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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
For many companies, the first category (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 SCOPE 3 INVENTORY FOR THE ENTIRE SUPPLY CHAIN
Scope 3 data is often missing as suppliers are often not yet climate ready and cannot provide the necessary data. Primary data from the supply chain is therefore missing and companies work with average data. This data does not help to identify issues in the supply chain or to improve the efforts of existing suppliers. Moreover, the sole focus on CO₂ as leading KPI is misleading, as it is a so-called lagging KPI, which is backwards oriented.
In order to make assumptions about future risks and opportunities, it is necessary to use leading KPIs that allow to manage upcoming challenges. Therefore a holistic climate management is needed in the supply chain. This includes using a set of indicators in the areas: climate governance, strategy, risks, metrics and decarbonization actions.
GETTING SUPPLIERS ON BOARD
Collecting this climate-relevant data from suppliers can be a major undertaking, and often presents the biggest challenges to conducting a Scope 3 Decarbonization Strategy.
Especially small and medium sized enterprises are not “climate ready” yet, i.e. they cannot provide the needed climate-relevant data to business partners and third parties. Software solutions such as our Climate Intelligence Platform help companies to get their suppliers on board, align around their climate strategy and gain the necessary primary data in a structured and comparable way.
5 STEPS FOR SUCCESSFUL SUPPLIER 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 supply chain before sending any survey forms
2. Provide a training or information session on the data collection methodology
3. Check-in periodically with suppliers regarding their progress on completing the survey
4. Provide benefits such as shared data, benchmarks and incentives for all participating suppliers
5. 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
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 Climate Intelligence Platform can help you with getting your suppliers on board. You can invite your suppliers to be part of the solution, capture their holistic climate management profile via Climate Performance Assessments, which can be shared securely and comparably on the Climate Intelligence Platform.