Small and medium-sized businesses (SMBs) constitute over 99% of all businesses in the United States. While individual SMB emissions may be relatively small, collectively they account for nearly 50% of total US greenhouse gas (GHG) emissions. In fact, a study by the environmental nonprofit Carbon Disclosure Project (CDP) revealed that the combined carbon footprint of SMB suppliers is, on average, five times greater than that of their large corporate counterparts. Several factors contribute to the significant footprint of SMBs, including energy usage in facilities, logistics fleets, and supply chains. Therefore, their participation in climate action is essential for achieving national emissions reduction goals.
SMBs face unique challenges regarding their environmental impact including energy usage, transportation, supply chains, and limited resources. Despite these challenges, SMBs also have a unique opportunity to contribute to climate solutions as they are often more agile and innovative than large corporations, allowing them to quickly adopt new technologies and practices.
Why It Is Important for SMBs to Measure GHG Footprints
By measuring their GHG footprints, SMBs can position themselves for long-term success while contributing to global climate goals. It is important for SMBs to begin measuring their GHG emissions due to several factors:
- Growing regulatory pressure: Governments worldwide are implementing regulations that require companies to track and report their emissions. While many current regulations focus on larger corporations, it is likely these requirements will expand to include SMBs in the future.
- Supply chain demands: Large companies are increasingly requiring their suppliers (including SMBs) to disclose their carbon footprint, a trend that is being driven by the larger companies’ own sustainability goals and reporting requirements.
- Need for a competitive advantage: As consumers become more environmentally conscious, companies that demonstrate a commitment to sustainability through emissions accounting and reduction can gain a competitive edge.
- Cost savings: Identifying and reducing emissions often leads to increased energy efficiency and waste reduction, which can translate into significant cost savings.
- Risk management: Understanding a company’s emissions helps them identify and manage climate-related risks, such as rising energy costs or disruptions to supply chains.
- Access to financing: Investors are increasingly considering environmental factors when making investment decisions. SMBs that demonstrate strong environmental performance may have better access to financing.
Understanding Scope 1, 2, and 3 GHG Emissions
For SMBs that are getting started for the first time, it is important to understand the difference between Scope 1, 2, and 3 GHG emissions. This offers a framework for identifying and quantifying the various emissions sources tied to a company’s operations and value chain.
Scope 1, 2, and 3 Greenhouse Gas Emissions Sources
Scope 1 emissions are direct GHG emissions from sources a company owns or controls resulting from activities that it directly engages in, such as burning fossil fuels in company vehicles, equipment, and facilities (like natural gas for heating or gasoline in delivery trucks). They also include emissions from manufacturing processes, chemical reactions, and other industrial activities (for example, cement production or refrigerant leaks), as well as unintentional GHG releases, like methane leaks from natural gas pipelines or refrigerant leaks from air conditioners.
Scope 2 emissions are indirect GHG emissions from purchased energy generation which occur at the energy generation facility, often attributed to the company consuming the energy. Scope 2 primarily covers emissions from purchased and used electricity, but also includes purchased and used heat and steam.
Scope 3 emissions include all other indirect GHG emissions in a company’s supply chain – emissions related to activities the company does not own or control that are still connected to its upstream and downstream operations. These emissions comprise most of a company’s total GHG emissions, sometimes exceeding 80%. However, the exact percentage varies significantly depending on the specific industry, business activities, and supply chain complexity. While Scope 3 emissions are often the most significant source of a company’s GHG emissions, they are also the most challenging to measure and reduce due to their indirect nature and the involvement of various external parties. In a previous post, “Supply Chain Audits Are a Key Tool for Corporate Sustainability,” we provide guidance on performing a supply chain audit to verify suppliers’ compliance with sustainability requirements.
Getting Started With Scope 1, 2, and 3 GHG Emissions Footprints
To identify their GHG footprints, SMBs must understand their direct emissions from owned or controlled sources (Scope 1), indirect emissions from purchased energy (Scope 2), and all other indirect emissions within their value chains (Scope 3). This breakdown enables SMBs to pinpoint emissions hotspots and develop targeted reduction strategies. A gameplan should include:
- Understand the basics: Companies should familiarize themselves with the definitions of Scope 1, 2, and 3 emissions and recognize the importance of measuring and reducing their GHG emissions. It is important for SMBs to recognize that this can lead to cost savings, an improved brand reputation, and a positive contribution to environmental sustainability.
- Scope 1 emissions: Identify all sources of direct emissions within the company, including company-owned vehicles, on-site fuel combustion (for heating or industrial processes), and any industrial processes that release GHGs. This inventory requires data on fuel consumption, mileage logs, and production.
- Scope 2 emissions: To identify indirect emissions, determine electricity, heat, and steam consumption by reviewing utility bills and energy usage records. Identifying the energy sources used by the utility provider will help understand the emissions associated with purchased energy.
- Scope 3 emissions: Identify the most significant categories of Scope 3 emissions beginning with purchased goods and services, transportation and distribution, business travel, and waste generation.
- Resources: SMBs should consult the Greenhouse Gas Protocol for guidance, as it is a widely recognized standard providing methodologies and tools for measuring and reporting GHG emissions. They should also consider consulting with sustainability experts, who can provide support with data collection, analysis, and the development of reduction strategies.
- Phased approach: While capturing all Scope 3 emissions may not be feasible initially, SMBs should focus on the most significant emission sources and gradually expand their assessment as they gain experience.
- Set goals and track progress: Establishing clear and measurable emission reduction goals is important, as is regularly monitoring emissions to identify areas for improvement. Sharing progress with stakeholders demonstrates a commitment to sustainability.
Conclusion
Measuring a GHG emissions footprint is crucial for SMBs because it reveals hidden inefficiencies, leading to cost savings through optimized operations and reduced resource consumption. A measured footprint provides a competitive edge by attracting environmentally conscious customers and strengthening partnerships with larger companies seeking sustainable supply chains. Proactive measurement also prepares SMBs for evolving regulations, helping them avoid future penalties. Ultimately, measuring a footprint is a strategic business decision that drives cost savings, improves competitiveness, and contributes to a sustainable future. If your organization would like to discuss options for getting started with Scope 1, 2, and 3 GHG footprints, please contact Canopy Edge for an initial consultation.
