Unlocking the Power Behind Scope 3 Emissions
by Natalie Vezina
If your organization has already begun accounting for its Scope 1 and 2 emissions, it might be time to brave the next step: inventorying your Scope 3. In a recent report released last month, investment research firm MSCI listed the top ten ESG trends to consider in 2022. What was #1 on the list? “Corporates Pushing Corporates for Net-Zero Supply Chains.” That’s right–supply chain decarbonization.
Tackling supply chain emissions involves assessing data availability, selecting the appropriate calculation methods, identifying emissions hotspots, and engaging your suppliers to encourage emissions reduction. Scope 3 emissions are notoriously difficult to measure, and as a result, difficult to manage. That’s why Foresight is here to help.
Understanding Scope 3 Emissions
Scope 3 emissions are the indirect emissions from a company’s value chain activities, including purchased goods and services, business travel, and upstream and downstream transportation, among other categories. For most consumer-facing businesses, Scope 3 emissions account for over 80% of their carbon footprint, representing the most significant opportunity to cut costs, reduce risks, and build resiliency.
If Scope 3 emissions present the largest opportunity for emissions reduction efforts, why aren’t more companies racing to understand them? Unfortunately, it’s because Scope 3 emissions are the most challenging to measure. And unlike Scope 1 and Scope 2, the Greenhouse Gas (GHG) Corporate Protocol does not currently require companies to quantify and report their Scope 3 emissions. This may not be the case for long, however. As stakeholders continue to increase their demand for transparency, climate disclosure regulations are also ramping up.
By taking a proactive approach, companies can become leaders in this space. Getting a head-start on Scope 3 emissions will not only help businesses better understand their emissions profile, but it will also help them improve operations, respond to GHG reporting requirements, realize climate change commitments, and become a catalyst for global emissions reduction efforts. It may sound daunting, but with strong vision from a company’s leadership and focus on the end goal, it can be done.
Breaking Down the Process
As with any daunting task, the process becomes more manageable when broken into smaller parts. Below are four steps that companies can take to address supply chain emissions.
Step 1: Conduct a High-Level Screening Assessment
The easiest way to begin accounting for Scope 3 emissions is to conduct a high-level screening assessment. At Foresight, we conduct an initial screening of a client’s Scope 3 emissions to help them determine emissions hotspots. This tool provides a low-cost way to quickly establish, at a cursory level, which of the (15) Scope 3 categories account for most of a company’s total emissions. Using purchase data from a company’s accounting system, we can make an initial, rough approximation of a company’s full scope 3 footprint. (Hint – not all Scope 3 categories are material to an organization.)
Step 2: Improve Data Quality
Once the screening assessment has been completed, the next step is to apply more granular and accurate data to emissions hotspots. Only two types of data can be used to calculate Scope 3 emissions: primary data and secondary data. Primary data is provided directly by suppliers or other value chain partners and should be used where possible. (Hint - Tier 1 suppliers have contractual obligations with the reporting company, providing the leverage needed to request GHG inventory data.) Secondary data includes industry averages, such as published databases and literature studies. Most companies will use a combination of both data types to fill in gaps and improve inventory quality.
Step 3: Establish a Baseline and Set a Target
Once the scope 3 inventory is sufficiently complete and reliable, the company can establish its baseline year for future comparisons and reporting. If a company wishes to set a target via the Science Based Targets initiative (SBTi), scope 3 emissions will need to be included if they account for more than 40% of overall emissions, which they often do. Scope 3 targets can be framed as absolute targets, emissions intensity targets, or supplier engagement targets (a lesser-known approach). Supplier engagement targets may be particularly valuable if a company has yet to identify specific reduction opportunities amongst its value chain partners.
Step 4: Develop a Scope 3 Reduction Strategy
After a baseline year and target have been established, the next step is to develop a strategy to reduce scope 3 emissions. In January 2021, the World Economic Forum published an Insight Report that identified eight different solutions suppliers can currently use to achieve net-zero emissions. These “abatement levers,” as they’re called, include everything from increasing recycled materials to implementing carbon capture techniques. (Hint - If a company engages with EcoVadis, they can gain further visibility into their own supply chain and glean insights into which strategies might be most effective for meeting your company’s decarbonization goals.) To integrate emissions metrics into procurement standards, companies can either define a preferred set of standards or require suppliers to set their own standards. Regardless of the approach, collaboration and education will be necessary.
A Long-Term Journey
Reducing scope 3 emissions is a long-term endeavor. When embarking on your scope 3 journey, it helps to remember that all carbon accounting is an estimation and requires an iterative approach. Here at Foresight, our culture embodies the belief that “getting it right” is more important than “being right.” The same applies to carbon accounting. Starting with a high-level screening assessment and refining the inventory over time inevitably propels the organization into a new level of functioning. And oftentimes, the extent of the struggle determines the degree of growth.
