2023-05-22
Decarbonization
The Domino Effect of Scope 3 Emissions
Today, many companies are already regularly calculating their direct corporate CO₂ emissions. But it is not yet known that there is a big potential behind these emissions. Emissions from the value chain in Scope 3 can have a big leverage effect on a company's reduction potential. However, according to recent insights about the carbon maturity of companies only 10% of large companies have reduction targets for their Scope 3 emissions and only 2% of medium-sized companies. Let’s have a look at this hidden leverage effect!
WHAT ARE SCOPE 3 EMISSIONS?
The Greenhouse Gas (GHG) Protocol divides GHG emissions into Scope 1, 2 and 3. Scope 1 emissions come from sources that are owned or controlled by a company and include direct emissions generated e.g. by buildings and its own mobility. Emissions from Scope 2 are indirect and include purchased energy, steam, and heating/cooling. Scope 3 includes only indirect emissions that are generated in 15 distinct reporting categories along the supply chain. The 15 categories provide companies with a systematic framework to measure, manage, and reduce emissions across the entire corporate value chain.
This is why the consideration of Scope 3 emissions proves to be particularly important, as they typically account for up to 90% or more of a company's total emissions.
WHERE DO SCOPE 3 EMISSIONS OCCUR
The GHG Protocol identified 15 categories of Scope 3 emissions, from upstream to downstream activities:
3.1 Purchased goods and services
3.2 Capital goods
3.3 Fuel- and energy related activities (not included in scope 1 or scope 2)
3.4 Upstream transportation and distribution
3.5 Waste generated in operations
3.6 Business travel
3.7 Employee commuting
3.8 Upstream leased assets
3.9 Downstream transportation and distribution
3.10 Processing of sold products
3.11 Use of sold products
3.12 End-of-life treatment of sold products
3.13 Downstream leased assets
3.14 Franchises
3.15 Investments
For many companies, the first category of Scope 3 Emissions (Scope 3.1) contributes a major part to their GHG inventory. It covers upstream emissions from the production of purchased goods and services, which includes emissions generated from processing and transporting them along the supply chain - up to tier 1 (direct) suppliers.
BUILDING THE EMISSION INVENTORY FOR THE SUPPLY CHAIN
Scope 3 Emission data is often missing as suppliers are often not yet climate ready and cannot provide the necessary data. Gathering supplier specific data is often a big effort and companies first work with spend based average data to understand their emission hotspots. However, this first baseline calculation of Scope 3 emissions is only the first step as it does not help to identify how emissions across suppliers differ. Also, in order to work on reduction further data is needed to understand which and how suppliers plan to decarbonize.
In order to make decisions about future risks and opportunities, it is necessary to use leading KPIs that allow to manage risks. Therefore companies should start to understand the climate maturity of their supplier base. This includes using a set of indicators in the areas: climate governance, strategy, risks, metrics, targets and decarbonization actions.
GETTING SUPPLIERS ON BOARD FOR EMISSION REDUCTION
Collecting this climate-relevant data from suppliers can be a major undertaking, and often presents the biggest challenges to developing a Scope 3 Emission Decarbonization Strategy.Especially small and medium sized enterprises are less "climate mature", i.e. they cannot provide the needed climate-relevant data to business partners. Software solutions such as the Climate Intelligence Platform help companies to automate data collection, provide feedback and educational resources to suppliers and provide benchmarks as incentives for change. Additionally, software ensures data quality and monitoring of suppliers' emissions performance over time.
Discover how our customer o2 Telefónica works towards Supply Chain Decarbonization
5 STEPS FOR SUCCESSFUL SUPPLIER CLIMATE ENGAGEMENT
There are five key steps that support companies in working with suppliers along the supply chain on a joined decarbonization strategy. Those are:
1. Announce the program to the supplier base before sending any surveys2. Provide training or information session on the data collection methodology3. Check-in periodically with suppliers regarding their progress on completing the survey4. Provide benefits such as shared data, benchmarks and incentives for all participating suppliers5. Assess data quality and share the results, best practices and next steps with all participating parties to allows for a joint decarbonisation strategy and improvements
AUTOMATING SUPPLIER DATA COLLECTION FOR SCOPE 3 EMISSION REDUCTION
90% of a company’s emissions originate in the supply chain. Getting your suppliers on board of your climate transformation therefore has a major leverage effect of your decarbonization measures. To access climate relevant data from your suppliers, frequent and clear communication with suppliers, reciprocal feedback on the process and structured, comparable data management is key.
Our AI Data Pipeline helps you with collecting supplier data without using long questionnaires. Through the use of AI, you can now quickly collect data from public sources such as CSR reports about your suppliers on a large scale, allowing you to better make informed decisions and build a baseline for your decarbonization efforts of Scope 3 Emissions. On top of that, you gain essential strategic insights about the climate strategy of your business partners to understand their long term decarbonization plans.
Embark on your Scope 3 Emission reduction journey today! Together, we’ll pave the way for informed climate choices and a sustainable transformation that makes a real difference.
