Most of us are already familiar with Scope 1&2 emissions. But what's happening with Scope 3 emissions? With the new legislation, there is a big fuss about Scope 3 emissions, and most of us are unfamiliar with it and have questions about it. So let us explain and clarify the most fundamental issues about scope 3 emissions that everybody must know! (Especially if you are working in a company that must report them! Remember, you are part of the problem and the solution).
Let us start with the basic one! What are Scope 3 emissions? Scope 3 emissions are those produced outside an organization's direct control but still contribute to its overall greenhouse gas (GHG) emissions. These emissions occur in the value chain or the entire system of activities that contribute to producing and delivering a product or service. Scope 3 emissions include those from activities such as the use of purchased goods and services, transportation of goods and services, waste generated from the use of these goods and services, and the upstream and downstream emissions from a company's suppliers and customers. We must remember two critical factors: Scope 3 emissions account for 75% of companies' greenhouse gas emissions on average and are the most difficult to measure accurately.
What is the difference between Scope 1, 2, and 3 emissions?
Scope 1 emissions come from activities directly owned or controlled by a company. Examples include running machinery to produce goods, operating vehicles, and providing heat or electricity for buildings and computers.
Scope 2 emissions refer to emissions created due to the energy an organization purchases that the organization itself does not directly generate. Reducing these emissions can be achieved by utilizing solar panels and renewable energy sources instead of electricity generated using fossil fuels.
Thus, Scope 3 emissions are indirect, meaning those not directly caused by the company, distinct from Scope 2 emissions. These emissions include those created by customers using the company's products, as well as those from suppliers making products that the company uses.
In how many categories Scope 3 emissions are divided?
GHG Protocol has identified 15 categories of scope 3 emissions, though not all of these categories will be relevant to every organization. These emissions often account for the majority of an organization's total GHG emissions.
1 purchased goods and services
2 capital goods
3 fuel- and energy-related activities
4 upstream transportation and distribution
5 waste generated in operations
6 business travel
7 employee commuting
8 upstream leased assets
9 downstream transportation and distribution
10 processing of sold products
11 use of sold products
12 end-of-life treatments of sold products
13 downstream leased assets
Why do Scope 3 emissions matter to businesses?
Scope 3, as we said before, represents the most significant proportion of emissions. Across the private and public sectors, these emissions are typically responsible for 70-90% of an organization's carbon footprint. It makes accelerating action on reducing Scope 3 emissions all the more critical if we want to keep 1.5C alive. If businesses want to reach their climate goals, they must consider the emissions from their entire value chain, not just their own operations. This is because Scope 3 emissions can account for the majority of an organization's carbon footprint. As such, the Science Based Targets initiative SBTi (3) has made it a requirement for businesses to quantify and set Scope 3 targets in order to be validated. Any company whose Scope 3 emissions are more than 40% of their total emissions must now disclose their plans to reduce them. Businesses have also discovered that constructing corporate value chains (Scope 3) and product greenhouse gas (GHG) inventories will create a beneficial return on investment! By thoroughly implementing Scope 3 reporting, a company can acquire helpful insights into the risks and performance of its supply chain. It will allow them to take proactive steps to secure the future of the business, build trust in decisions, and evaluate where emissions are generated in their value chain. They can also assess the sustainability performance of their suppliers, use the data to inform purchasing, product design, and logistics decisions, and help the suppliers carry out sustainability initiatives. Scope 3 reporting can also be used to reduce emissions from employee commuting and business travel, create more sustainable products, and demonstrate the brand's commitment to climate action to investors, customers, and other stakeholders.
What about the regulatory landscape?
The regulatory landscape is also witnessing a global shift as countries across the world are beginning to mandate the disclosure of emission data for larger businesses:
-Task Force for Climate-related Financial Disclosures (TCFD). The TCFD guidelines recommend that companies disclose their climate-related risks and opportunities. Even though TCFD-aligned disclosure is not compulsory in all places, it is already mandated in the UK and is anticipated to become a requirement in the EU, Colombia, and the US. Additionally, TCFD encourages businesses to release information about their Scope 3 emissions.
-Corporate Sustainability Reporting Directive (CSRD). The EU has declared that sustainable reporting must be aligned with financial reporting. The CSRD framework will be implemented gradually starting in 2024 and necessitates companies to be more thorough in their sustainability reports. For environmental reporting, EU enterprises must have taken into account their whole value chain (Scope 1, 2, and 3) and have set objectives based on scientific evidence.
-Securities and Exchange Commission (SEC). The SEC has proposed a new regulation concerning risk disclosure regarding climate change. Registrants would be obligated to present information regarding their greenhouse gas (GHG) emissions from their activities (Scope 1) and bought power or other forms of energy (Scope 2). In addition, any business that has a 'material' value chain or Scope 3 objective must report the emissions from its upstream and downstream activities.
-International Sustainability Standards Board (ISSB). In 2022, the ISSB adopted a 'Climate-related Disclosures Standard' (IFRS S2), requiring businesses to disclose their Scope 1, 2, and 3 GHG emissions. It provided guidance and relief to aid in the process of reporting Scope 3 emissions and established a framework for measuring them. (5)
Let's see a scope 3 emissions example.
Let's see a simple example to understand Scope 3 emissions better.
A driver driving a gasoline – fuelled truck to move your products from your warehouse to a city store is an excellent example of scope 3 carbon emission.
Let's see why. A company's carbon emission or GHG emission is classified into 3 types Scope 1, Scope 2, and Scope 3. Scope 1 and 2 involve direct carbon emissions, whereas Scope 3 concerns indirect carbon emissions. Scope 3 carbon emissions can be attributed to a company's machines and processes, as well as the use of its goods, transportation of fuels, travel in private vehicles, etc. For instance, driving a gasoline-powered vehicle is a primary source of carbon emissions indirectly into the atmosphere. Exactly the same occurs when you move large quantities of your products across continents and countries by ship or plane.
How to measure my Scope 3 emissions?
Based on all the above facts (let's not consider only law requirements and sustainability reports but also add the ethical part to the equation), businesses are eager to calculate their carbon footprints to comprehend the effects their activities have on climate change and try to reduce them.
Establishing an accurate measurement is the initial step in constructing a viable sustainability and carbon reduction plan, which is necessary for taking prompt action to combat climate change. Let's see step by step what you can accomplish with an accurate measurement of your Scope 3 emissions.
1. Define your organizational needs
2. Define which of the 15 Scope 3 categories your company accounts for data collection
3. Determine the methodology and initial calculation methods
4. Collect data
5. Calculate your carbon baseline
6. Verify your results
7. Plan for emissions reductions
For better results, you can assign your Scope 3 emissions Measurement and Optimization to a specific CO2 calculation emissions company that can result in great accuracy for your business, thus helping you accurately report your Scope 3 emissions.