How to Measure and Reduce Scope 3 Emissions.

Introduction

Scope 3 emissions are all indirect emissions that occur in a company’s value chain and are important because they often represent the largest source of the company’s carbon footprint and thus offer significant opportunities for emission reduction.

Hertwich & Wood found that Scope 1 emissions increased by 47% between 1995 and 2015 and Scope 2 emissions increased by 78% but Scope 3 emissions increased by 84%.[1] They need to be appropriately measured and managed to stop this trajectory and prevent emissions from climbing even higher.

From a business perspective, reducing greenhouse gasses is not just good for the environment but it can also lead to cost savings, improved customer satisfaction, and better relationships with suppliers and investors. It’s a savvy business decision to effectively manage scope 3, yet it’s often the case that measuring processes lack completeness and consistency given the lack of direct control and gaps in knowledge and data.[2]

The business case to measure Scope 3 emissions has also been spearheaded by increased regulatory compliance on reducing emissions. With fears of financial penalties or a damaged reputation looming over director boards, the call to manage Scope 3 emissions isn’t going to go away. Beyond the concerns of not meeting compliance standards, measuring scope 3 is also a wise decision concerning securing investor buy-in with investors increasingly considering the environmental factors when it comes to investing their money. Being committed to Scope 3 is attractive to investors in a financial climate that has an appetite for green business. The same can be said for a brand’s reputation in attracting consumers who are more environmentally conscious and want to support brands that are committed to sustainability. Thus, measuring Scope 3 emissions is not just an environmental responsibility but also a strategic business decision that can lead to numerous benefits.[3]

How to Measure Scope 3 Emissions

Scope 3 Emissions be calculated using the Greenhouse Gas (GHG) Protocol, a comprehensive and global standardised framework for measuring and managing greenhouse gas emissions.[4] It provides detailed definitions and advice for companies on how to measure their emissions across their entire value chain.

Conducting a Scope 3 emissions materiality assessment is a crucial step in understanding and managing a company’s greenhouse gas emissions.  A materiality assessment is a method for businesses to measure the impact of their environmental actions on their objectives. Such an assessment allows decision-makers to lower risks, improve their environmental outcomes, and discover new growth opportunities.[5]

Here’s a step-by-step guide on how to conduct such an assessment…

1. Map Out Your Supply Chain: The first step is to identify all the stakeholders involved in the company’s value chain and determine your position in relation to these stakeholders. This should include everyone; the suppliers, the customer base, the employees commuting to work, the investors, and regulatory bodies.[6]

2. Determine Boundaries: Determine boundaries before gathering the data that will be used to create the baseline emission output. Are the boundaries going to stretch from cradle-gate, cradle to shelf, cradle to grave or cradle to cradle? [7]

3. Conduct Initial Stakeholder Outreach: Reach out to the stakeholders to understand their perspectives and concerns about greenhouse gas emissions. They may have already conducted introspective work on climate related activities, and this can be supported by the reporting company’s surveys, interviews, and/or focus groups.[8]

4. Identify and Prioritize Issues to be Measured: Based on the feedback from stakeholders; identify the key issues related to Scope 3 emissions that need to be measured. List all relevant and significant emissions sources per supply chain link. Create a checklist to avoid missing out on big emitters and thus not accurately capturing the supply chain. These could include emissions from the raw material sourcing of a product part, or the emissions associated with end-of-life treatment.[9]

5. Design and Launch Survey: Plan out a survey that asks stakeholders to rank these issues in order of importance. This will help the reporting company understand which issues are most material to the business and where to initially focus your attention.

6. Interview Chosen Stakeholders: Conduct in-depth interviews with selected stakeholders to collect deeper insights into the material issues. From this, the reporting company should gain both qualitative and quantitative data.

7. Assess Materiality of Scope 3 Emissions: Based on the survey results and interviews, assess the quality and importance of each Scope 3 emission category. This involves determining which categories are most relevant to your business and could have a significant impact on your greenhouse gas emissions. With the data provided by your stakeholder, you should be able to define the data sources per link of the supply chain, and per emission source.[10]  From here, work off the most reliable and pragmatic data, can their data be verified with certainty and do all the totals add up?

8. Report Findings: Finally, report your findings to all relevant stakeholders. This could include a detailed report on the materiality assessment process, the identified fundamental issues, and the steps the reporting company plans to take to measure and manage these emissions. Be transparent, about all data sources, assumptions, calculations and allocations.[11] Open and transparent communication is key to building strong relationships with suppliers. It helps to ensure that both parties have a clear understanding of expectations, performance standards, and objectives. Furthermore, having regular communication and dedicated business meetings over strategies to reduce scope 3 emissions allows for timely feedback when initiatives have worked or are struggling and thus can start problem resolution. It will also help stakeholders understand why you’ve taken certain decisions and ensure your Scope 3 calculations truly represent your supply chain.

Ideally, the data you should be collecting for your baseline should be primary data.  Primary data are data on actual emissions that are directly collected by firms (e.g., meter readings, purchase records, utility bills, engineering models, direct monitoring, etc.). With digital production processes, such data are produced as by-products or at very low costs; so, it doesn’t exhaust resources to collect this or create any extra work. When primary data are not available or shared along the supply chain, it becomes necessary to use secondary data. This kind of data would not be directly collected by firms and include industry average data, financial data, proxy data, and other generic data.[12]

Conducting a Scope 3 emissions assessment is not a one-time activity but should be an ongoing process that is integrated into your company’s overall sustainability strategy. A company must continue to engage with suppliers and business partners across its value chain. It will showcase a dedicated partnership and collaboration willing to bring community level benefits through supply chain decarbonisation. What is more, by collaborating with suppliers over their capabilities to manage and evaluate scope 3 emissions and where the challenges may lie, having a dialogue set up that inspires innovative approaches to tackling the problems. Scoping out the Scope 3 emissions may prompt companies to ignite relationships with new, lower carbon suppliers; prompting the market to follow suit to maintain competitiveness. Engaging with suppliers and business partners is a key step in accurately measuring and ultimately reducing Scope 3 emissions.

