Key points
The majority of an organisation's emissions footprint (sometimes over 90%) is likely to be scope 3 emissions.
The task of measuring scope 3 emissions can be daunting, and it may be hard to know where to start.
An organisation should use a collection method that is consistent with their reporting requirements and a method which will identify and monitor progress on the levers for decarbonisation.
Start with data that you have available and gradually improve methodology to increase the accuracy of scope 3 measurements.
An organisation must acknowledge that scope 3 measurements may have many assumptions and the data may not be as complete compared to other measurements.
Assumptions and data availability will gradually improve year on year to create a more accurate scope 3 measurement.
What are scope 3 emissions?
Measuring scope 1 and 2 emissions are relatively straightforward. Scope 1 emissions refers to direct emissions generated by a company, such as emissions produced by company owned facilities and vehicles. Scope 2 refers to indirect emissions, for example those from electricity, heating, or cooling purchased by the company from other organisations.
Scope 3 emissions on the other hand are more complex, nuanced, and require more attention. Scope 3 emissions, often referred to as indirect or value chain emissions, encompass all the indirect greenhouse gas emissions associated with an organisation’s activities. The GHG Protocol outlines 15 different categories of scope 3 emissions. They include the emissions generated throughout the entire value chain, from raw material extraction to product disposal and everything in between. Research by CDP shows that scope 3 emissions account for 11.4 times[1] the direct emissions per company which makes it vital to understand ways to reduce and manage them.
GHG Protocol 15 Scope 3 emission categories
Source: Greenhouse Gas Protocol
Why are scope 3 emissions important to measure?
Measuring scope 3 emissions is crucial for a holistic understanding of a company's environmental impact. As organisations become increasingly aware of their role in global sustainability efforts, assessing scope 3 emissions allows them to identify hotspots and areas for improvement across their value chain. Investors, customers, and regulators are also placing greater emphasis on transparency, making it essential for companies to account for their entire carbon footprint. This comprehensive approach not only aligns with global climate goals but also positions businesses as responsible stewards of the environment.
Why are scope 3 harder to measure than scope 1 and 2?
Measuring scope 3 emissions poses unique challenges compared to scopes 1 and 2. The primary issues include data availability, complexity, and boundary setting. Organisations often struggle to obtain accurate data from suppliers and partners, hindering the precision of their calculations. The intricate web of interconnected relationships in a value chain adds layers of complexity, making it challenging to account for all emissions sources. Determining the appropriate boundaries for measurement is another hurdle, as the extent of influence an organisation has over its value chain may vary. Overcoming these challenges requires collaboration, transparency, and the development of standardised methodologies for consistent reporting. Below are some key factors that contribute to the difficulty in measuring scope 3 emissions.
Indirect Nature and Value Chain Complexity
Scope 1 and 2 emissions are typically associated with direct operations and purchased energy, respectively, making them more straightforward to identify and measure.
Scope 3 emissions, on the other hand, involve indirect sources across the entire value chain, including suppliers, customers, and end-of-life considerations. This complexity makes it challenging to track and quantify all relevant emission sources.
Data Availability and Reliability
Obtaining accurate and comprehensive data for scope 3 emissions is often more difficult due to the involvement of numerous external entities in the value chain.
Suppliers and partners may not have the same level of commitment to sustainability reporting, making it challenging to collect reliable data. Inconsistent data quality can lead to inaccuracies in the assessment.
Variable Influence and Control
Organisations may have limited influence or control over certain elements of their value chain, making it unclear where to set the boundaries for measurement.
Determining which activities and emissions are directly attributable to the organisation versus those influenced indirectly requires a nuanced understanding of the supply chain dynamics.
Categorisation and Standardisation Challenges
Scope 3 emissions cover a wide range of categories, including purchased goods and services, transportation, and product use. Categorising and standardising these emissions for consistent reporting can be complex.
A lack of standardised methodologies across industries can result in variations in measurement approaches, making it difficult to compare and benchmark emissions data.
Interconnected Relationships
Organisations are part of a web of interconnected relationships with suppliers, customers, and other stakeholders. The ripple effect of changes in one area of the value chain can impact emissions in unexpected ways, further complicating measurement.
Time Lag and Dynamic Changes
Scope 3 emissions are subject to changes over time, influenced by factors such as market dynamics, technological advancements, and shifts in consumer behaviour. This dynamic nature introduces a time lag and requires ongoing monitoring and adjustment.
Resource Intensiveness
Measuring scope 3 emissions demands significant resources, including time, manpower, and financial investment. Organisations may face challenges in dedicating the necessary resources for comprehensive data collection and analysis.
How to start measuring
To effectively measure scope 3 emissions, organisations must embark on a comprehensive and collaborative journey. The following steps can guide the initiation of this process:
1. Conduct a comprehensive scope 3 inventory
Start by conducting a thorough inventory of your scope 3 emissions. This involves categorising emissions based on the different stages of your value chain, including upstream and downstream activities. Common scope 3 categories include purchased goods and services, transportation and distribution, use of sold products, and end-of-life treatment of sold products.
2. Engage stakeholders
Collaborate with suppliers, partners, and other stakeholders to gather accurate and reliable data. Establishing open communication and incentivising participation can enhance data quality.
3. Prioritise emission categories
Analyse the data collected to identify emission categories that contribute most significantly to your overall carbon footprint. Prioritise these categories based on the materiality of emissions and their potential impact on your organisation's sustainability goals.
4. Establish boundaries
Clearly define the organisational boundaries and influence levels to determine which emission sources will be included in the assessment. This step helps manage the complexity associated with scope 3 emissions.
