8 steps to managing your organisation's Scope 3 carbon emissions.
Scope 3 emissions, or 'value chain emissions', represent all the indirect impacts upstream and downstream of an organisation, not already captured by the GHG Protocol's Scope 1 and 2 reporting. These often represent the largest source of greenhouse gas emissions and in some cases can account for up to 90% of the total carbon impact.
The international Scope 3 Standard categorises emissions across 15 different categories covering business activities common to many companies such as purchased goods and services, business travel and employee commuting. The categories also cover activities such as leased assets, upstream and downstream transport and distribution, the use and disposal of sold products and the impact of any investments. The Scope 3 Standard provides a uniform approach for companies to account for these emissions. It improves the consistency for reporting and provides a valuable basis for improved international conformity.
The Scope 3 Standard was developed by the GHG Protocol, which is a collaborative initiative between the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD). The Scope 3 Standard was developed through an inclusive, multi-stakeholder process that engaged businesses and other stakeholders in the development of the requirements and guidance. The Carbon Trust was an active stakeholder in the development of the Scope 3 Standard, including participation in the Steering Committee and Technical Working Groups. More recently, Carbon Trust provided direct support to GHG Protocol to develop the new Scope 3 calculation guidance document (now available for download from the GHG Protocol website).
The calculation guidance document provides additional information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the fifteen scope 3 categories, data sources, and worked examples. Crucially, the guide provides step-by-step guidance on which calculation method to choose given the data availability and the reporting company's business goals.
Making business sense of Scope 3
Quantifying carbon emissions is only the first step. The much bigger question is how to then use the data and interpret what it tells you about your supply chain risks or the current performance of your products? If businesses only intend to use the information to support their corporate reporting and the disclosure of their emissions - they miss the value and opportunity to use the data to inform critical decisions about the future direction of their business. While many businesses are making progress optimising their operations and reducing their emissions, if they remain reliant on an inefficient value chain, in the long run they'll fail. Developing value chain insights is an essential survival tool for businesses to avoid the risks and maximise on the opportunities from a resource constrained future.
Businesses proactively addressing their value chain impacts are able to generate shared value through supply chain engagement activity, and can identify collaborative ways to improve efficiency and reduce their environmental impacts. BT, for example, has worked with their suppliers to develop shared goals for carbon reduction by developing guidelines and by putting in place policies within their procurement processes. Scope 3 information provides a holistic view of the risks and potential business opportunities. Leading companies are using this information to model future scenarios and engage their teams and value chain partners to redesign goods and services to increase efficiency and reduce environmental impacts.
But isn't calculating a Scope 3 inventory too difficult and expensive?
With 15 different categories to report the emissions that occur both upstream and downstream of an organisation, conducting a Scope 3 footprint can seem daunting. By their very nature, these emissions are indirect; so many companies will feel discouraged that they may not have immediate ready access to activity data. Furthermore requests for carbon data can often be viewed as suspicious by suppliers, as the motivating factor may be perceived as a tool to drive down price. The volume of information can also be seen as a hurdle, where the breadth and variety of different activity data may seem overwhelming.
The Scope 3 Guidance provides valuable insight to overcome footprinting issues
We've helped GHG Protocol develop this guidance to assist companies to find the most pragmatic cost effective means to quantify meaningful Scope 3 footprint data. We understand the business case for undertaking Scope 3 analysis and have extensive experience providing guidance to organisations to understand how much data to collect and to what degree of granularity and quality. Essentially we help businesses to understand how much data is 'good enough' to reliably inform and support the business objective.
Mind your step when you footprint…
All too often the Carbon Trust has observed a tendency within companies to prioritise 'what is easy', rather than 'what is important'. Hot-spotting, and then continually focussing efforts to improve data based upon importance is key in prioritising the limited resources companies have at their disposal. 'Important' in this sense generally means 2 things: How big a contribution does something make; and how much can I actually do something about it - so that efforts are focussed on understanding more about areas which will bring the best returns when determining ways to reduce.
Ease of access to data should not be dismissed as a factor to take into account too - there are many ways to create maps of the sustainability impact of a company, and getting quick returns by cleverly using existing data in the most appropriate way is extremely important. However, in too many instances companies expend huge resources on elements which are actually very minor constituents of their sustainability impact, just because the data is available, easy to use, and interesting to individuals. Focus must always come back to the business value which can be generated from different avenues of work.
Don't run before you can walk…
A misconception is that companies should quantify all 15 categories in order to comply with the Scope 3 Standard. Transparency is the key to conducting a credible Scope 3 assessment. By disclosing categories that have and haven't been quantified and providing the reasons and assumptions for the choice of footprint boundaries, companies have the opportunity to provide a much clearer picture of the broader environmental impacts of their business. Companies should begin by calculating their Scope 3 footprint with their available activity data, and seek to improve upon this data where the category appears to represent a material contribution with more accurate information over time.
The Scope 3 Guidance we have helped the Greenhouse Gas Protocol to write builds on our extensive experience advising businesses. It builds on our observations of best practice in footprinting drawing on the following valuable insights:
Best practice is to:
- Keep a focus on business needs and value generation that can be derived from measuring and interpreting Scope 3 emissions
- Understand what existing data can be used, and how easily additional data can be obtained
- Start with a very wide, but shallow view to have an initial understanding of how to focus efforts, by taking 'amount bought' and 'amount sold' multiplied by the most applicable emission factors
- Then where appropriate engage with companies/customers, obtaining primary data, collaborating in person at an appropriate level of detail and scope, by either:
- Continually build out 'important' areas to understand in more detail, upon which to build out reduction plans, and/or
- Focus in depth on a few most important products/categories, using product footprinting or value chain optimisation approaches to understand in detail how to move from the current state to a more profitable and more sustainable future state - and then extrapolate key findings to other products/categories as applicable
- Ensure suppliers feel part of a 'value chain enterprise' working together with other companies to improve the efficiency of products to meet end-consumer needs
- Put information into the hands of decision makers about how their decisions impact the total value chain, not just their operations; and change their KPIs to reward them for optimising the total and not their part of the value chain.