Types of of GHG Emissions
Greenhouse gas emissions are majorly categorised into three groups or ‘Scopes’ by the most widely-used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 emissions categories includes all other indirect emissions that occur in a company’s value chain.
- Fuel combustion
- Company vehicles
- Fugitive emissions
- Purchased electricity
- Heat and steam
- Purchased goods and services
- Business travel
- Employee commuting
- Waste disposal Use of sold products
- Transportation and distribution (up- and downstream)
- Leased assets and franchises
Why Scope 3 Emissions Are Important
Scope 3 emissions are typically the biggest part of a company’s carbon footprint and the hardest to measure. The 15 categories under Scope 3 include purchased goods, waste generated, fuel-related activities, use of sold products, investments, franchises and employee commuting.
A McKinsey Report found out that a company’s supply chain creates far greater social and environmental costs than its own operations. Mars, for example, has estimated that a whopping 86% of its emissions are Scope 3. Marks & Spencers has refreshed their strategy with a new commitment to meet Net Zero across their Scope 3 emissions by 2035 after finding out that their supply chain accounted for 97% of their emissions. Upstream GHG emissions originating from global supply chains of purchased goods and services are the most important single emission category in the majority of economic sectors. The supply chain is said to account for more than 80% of greenhouse gas (GHG) emissions and more than 90% of the impact on air, land, water, biodiversity, and geological resources.
The supply chain is said to account for more than 80% of greenhouse gas (GHG) emissions
and more than 90% of the impact on air, land, water, biodiversity, and geological resources
With tightening requirements by stakeholders and investor-driven initiatives, more and more companies are looking for ways to take action in their supply chains. However, collaborating with other actors in the supply chain is key if we want to successfully address the Scope 3 emissions.
“You can’t really develop a decent climate change strategy unless you’ve looked at Scope 3. Scope 3 is so crucial to all forms of climate change activity.” – Tom Cumberlege, Carbon Trust
The Challenge With Scope 3
However, measuring and reducing emissions can be tricky and complex especially when supply chains are concerned. We start by identifying the barriers that we need to overcome to facilitate and accelerate corporate scope 3 action in global supply chains, and the ways in which this could be achieved.
Since Scope 3 challenges involves a large set of stakeholders across processes, data collection can be a daunting task, especially for big organisations. How to calculate scope 3 emissions is another challenge many organisations struggle with. Often, a lack of personnel resources and technical know-how hinders companies with their analysis and management of scope 3 emissions. The more complex the organizational structure is, the more challenging the data collection and calculation of GHG emissions arising from the 15 scope 3 categories becomes.
Since a successful management of scope 3 challenges always requires a certain extent of collaboration with third parties like suppliers, employees, lessors/lessees or customers, a lack of cooperation along the value chain hinders companies from successfully managing scope 3 emissions categories.
The lack of transparency regarding the relevance of scope 3 emissions is another major challenge for many companies. The saying “you cannot manage what you do not measure” definitely holds true for corporate GHG emissions along the value chain.
Benefits of measuring Scope 3 emissions
There are a number of benefits associated with measuring Scope 3 emissions. For many companies, the majority of their greenhouse gas (GHG) emissions and cost reduction opportunities lie outside their own operations.
By measuring Scope 3 emissions, organisations can:
- Assess where emission hotspots are in their supply chain.
- Identify energy and resource risks across their supply chain.
- Find out which suppliers are leading and lagging in their sustainability performance through sustainability software.
- Find key cost reduction opportunities.
- Identify areas to increase energy efficiency.
- Help their suppliers bring their sustainability initiatives up to an acceptable standard.
- Improve the overall sustainability rating of their products and services.
How to measure and reduce Scope 3 emissions
Transparent and Standard Accounting: A first step of change would be to establish advanced supply chain transparency even before GHG emissions can be managed. A key requisite in measuring Scope 3 is a detailed knowledge of the emission hotspots in the supply chain. The further down the supply chain the hotspots lie, the more difficult it becomes for the company to engage in cooperation. Therefore, transparency and cooperation in the supply chain highly aids the entire process.
Once that is established, companies can focus on the collection of activity data and the calculation of scope 3.1 emissions from the suppliers through GHG emissions reporting. Many suppliers may need training on GHG emission accounting and reporting, in line with the requirements of the Greenhouse Gas Protocol Standard, before primary data can be demanded. Only if a certain standardization of calculation procedures in carbon accounting is achieved can carbon intensities of different suppliers be compared.
Science-based targets: Something which is gathering a lot of noise at the moment is a relatively new joint initiative by CDP, the UN Global Compact (UNGC), the World Resources Institute (WRI) and WWF called ‘Science-based targets’. The initiative calls for corporations to commit to targets which take into account the science required to restrict global warming to less than 2 degrees pre-industrial levels.
The initiative states that it only expects companies to set targets when their Scope 3 emissions make up more than 40% of total emissions. In addition targets must be “ambitious and measurable with a clear time-frame”. Impressively, a number of companies have already calculated their Scope 3 science based targets.
Supplier Engagement: Companies can incentivise and/or demand their suppliers to switch to more sustainable processes. Companies could set time-bound and numerical carbon reduction targets. Providing the suppliers with resources and training to make the transition easier becomes a win-win for both parties. If all else fails, brands could cease partnerships with brands that don’t act sustainably. The company, then, sources the same goods and services, but from suppliers with lower emissions per product.
Suppliers could also be encouraged so that they set themselves Science Based Targets and thus push them to mitigate GHG emissions in the upstream value chain. This would reduce the complexity and accounting efforts of the company. Responsibility for achieving emission reductions is thereby shifted to the suppliers. To be credible, this approach requires an obligation by suppliers, for example via a code of conduct, and assessments of whether science-based targets have really been set by suppliers.
Product innovation & change in product portfolio: A switch in the product portfolio or the material in favour of lower carbon alternatives is another effective way to reduce GHG emissions from purchased goods and services. However, in order to quantify the effects of product-related changes, comparative life cycle assessments of affected goods and services with a high data quality are required.
Regardless of the approach to sustainability or the size of the value chain, businesses are realising that climate leadership and long-term resilient profitability depends on reducing climate-induced risk across the value chain, with emissions reductions becoming a mainstream requirement. The overall carbon reduction is highly dependent on supply-chain collaboration. For an organisation to become sustainable, reducing the Scope 3 emissions across processes is crucial and earlier organisations place the focus on Scope 3, the better.