2023-04-13
Supply Chain
Measuring and Understanding your Scope 3 Emissions
For most companies, the majority of their greenhouse gas emissions (up to 90 %) lie in their supply chains – so-called Scope 3. Reducing those Scope 3 emissions provides the biggest lever for corporate climate transformation, but it is also by far the most difficult. The first step and basic requirement is to measure and holistically understand the company's Scope 3 emissions.
You need primary Scope 3 data of your suppliers? Our AI Supplier Screening provides you with climate relevant data to assess the climate maturity of your supply chain, unlocking potentials for improvement.
That’s what we learned at the CHOICE Event #55 from Richard Scholz from the WifOR Institute and Yasha Tarani from The Climate Choice. Here you will find the most important insights from their joint presentation.
Scope 3 Reporting Becomes Mandatory under CSRD
Companies worldwide are facing increasing pressure from stakeholders and regulations to meet their climate targets. Of particular importance is Scope 3, as defined by the GHG Protocol, which, in contrast to Scopes 1 and 2, includes all upstream and downstream emissions along a company's supply chain. This new importance of Scope 3 is, among other things, becoming apparent in the fact that Scope 3 reporting becomes mandatory under the upcoming EU wide Corporate Sustainability Reporting Directive (CSRD).
From 2025 onwards, companies in Europe meeting two of the following three conditions will have to comply with the CSRD and thus report scope 3 emissions:
€40 million in net turnover
€20 million in assets
250 or more employees
In addition, non-EU companies that have a turnover of above €150 million in the EU will also have to comply.
Different methods of measuring Scope 3
With this in mind, we are going to have a look at how exactly companies can go about to tackle their Scope 3 emissions. The first step is definitely to measure the emissions from their supply chain. For this, the GHG Protocol suggests to use different calculation methods, depending on the availability of data.
As shown in this graphic, you can use either supplier-specific data or secondary data (i.e., industry average data). The different methods are sorted according to their specificity. The best calculation method is by far the supplier specific method on top. However, if you have not done a calculation yet, starting at the bottom of the method sorting is the recommended approach. The so-called spend-based method uses average data points.
The spend-based method of measuring Scope 3 emissions
The starting point of a spend-based method is the purchase list, also referred to as your spend file or order placements. It should include all goods and services purchased by your company. Three information are of particular importance here:
Which kind of products/services are bought?
Where are those products/services produced?
How much of those products is bought?
To understand this better, let’s have a look at a concrete example. We assume that our chemical products purchased from the USA are worth 300,000 €. So we know the type of product, the country of origin and the amount of products purchased. After those basic observations, we now look at model data. In the model data, we find out how much revenue the chemical industry in the USA has and also how much CO2 emissions the chemical industry in the USA is emitting. With this information, we can now attribute a certain certain of CO2 emissions to the revenue of the chemical products that our company bought.
Adding Tier 2 and 3 emissions of suppliers of suppliers
However, with this first step, the process of measuring Scope 3 emissions is not concluded yet, as the results only represent the Scope 1 emissions of the suppliers. In order to also calculate the tier 2 and 3 emissions of suppliers of your suppliers and so on, you will need an additional purchase list from the chemical industry of the US – so-called model data.
Now we look at each and every purchase item that the chemical industrie of the US is buying. And we attribute a certain amount of CO2 emissions from those other industries across the whole world that the US chemical industry is buying from. That for example also includes the Scope 2 emissions of the US chemical industry, because they are buying electricity. You need to repeat this process with a list of the tier 3 suppliers, so the emissions caused by suppliers of tier 2 suppliers.
Moving the ladder all the way up to the supplier-specific method
The spend-based method is a good starting point to get a first impression of the emissions of your supply chain. However, the goal should always be to move up the ladder as quickly as possible from average data to deeper and more specific climate information of your suppliers. This is where specialized software tools like the Climate Intelligence Platform come into play.
The Climate Intelligence Platform provides a way to efficiently automate the various steps of the supplier-specific method for Scope 3 decarbonization. Companies receive everything they need to set up, test, manage and achieve their supplier climate engagement targets – from data acquisition to tracking and engagement. Via the platform they can access and acquire a wide range of audit-ready company risk as well as emission data and support their suppliers in their decarbonization journey.
Start with the AI Supplier Screening
Through the use of AI, you can now quickly access data from public sources about your suppliers on a large scale, allowing you to better collaborate on decarbonization efforts. On top of that, you gain essential strategic insights about the climate maturity of your business partners and competitors.
Embark on your Scope 3 climate journey today! Together, we’ll pave the way for informed climate choices and a sustainable transformation that makes a real difference.
