For many companies, especially those with extensive supply chains, Scope 3 emissions represent the largest portion of their total greenhouse gas (GHG) emissions, often accounting for 70% to 80% of a company’s carbon footprint. Limiting focus to Scope 1 (direct emissions) and Scope 2 (indirect emissions from purchased energy) provides an incomplete, and potentially misleading, view of a company’s true environmental impact. Scope 3 emissions includes of all other indirect emissions that occur in the upstream and downstream activities of a company’s value chain, including emissions from purchased goods and services, transportation and distribution, the use of sold products, and end-of-life treatment. Gaining visibility into these emissions is essential for companies aiming to understand and reduce their total climate impact in a meaningful way.
Investors, customers, and regulatory bodies are increasingly demanding more transparency and accountability regarding companies’ environmental performance including Scope 3 emissions. Companies that fail to address these emissions risk reputational damage, financial penalties, and loss of market share. By understanding and addressing Scope 3 emissions, companies can identify and mitigate potential risks within their supply chains including risks related to resource scarcity, climate change impacts, and regulatory changes.
Choosing a Reporting Framework
When choosing a reporting framework for Scope 3 emissions, it is crucial to understand that Scope 3 consists of all indirect emissions that occur in the supply chain of the reporting company, including both upstream and downstream emissions. Scope 3 assessment is a complex undertaking, requiring a structured approach. A robust Scope 3 emissions reporting framework involves adhering to established standards, prioritizing data quality, and fostering transparency.
The key reporting frameworks that companies should consider include:
- GHG Protocol: This is the most widely used international accounting tool for government and business leaders to understand, quantify, and manage GHG emissions. It provides comprehensive guidance for companies to measure and report their Scope 3 emissions. It also categorizes Scope 3 emissions into 15 distinct categories, which helps organizations to identify and prioritize their emission sources.
- International Sustainability Standards Board (ISSB): The ISSB is developing a comprehensive global baseline of high-quality sustainability disclosure standards to meet investors’ information needs. They incorporate and build upon existing frameworks, including the Task Force on Climate-related Financial Disclosures (TCFD) recommendations. The ISSB places a strong emphasis on the disclosure of Scope 3 emissions, recognizing their significance in understanding a company’s overall climate impact.
- Global Reporting Initiative (GRI): GRI standards are widely used for sustainability reporting of environmental, social, and economic impacts. GRI’s GHG emissions reporting requirements align with the GHG Protocol, encouraging the disclosure of Scope 3 emissions.
- Task Force on Climate-related Financial Disclosures (TCFD): TCFD recommendations focus on climate-related financial disclosures, urging companies to disclose Scope 3 emissions, especially when they constitute a significant portion of their overall emissions. This framework helps to integrate climate-related risks and opportunities into business strategies.
Building Collaborative Partnerships for Reporting Scope 3 Emissions
Engaging with suppliers and other supply chain partners is vital for gathering accurate data, and for driving down emissions. Accurate Scope 3 reporting hinges on detailed data sharing and transparency among these stakeholders which highlights the importance of open communication. Because this is a shared responsibility between companies and their suppliers, they must work together to develop and implement effective reduction strategies. Key approaches need to include:
- Establishing clear expectations and providing support to suppliers for emissions reduction.
- Participating in industry collaborations to standardize reporting and share best practices.
- Leveraging technology for improved data collection and transparency
- Setting joint climate targets with suppliers and prioritizing value chain transparency through mapping and standardized reporting.
It is important to ensure data accuracy and maintain transparent communication in order to build trust and drive progress. A long-term commitment to ongoing collaboration is essential for effectively managing and reducing Scope 3 emissions.
Scope 3 Emissions Technology
The complexity of Scope 3 emissions means that no single tool is a perfect fit for every organization as it requires a combination of technology, data management, and collaboration with supply chain partners.
While Scope 3 emissions reporting is complex, a growing array of technologies and tools are helping organizations tackle this challenge. Here’s a breakdown of key technologies:
- Internet of Things (IoT): IoT sensors enable the collection of real-time data on energy consumption, fuel usage, and other emissions-related factors, particularly useful in manufacturing and logistics.
- Big Data analytics: This technology analyzes vast datasets from suppliers and partners to identify emissions hotspots and areas for improvement.
- Blockchain: This enhances data transparency and security by creating a tamper-proof ledger of emissions data, crucial for verifying data integrity across complex supply chains.
- Artificial Intelligence (AI) and predictive analytics: AI helps predict emissions trends, optimize supply chains, and support informed decision-making for emissions reduction.
Conclusion
Scope 3 emissions, often constituting the majority of a company’s carbon footprint, demand meticulous attention and strategic action. Investors, customers, and regulatory bodies are increasingly scrutinizing these indirect emissions, requiring transparent and accurate reporting. Selecting the appropriate reporting framework, such as the GHG Protocol or ISSB standards, is essential for robust and comparable emissions data. However, reporting alone is insufficient. True progress requires collaborative partnerships throughout the supply chain, emphasizing data sharing, transparency, and joint efforts to reduce emissions. Furthermore, leveraging emerging technologies like IoT, big data analytics, blockchain, and AI can significantly enhance the accuracy and efficiency of Scope 3 emissions management. By embracing a holistic approach that combines rigorous reporting, collaborative engagement, and technological innovation, companies can effectively mitigate their environmental impact. If your organization would like to evaluate the best, most strategic and effective approach for assessing and mitigating Scope 3 GHG emissions, please contact Canopy Edge for an initial consultation.
