Sustainability is at the core of what we do at Scope 5. While helping companies track, report, and take action on their sustainability targets, we’ve noticed increased attention to Scope 3 emissions. What are they, why are they important, and what can companies do to mobilize in reducing them?
Per the framework provided by the Greenhouse Gas Protocol, greenhouse gas emissions are accounted for within Scopes 1, 2, and 3. While Scopes 1 and 2 are considered to be within a company’s control, Scope 3 emissions consist of indirect greenhouse gas emissions from sources beyond direct operations. These emissions fall within the greater value chain – from business travel and employee commuting to product processing.
The Greenhouse Gas Protocol’s “Corporate Value Chain (Scope 3) Accounting and Reporting Standard” defines these emissions that companies are indirectly responsible for into fifteen categories both upstream and downstream throughout the value chain, as shown in Figure 1.1 (Source: Technical Guidance for Calculating Scope 3 Emissions v1.0).
Scope 3 emissions are generally the largest constituent of an organization’s emissions but are also the most difficult to quantify. Because these emissions are attributed to an organization’s supply chain, there can be challenges related to data availability, data quality, and understanding the appropriate methodologies for estimating emissions.
How Can Progress be Made?
Start with a general assessment of all Scope 3 categories to your company’s operations. Summarize which of the fifteen categories may be relevant for your business and which are not part of your operations. Then consider which of the remaining categories your organization has some influence and control over. Then begin your data assessment by walking through each of the remaining Scope 3 categories that may be relevant and where there is influence and control. Brainstorm which of those have data readily available, and which ones may require additional effort to collect.
The sections below provide thoughts on ways to group each category and how to approach data collection. Begin calculating the emissions where data is available or where secondary industry data such as the United States environmentally-extended input-output model (USEEIO), can be used as an initial assessment.
If your organization wants to measure all possible sources of Scope 3 emissions, it is important to understand what data is available and what data will need to be collected in the future to enable a proper Scope 3 inventory buildout. Once the significant categories have been identified, begin to engage those partners both up and down the value chain to find opportunities for data sharing and collaboration to drive emission reductions. Start with partners where your organization’s carbon impact is relatively high and where your partner is interested in advancing their ESG data management.
In parallel, you can work towards setting reduction targets. Scope 5 advises our customers to set science-based emissions reduction targets in accordance with the Science Based Targets initiative (SBTi). There are plenty of organizations that can help you find ways to both understand and reduce emissions. Many companies find they are able to identify opportunities and solutions inspired by their own teams.
Categories Closely Related to Operations
Though Scope 3 emissions account for supply chain emissions, a number of Scope 3 categories listed below are more closely related to an organization’s influence. These categories are more likely to have sufficient data quality for calculation purposes. Bills, receipts, and invoices should be readily available to your organization to enable quantification of emissions from these two categories.
- Category 3 – Fuel- and energy-related activities
- Category 5 – Waste generated in operations
- Category 6 – Business travel
Category 3 can be very broad depending on an organization’s operations. In some cases information may be required from multiple sources to completely account for these emissions. This information may come from utility bills, travel itineraries, and fuel consumption data.
Categories Related to Contractual Agreements
Each of the categories in this section accounts for emissions from third parties that are associated with contractual agreements. In each of these categories, it is likely that data is readily available to the third party with whom your organization has an agreement with.
At a minimum, your organization should seek relevant data to calculate the Scope 1 and 2 emissions of third-party partners as it pertains to your own operations. As an example, logistics partners are likely to move shipments in bulk, so your entity should only account for emissions pertaining to its own goods being transported.
- Category 4 – Upstream transportation and distribution
- Category 8 – Upstream leased assets
- Category 9 – Downstream transportation and distribution
- Category 13 – Downstream leased assets
- Category 14 – Franchises
- Category 15 – Investments
If your organization finds it difficult to collect the third-party data needed to account for these emissions, you may consider including contractual clauses that require partners to regularly share the data relevant to your organization’s Scope 3 inventory.
Categories Requiring Estimation and Modeling
The unifying feature of the categories below is that they are largely dependent on variable behaviors, which can make quantifying emissions difficult. Categories 7, 11, and 12 are heavily dependent on human activity, which is impossible to predict with complete accuracy. As an example, employees commuting to an office may take public transport 90% of the year, but may have personal needs that require them to drive the other 10%.
- Category 7 – Employee commuting
- Category 10 – Processing of sold products
- Category 11 – Use of sold products
- Category 12 – End-of-life treatment of sold products
In these cases, one must come up with estimation methods, models, or appropriate assumptions to quantify emissions.
As an example, an auto manufacturer may assume that their vehicles will have an average lifespan of 20 years, will drive an estimated 200,000 miles, and will use 10,000 gallons of gasoline. These estimates are likely available internally and can be used to quantify Category 11 emissions. When quantifying emissions from these categories, ensure that all assumptions are appropriately disclosed and reviewed on a recurring basis for relevance and accuracy.
Categories for Purchased Goods and Services
These purchased goods and services-related categories serve as the catch-all for all scope 3 sources that are outside of the boundaries presented by the other 13 categories. Because an organization is likely to purchase goods and services from a large number of vendors, these categories are the most difficult to quantify with an appropriate level of completeness and accuracy.
- Category 1 – Purchased goods & services
- Category 2 – Capital goods
The data availability for these categories will vary widely by industry and business and in general, the difficulty will increase with larger and more diversified businesses. As Scope 3 accounting becomes more of an expectation of organizations, it is anticipated that these emissions will eventually become easier to quantify. More companies will begin to estimate the CO2 emissions associated with their products and services.
To begin accounting for purchased goods and services emissions, identify which third-parties may represent the largest source of emissions for your organization. Begin by working with those organizations to identify a path forward on estimating emissions.
Ironically, though these categories can be the most difficult to quantify, your organization can utilize existing accounts payable data to estimate these emissions using Spend-based emission factors. Note that spend-based factors are at best a proxy for emissions, and should only be used as such until better information becomes available.
Scope 5’s sustainability data management software helps our clients easily track and manage their data to accelerate progress and meet their sustainability goals. Let us know if you want support in navigating a pathway to advance your Scope 3 emissions.