A simple guide to Scope 3 emissions
About one month after COP26, someone asked me whether I had seen an acceleration of corporate emissions reduction efforts because of the event. I answered that it was too early to tell.
Now, almost one and a half years later, it does seem that something is shifting. The multitude of corporate commitments to science-based, net-zero targets has meant that some of the largest companies started to take responsibility for their value-chain emissions (Scope 3), including those associated with procured products and services and the use of their own products and services.
Moreover, incoming regulation, including the Corporate Sustainability Directive (CSD) in the EU and the Sustainability Disclosure Requirements (SDR) in the UK, will make it mandatory for large companies to measure their full value-chain emissions and develop a plan for reducing these to zero.
There are signs that the effects of the focus on Scope 3 emissions are starting to ripple through the business community.
So, what are Scope 3 emissions?
In many ways, Scope 3 is a difficult concept. Companies struggle with a lack of visibility and limited influence that they can exert on emissions that occur upstream and downstream in their value chain. Many suppliers are still new to measuring GHG emissions and they may not be able to provide robust carbon footprint data. Moreover, nearly two-thirds of upstream emissions occur beyond Tier 1 suppliers. At a macro-level, the risk of double counting makes it difficult to assess the absolute scale of emissions reductions achieved.
However, Scope 3 is a great mechanism for incentivising emissions reductions. When multiple companies take responsibility for the same emissions, they are more likely to stimulate each other and work together to reduce them. This will lead to impactful partnerships and innovative solutions.
Increasingly, I see signals that companies along the value-chain are starting to ask each other questions about their emissions footprint. I have come across examples where companies need to demonstrate a certain level of progress on emissions reduction, for instance reaching step 3 on the CO2-performance ladder, to be eligible for delivering products or services to another company. I have seen tenders that prescribe a maximum carbon-intensity for a specific process or asset, or the use of a specific low-carbon fuel for the transport involved. Some companies offer incentives for sustainable practices. Recently, Vodafone has partnered with CDP and Citi to enable suppliers preferential financing rates if they disclose their greenhouse gas emissions and otherwise prove they are improving their environmental credentials1.
How should companies prepare to manage and reduce Scope 3 emissions?
Scope 3 emissions account for 75% of companies’ greenhouse gas emissions on average, but the importance of Scope 3 emissions varies considerably by sector2. Many companies have only recently started to look at Scope 3 emissions seriously and we have only seen the first ripple effects through the value-chain. More and more companies can expect questions about their footprint and measures to reduce it as others step-up their efforts. How should they prepare?
Multiple clients have asked us to help them prepare for and respond to new demands from their clients or other stakeholders. We have a structured approach for doing this. It all starts with a robust carbon footprint measurement. Next, we help companies set emissions reduction targets in line with best practice standards, particularly the Science-Based Targets Initiative (SBTi) and help them identify and execute the measures that they need to take to achieve net-zero emissions. This gives them a robust and future-proof decarbonisation strategy.
In parallel, we help companies review their ESG claims against standards for sustainable communication and advertising, like the Green Claims Code in the UK, the Milieureclamecode in the Netherlands and EU Green Claims Directive that is currently being discussed in Brussels. This ensures that claims made in B2B sales stand up and are credible.
Author: Sytze Dijkstra, Netherlands Country Manager at Simply Sustainable.
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