5. Choose a calculation methodology
Select a recognised and accepted calculation methodology, such as the GHG Protocol's Scope 3 Standard, to ensure consistency and comparability in reporting. This will facilitate benchmarking and help organisations set meaningful reduction targets.
What measurement approach should you take?
Scope 3 emissions can be calculated using different methods. Two common approaches are the spend-based method and the mass-based method. These methods provide organisations with flexibility in choosing the most suitable approach based on the available data, business operations, and reporting goals.
Spend-Based Method
The spend-based method, also known as the Environmentally Extended Input–Output Analysis (EEIOA) or economic allocation, allocates emissions based on the monetary value of goods and services purchased. It considers the economic contribution of different activities within the value chain.
Advantages:
Simplifies data collection by relying on financial records
Can produce results quickly
Reflects the economic significance of different activities in the value chain
Challenges:
May not capture variations in emissions intensity within spend categories
Assumes homogeneity of products (each economic activity produces only one physically homogeneous product) and homogeneity of prices (each industry sells its characteristic output to all other economic activities and to final consumers at the same price)
Relies on average emission factors, which may not accurately represent specific supply chain practices
Mass-Based Method
The mass-based method, also known as the physical unit or mass allocation method, allocates emissions based on the physical quantity or mass of materials or products. This approach directly ties emissions to the quantity of goods or services purchased.
Advantages:
Directly links emissions to physical quantities, providing a more tangible and intuitive representation of environmental impact
Can capture variations in emissions intensity within mass categories
Challenges:
Requires detailed data on the physical quantities of goods and services purchased
May be more complex in cases where multiple units of measure are involved
Considerations for Choosing a Method
Data Availability: The choice between spend-based and mass-based methods often depends on the availability and reliability of data. Organisations with comprehensive financial data may find the spend-based method more feasible, while those with detailed quantity data may prefer the mass-based method.
Industry Specifics: The nature of the industry and the characteristics of the value chain may influence the choice of method. Certain industries may find one method more suitable based on their operational and supply chain characteristics.
Reporting Goals: Consideration should be given to the organisation's reporting goals and the level of detail required for transparent and accurate reporting.
Standard Compliance: Ensure that the chosen method aligns with recognised standards such as the Greenhouse Gas Protocol or other industry-specific standards.
Both the spend-based and mass-based methods offer valid approaches to calculating scope 3 emissions, and organisations may choose the one that best fits their circumstances and objectives. However, a mass-based approach for calculating scope 3 emissions can be considered more accurate in certain situations as it directly ties emissions to the physical quantity or mass of materials or products. This method provides a more tangible and intuitive representation of environmental impact, and it can offer advantages in capturing variations in emissions intensity within mass categories. Most importantly, it also allows organisations to account for the specific emissions associated with different products or materials, enabling a more accurate representation of the overall impact.
While the mass-based method may not always be possible due to data availability it should be aspired to as it is generally considered more accurate. Companies may start reporting using the spend based method but then gradually move towards the mass-based method as data availability improves. Regardless of the method it is important to continuously improve data accuracy, engage with suppliers, and stay abreast of developments in emission accounting methodologies to enhance the effectiveness of Scope 3 reporting.
How to reduce scope 3 emissions?
Identifying scope 3 hotspots, or areas within the value chain where a significant portion of indirect emissions occurs, is a crucial step for organisations committed to understanding and managing their carbon footprint comprehensively. Once scope 3 emissions are measured, organisations can implement strategies to reduce their carbon footprint across the value chain:
Supply Chain Optimisation
Work with suppliers to identify opportunities for efficiency improvements, resource optimisation, and the use of sustainable materials. Encouraging suppliers to adopt greener practices can have a cascading effect on the overall carbon impact.
Sustainable Transportation
Optimise transportation methods, choose low-emission vehicles, and explore alternative transportation options. Reducing the carbon intensity of transportation activities can significantly impact scope 3 emissions.
Product Design and Lifecycle Management
Design products with a focus on durability, recyclability, and energy efficiency. Extend the lifespan of products and implement effective end-of-life recycling programs to minimise emissions associated with product disposal.
Collaboration and Innovation
Engage in industry collaborations, share best practices, and invest in innovative solutions. By fostering a culture of continuous improvement and sustainability, organisations can drive meaningful reductions in scope 3 emissions.
CEN-ESG can provide an end-to-end solution for scope 3 calculations
CEN-ESG can provide comprehensive analysis of indirect emissions across the entire value chain through:
Carrying out a scope 3 inventory to identify material categories.
Providing guidance on collecting and reporting data related to Scope 3 emissions such as recommendations on data sources and emissions factors.
Addressing industry-specific considerations that can impact Scope 3 emissions calculations.
Help in integrating scope 3 emissions calculations as part of a broader sustainability reporting framework.
Providing continuous improvements and updates to scope 3 calculations.
Contact us
CEN-ESG helps businesses maximise their sustainability potential, performance and ESG disclosure.
If you would like more information about Scope 3 emissions or how to measure, reduce, or report them for your company or organisation, our team would be more than happy to help.
Jasper Crone, Director
Roger Johnston, Director
For more information about our Sustainability Consultancy, Investor Relations, or CEN Data services and expertise, please click on Services above or go to https://www.cengroupholdings.com.
[1] https://www.cdp.net/en/research/global-reports/scoping-out-tracking-nature-across-the-supply-chain
Title page photo credit: Mika Baumeister on Unsplash
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