Calculating scope 3 emissions – challenges and opportunities

Emissions along the value chain, known as Scope 3 emissions, often represent an organisation's biggest greenhouse gas impact. In fact, the World Resources Institute has established they represent on average 75% of companies' total emissions. However, as they fall outside of the organisations’ direct control, they are often the most challenging emissions to manage.

Scope 3 challenges

Now more than ever, businesses are increasingly under pressure to show environmental stewardship and to be transparent about the full climate impact of their operations. If we are to meet the UK Government’s ambitious 2050 Net Zero target, businesses need to focus their efforts on the greatest GHG reduction opportunities and for a number of businesses, indirect or upstream carbon emissions (also referred to as Scope 3 emissions) can make up over 90% of the total.

Effectively tracking and calculating scope 3 emissions will provide the visibility, traceability and opportunity to collaborate on emissions reduction and target a net zero future. This article explores some of the challenges that come with tackling Scope 3 emissions, as well as the potential opportunities associated with it.

Outside of direct control

Most businesses have a large number of supply chain partners and do not have adequate visibility into their networks, making the process difficult to manage. There is a pattern of companies assessing and measuring their own scope 1 & 2 emissions and not looking at the wider impacts of scope 3 emissions.

To date, most companies focus on reducing their emissions under their direct ownership or operational control (scope 1) and from their purchase of electricity (scope 2). Indirect upstream and downstream emissions in the company’s value chain (scope 3) are often overlooked and not addressed. In most sectors, these emissions make up the majority of a company’s carbon footprint. The lack of direct control can and does create barriers to reducing these emissions and leads to the question of who is responsible for reducing them.

Additionally, scope 3 emissions can be accounted for by several different companies which leads to another question of who is responsible for counting them. The first step is to determine which Scope 3 emissions categories and data types are most material to the organisation. There are 15 separate scope 3 categories and through careful analysis, the organisation can determine the most applicable to them.

Lack of quality data

Accurate and reliable Scope 3 data collection is reliant on transparency across several stakeholders, many of whom may lack experience in GHG accounting. Even if they are calculating their carbon footprint, the data might not be sufficient enough to gain a sophisticated understanding of the key drivers of emissions. As companies grow and change over time, so do their systems and processes which may impact their ability to gather accurate and reliable historical and baseline data which could mean the data provided is based on underlying assumptions.

At the outset of collecting scope 3 data, it is vital that the company evaluates the data available in order to calculate a meaningful carbon footprint. Companies can use one of the following calculation methodologies when starting to collect data and calculate a meaningful footprint:

• Supplier-specific method – collects product-level cradle-to-gate GHG inventory data from goods or services suppliers.
• Average-data method – estimates emissions for goods and services by collecting data on the mass (e.g., kilograms), or other relevant units of goods or services purchased and multiplying by the relevant secondary (e.g., industry average) emission factors (e.g., average emissions per unit of goods or service).
• Spend-based method – estimates emissions for goods and services by collecting data on the economic value of goods and services purchased and multiplying it by relevant secondary (e.g., industry average) emission factors (e.g., average emissions per monetary value of goods).
• Hybrid method – uses a combination of the above.

The supplier-specific method involves collecting data directly from suppliers which adds a considerable cost and time burden to the process. In practice, suppliers are often not able to provide product-level cradle-to-gate data of sufficient quality.

If supplier-specific data is not available then an alternative is using average data or a spend-based method.  These produce a carbon footprint at a macro level and are valid starting points to gain an understanding of the size of the scope 3 emissions and the influence a company may be able to exert across its supply chain.

Engagement

The successful delivery of sustainability strategies along the value chain requires cooperation and collaboration from third parties including suppliers and customers. In equal measure, internal engagement from colleagues and peers is key. No one individual in an organisation can be responsible for the delivery of sustainability strategies. Getting wider engagement is critical to long-term success.

A report by the World Economic Forum outlines key strategies organisations can use to engage their supply chains, this approach has been adopted and can be stated as follows:

• Create transparency – build value chain emissions and start to exchange data with the supply chain.
• Set ambitious reduction targets for scope 1,2 & 3 emissions.
• Design value chain procurement strategies.
• Segment suppliers & determine engagement strategy.
• Engage with suppliers and integrate emission metrics into procurement standards and track performance.
• Work with suppliers to help them reduce their emissions.
• Engage in sector initiatives for best practices.
• Introduce low carbon governance in the organisation.