Scope 3 emissions are the emissions those created up and down a company’s supply chain. On an average, they are 11.4x greater than direct, operational emissions and accounting for as much as 75% of total corporate emissions. Hence, proper management is vital to any credible climate strategy – yet over 80% of companies report that just quantifying their scope 3 emissions is difficult.
Collecting and deploying scope 3 data is challenging, but if we are to realise a 1.5-degree world, it demands attention. Companies must now move to leverage their purchasing power, setting clear expectations for environmental transparency and ambition not only internally, but throughout their supply chain.
Keeping in mind such high importance, the level of estimations made by organisations in calculating these emissions are too high. It is estimated that traditional and fast Scope 3 calculation methods based on EEIO or Industry Averages can lead to overestimation of Scope 3 emissions upto 400%
In the year 2010, number of companies reporting their Scope 3 emissions were only a few hundred, but in 2021, over 3300 comapnies have reported their Scope 3 emissions. This trend has been a silver lining in the dark chaotic clouds of climate change. However, the approach to Scope 3 accounting for most organisations has been estimating rather than accurate and real accounting.
Let’s take an example of Scope 3 – Category 1 (Purchased Goods and services). For most companies, using EEIO based models for calculating this category of emissions has been the fastest way, but when it comes to accounting for decarbonization, it has been most inefficient.
Consider Company A that plans to grow its business and increase production of Product X. Company A also has a target of reducing its Scope 3 emissions by 20% by 2030, approved by SBTi. As company A keeps increasing the production of X, the emissions associated with purchasing the raw material that goes into making it are also going to increase and the emissions methodology is linked to amount of material purchased. This makes achieving the SBTi target improbable. Alternatively, if the emissions associated with the purchased goods are brought down and accurately accounted for, company can showcase increase in production and decrease in emissions at the same time.
As per GHG Protocol, there are 4 methodologies, and organizations so far have focused only on spend-based method. Most consultants or software providers that companies engage with today provide a one-time overview of spend-based Scope 3 calculations, but it is only a beginning. Companies need to utilize this as a benchmark to analyze top suppliers to engage with for specific data collection, and not limit the estimation based data only for reporting purpose. Accurate data on emissions can be difficult to obtain, and no amount of artificial intelligence promised by software companies can substitute for data directly provided by your own suppliers. However, by establishing an efficient process for collecting and verifying data from your suppliers according to global standards, you can ensure that you have access to reliable and accurate information that can help you make informed decisions about your sustainability efforts. This can also directly impact your bottom line in the future soon due to growing tax concerns linked to carbon emissions. You can read more about this in our previous blog here How EU Import Tariffs can affect your export business.
Even before identifying low-carbon opportunities and being able to account for lowered-emissions, such a system needs to be in place with can baseline collect supplier data and able to showcase year on year reduction as the supplier reduces their emissions.
The chemical industry has been leading when we talk about making Scope 3 emissions transparent and accurate. TfS or Together for Sustainability is a consortium of chemical companies that supports and coordinates the measurement of sustainability performance of chemical companies and their suppliers. It recently released guidelines on calculating product carbon footprint which will enable suppliers and corporations to produce and later on share high-quality carbon footprint data. The updated Guideline will be a vital instrument for working on real and meaningful emission reductions to help decarbonise the entire industry together.
Along same lines, BASF who is the leader in sustainability space amongst chemical industries, released the carbon footprint values for all ~45,000 sales products This is a historic move as this will enable all buyers of BASF products to truly understand the contribution of their products in Scope 3 emissions. In one of its press releases, BASF mentions “By the end of 2021, BASF will be able to provide PCFs for its global portfolio. Customers thus will receive valuable information about the extent to which BASF materials contribute to the carbon footprint of their business activities and their own final products”
Other companies such as ICL and Covestro have taken approaches to make product level carbon footprint data available to their customers.
Most supplier sustainability teams today have been reduced to data collectors. This is problematic for both for buyers and suppliers as resources are equally needed on supplier side to respond to buyer requests, which often amount to more than a few hundred every year. Every buyer at the same time uses a different platform or survey for collecting supplier data which makes it all the more difficult for resource constrained suppliers.
We at Carboledger are developing innovative solutions to seamlessly collect actual data from your suppliers, enabling you to calculate Scope 3 emissions accurately. Reach out to learn more about how a Carboledger Account and how it calculate your Scope 3 calculations accurately.
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