Now Scope 3 emissions have been properly measured, it’s time to take a pragmatic approach to reduce them…

1. Quick Wins: Start with ‘quick wins and the emissions that can be reduced the fastest or most easily. Not only will it bring a sense of accomplishment and greater control over the project but should provide momentum to carry on with the emissions reduction journey after seeing results through actions the company has taken[13].

2. Engage Supply Chain Partners: The reporting company should use its negotiation power with its suppliers and other stakeholders to mobilise everyone to manage their emissions better. After all, part of their Scope 1 can account for part of your Scope 3. For example, mobilising a packaging supplier to take multiple sustainable packaging strategies e.g., reducing their excess outer packaging, automating their machine processing and using reusable packing materials.

3. Leverage Buying Power to Drive Transparency: Large companies can use their purchasing power to encourage suppliers to disclose their own emissions and take steps to reduce them.

4. Provide Support to Suppliers in Their Sustainability Journey: Companies can work with their suppliers to help them reduce their own emissions. This could involve providing resources, training, or financial support.

6. Reserve Budget and Resource Capacity for The ‘Big Bets’: Take time now to futureproof your endeavours by identifying what the opportunities are for the long run. Explore your options and be creative. For all solutions, be committed and prepared to pay a little more for a return on your investment in the long run (lower emissions and lower costs). For example, if a more sustainable option would be to procure a lower carbon version of the same raw material, do the due diligence now to reduce the overwhelming task ahead. [14]

6. Incorporate Science-Based Targets Through the Supply Chain: Companies can set science-based targets for reducing emissions and work with their suppliers to achieve these targets with specific timeframes and emission reduction % in place.[15]

7. Join Forces to Accelerate Action and Build Momentum: Businesses can collaborate with other businesses, industry groups, or non-profit organizations to share best practices and accelerate progress towards reducing emissions.

Conclusion

In conclusion, when measuring and reducing scope 3 emissions ensure all assessments and strategies made are data-driven and do not default to assumptions kept on achieving emissions reduction targets. Managing and measuring Scope 3 emissions is not just a responsibility, but an opportunity to make a real difference in the face of climate change, to improve operational efficiency, and to build stronger relationships with stakeholders. It’s an opportunity to lead by example and inspire others to do the same. Every step we take towards a more sustainable future is a step in the right direction and after all, a little win is still a win.

References

[1] Hertwich, E.G. and Wood, R., 2018. The growing importance of scope 3 greenhouse gas emissions from industry. Environmental Research Letters, 13(10), 104013.

[2] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 11 September 2023).

[3] The Carbon Trust (2023) Briefing: What are Scope 3 emissions?, The Carbon Trust. Available at: https://www.carbontrust.com/our-work-and-impact/guides-reports-and-tools/briefing-what-are-scope-3-emissions#:~:text=Next%20to%20meeting%20changing%20regulatory%20requirements%2C%20measuring%20Scope,are%20laggards%20in%20terms%20of%20their%20sustainability%20performance. (Accessed: 11 September 2023).

[4] GHG Protocol Homepage | GHG Protocol. Available at: https://ghgprotocol.org/ (Accessed: 11 September 2023).

[5] Loughlin, B. (2022) What is a materiality assessment? Institute of Sustainability Studies. Available at: https://instituteofsustainabilitystudies.com/insights/lexicon/what-is-a-materiality-assessment/ (Accessed: 11 September 2023).

[6] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 08 September 2023)

[7] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 08 September 2023).

[8] Oláh, D. (2022) Why Stakeholder Engagement is the Key to Scope 3, PERSPECTIVES. Available at: https://perspectives.se.com/blog-stream/why-stakeholder-engagement-is-the-key-to-scope-3#:~:text=In%20our%20first%20blog%20in%20this%20series%2C%20we,collection%20process%20and%20inventory%20Disclose%20to%20sustainability%20frameworks (Accessed: 07 September 2023).

[9] Scope 3 Calculation Guidance: GHG Protocol (no date) Scope 3 Calculation Guidance | GHG Protocol. Available at: https://ghgprotocol.org/scope-3-calculation-guidance-2 (Accessed: 12 September 2023).

[10] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 11 September 2023).

[11] Verco. Managing scope 3 (value chain) emissions, Verco. Available at: https://www.vercoglobal.com/latest/managing-scope-3-value-chain-emissions (Accessed: 07 September 2023).

[12] WRI/WBCSD. Technical Guidance for Calculating Scope 3 Emissions: Supplement to Corporate Value Chain (Scope 3) Accounting and Reporting Standard (World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), Washington DC, 2013).

[13] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 08 September 2023).

[14] B Corp Europe (2021) Action Strategies #2: How to measure and reduce Scope 3 emissions, YouTube. Available at: https://www.youtube.com/watch?v=J7ftnmoShHs (Accessed: 11 September 2023).

[15] Science Based Targets Initiative. Ambitious corporate climate action (no date) Science Based Targets. Available at: https://sciencebasedtargets.org/ (Accessed: 07 September 2023).