Why measuring Scope 3 emissions is important
While many organisations have begun measuring and managing Scope 1 (direct) and Scope 2 (indirect) emissions, Scope 3 emissions represent a far more extensive task.
Scope 3 emissions are those emissions that come from an organisation’s value chain, and from activities that are not owned or controlled by the reporting organisation. While outside an organisation’s direct control, they make up the vast majority (between 65-95%) of an organisation’s carbon footprint, making them critical to any meaningful decarbonisation pathway.
As a result, there are several reasons why an organisation should consider measuring and acting on these emissions:
Customers are increasingly choosing organisations that are positively addressing ESG concerns. Incorporating Scope 3 emissions measurement and management demonstrates the organisation’s commitment to sustainability and aligns with consumer expectations.
Suppliers and business partners are likely on a similar path to reducing their carbon footprint and both are looking to work together in identifying areas of sustainable sourcing, cost savings and reducing inefficiencies across their value chain. By measuring and addressing Scope 3 emissions, organisations can foster collaboration with suppliers and create mutually beneficial sustainable initiatives.
Banks, investors and the broader shareholder group are demanding more information to assess ESG criteria. The absence of this type of information is expected to affect access to capital and the cost of borrowing, and a low sustainability score may result in a higher risk rating. By effectively measuring and managing Scope 3 emissions, organisations can provide the transparency that investors seek, strengthening their position and reducing potential financial risks.
Scope 3 reporting has thus far been mostly voluntary, but the pressure to make it mandatory is growing. The Taxonomy Regulation and the Corporate Sustainability Reporting Directive are increasing the types of disclosures undertakings must make, with Scope 3 emissions being high on the priority list. Proactively measuring and reporting Scope 3 emissions not only ensures your organisation’s compliance but also positions your organisation as a responsible and forward-thinking entity.
The feat is challenging
Organisations often face significant obstacles in addressing Scope 3 emissions. Their indirect nature makes estimating and tracking them, let alone reporting them, seem devilishly complicated, especially since:
1. Collecting and reporting data can be time-consuming and resource-intensive.
Since organisations rely on third-party sources that often aren’t involved in the Scope 3 calculations themselves, obtaining the necessary data can prove very difficult.
2. Modelling approaches based on estimates may not be detailed enough to support better management decisions or identify distinct opportunities for an organisation to lower carbon emissions.
In recognition of the difficulties surrounding data availability, organisations may opt to take a spend-based approach that relies on industry-average emission factors and thus may not necessarily reflect the actual emission footprint of a given organisation.
3. Extrapolating results from a small sample of suppliers may yield unreliable results.
While estimating Scope 3 emissions is a common (and useful) approach, when organisations lack the necessary statistical expertise, the results may be skewed and lead to incorrect conclusions.
4. Having the right expertise is not enough.
Organisations often lack the organisational structure and processes to oversee the estimations, quantification and extrapolation of Scope 3 data in multiple parts of the business. As these activities involve subjective choices and judgments in a mostly unregulated process, organisations run the risk of reporting only those Scope 3 emissions that can be most easily measured, rather than the most material items.
Be prepared
A plan to measure, manage and reduce emissions can help your organisation build brand health, attract new customers, build confidence with your investors and potentially win business with key vendors, suppliers and other business partners that are on a similar journey. When you approach Scope 3 systematically and strategically, you can not only progress on commitments but can also reap significant benefits.
Despite all the complexity surrounding Scope 3 emissions, one thing remains simple: the end goal of measuring and tracking them is to shape business decisions that mitigate the effects of climate change. For business leaders, the resulting agenda for corporate action should be equally clear:
Leverage your data to focus efforts where they will have the greatest impact;
Establish a baseline of performance; and
Prioritise efforts with suppliers and craft meaningful performance incentives for them.
Do these things, and you’re making a positive contribution. Forward-looking organisations will read the writing on the wall and start developing the capabilities and expertise they’ll need to measure and manage their Scope 3 emissions. By adopting an incremental approach to data collection, organisations can begin making meaningful progress now, before it’s too late.
