies take the first step. Uncover the supply chain carbon footprint, identify hotspots, report transparently and set data driven targets. Get your value chain emissions under your control with Trace Carbon