Scope 3 emissions: how companies are greening their value chains
Without including Scope 3, any emissions reporting or target-setting simply isn’t valid.
Imagine that you are the captain of a ship on course to hit an iceberg. Then someone promises to remove the visible portion of the iceberg, leaving nine-tenths of it still lurking underwater. Would you be reassured, or would you try to change course?
It sounds far-fetched, but the situation with business climate targets is surprisingly similar. The world is on course for levels of global warming that will threaten human life as we know it, and many businesses have responded with ambitious-sounding targets to reduce their greenhouse gas emissions. But in most cases, these targets only cover Scope 1 and Scope 2 emissions, those directly emitted by the business or connected to the electricity and gas it purchases respectively. These often represent a substantially smaller amount of emissions – e.g., Just 10% of Kraft Foods’ total reported emissions is covered by Scope 1 and Scope 2, so targets focusing solely on these would leave the remaining nine-tenths untouched.
Scope 3 emissions, also known as value chain emissions, are greenhouse gas emissions that are linked to the activities of a business, and wouldn’t exist without that business, but are not directly generated by that business or its purchased energy. For some businesses, Scope 3 emissions account for as much of 97% of their total.
What counts as Scope 3?
The definition of Scope 3 emissions comes from the Greenhouse Gas (GHG) Protocol, which is the internationally recognised framework for measuring greenhouse gases. The GHG Protocol defines Scope 3 as “all indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.”
The Greenhouse Gas Protocol lists 15 categories of Scope 3 emissions, divided into “upstream” and “downstream”. Upstream emissions include those resulting from the activities of a company’s suppliers, employee commuting and waste disposal. Downstream emissions include transportation and distribution of a company’s products, emissions from product use, end-of-life treatment of a company’s products and investments a company makes, among other categories.
Why focus on value chain emissions?
Without including Scope 3, any emissions reporting or target-setting simply isn’t valid. For example, imagine an oil company tackling its Scope 1 emissions by reducing gas flares during extraction and processing, then reducing Scope 2 by some energy efficiency upgrades to head office. This would ignore all the emissions from the consumption of the petroleum the business produces – its core activity and by far the biggest source of its emissions – because those emissions are generated by others.
The Science-Based Targets Initiative (SBTi) requires all participating businesses to set Scope 3 targets if Scope 3 represents more than 40% of their total emissions. A few businesses may be the exception, with Scope 3 emissions below 40%, but to be sure of this they still need to identify all possible sources of emissions in their value chain and crunch the numbers. This is why more and more businesses are talking to the other businesses in their supply chain, asking for emissions data and working with them on ways to bring those emissions down.
How Scope 3 commitments could affect your business
The increasing focus on Scope 3 emissions means that if your business provides any services to other organisations, your emissions could come under scrutiny as part of their value chain. For example, Walmart has launched Project Gigaton with the aim of removing a gigaton of emissions from its global value chain by 2030, and it isn’t the only huge corporation to set ambitious Scope 3 targets.
As for the public sector, this month the UK government announced that it would be greening its own value chain through new procurement guidance. Now any supplier bidding for a contract of over £5 million a year must have a credible carbon reduction plan. They must also report on some of their own Scope 3 emissions.
With added pressure for businesses to measure and reduce their emissions , it is likely that they will respond by demanding more carbon disclosure and action from the other organisations they work with. This could create a cascade effect where the focus on emissions runs through multiple interconnected value chains. Tendering for a new contract will no longer be just about offering the best value; emissions will be a key factor in whether or not your bid is successful.
The benefits of early action
Businesses rely on strong relationships with other businesses: clients, transport services, suppliers and more. Your Scope 1 and 2 emissions are someone else’s Scope 3 emissions, and it is highly likely that at some point another organisation will want to know what they are. To continue working with you, they may want you to calculate your emissions and work on ways to reduce them. It could be the difference between signing a successful contract renewal and losing a client.
So it makes sense to be proactive by identifying all the sources of Scope 1 and 2 emissions from your business. If you have never done this before, it might be worth bringing in a greenhouse gas reporting specialist, to ensure that you haven’t missed any potential sources of emissions from your sites or processes. Getting as much detail as possible will make it easier to identify which areas of the business need the most work.
Then you will need to come up with a plan to reduce those emissions, to satisfy the businesses you work with that you are taking the issue seriously. One of the quickest ways to reduce your emissions at this early stage is to change your energy supplier. If you switch to a genuinely green energy supplier (avoiding the greenwash) you can legitimately claim zero emissions in Scope 2. This could be done alongside energy efficiency measures, but it allows you to make a positive impact in a very short amount of time.
The focus on Scope 3 is here to stay and is likely to affect businesses of all sizes. If you get to grips with your emissions now, you will be ready for the changing demands of the organisations you work with and could have the competitive edge when it comes to tendering for new business.
