By: Rajiv Jalim, Manager, ESG Solutions Engineering, FigBytes
It’s human nature for the mind to automatically translate the word “optional” into something like, “you can procrastinate on this one and save it for later.” Scope 3 emissions tracking – which has been around for 11 years already and is the only internationally accepted method for companies to account for value chain and supply chain emissions – is still listed as an optional reporting standard by the Greenhouse Gas Protocol (GHGP). Scope 3 is very different from Scope 1 (direct emissions from company operations) and Scope 2 (indirect emissions from “purchased energy”). Most organizations do not have any direct control over what its supply chain partners are doing or how much they are emitting.
But its sheer scale, covering in some cases hundreds or thousands of other entities that work for or supply a single large company, is exactly why Scope 3 can’t be ignored. Some companies might count 70% of their total emissions in the Scope 3 category, dwarfing Scopes 1 and 2 in total climate impact. A grocery chain, which relies on many suppliers every day, might see 80-90 percent of emissions residing in the Scope 3 category. For companies with extensive supply chains or value chains, Scope 3 might be the low-hanging fruit where a small change in policy or requirements for partners can have a high impact on total emissions. Why relegate to “optional” an area that gives you more climate change progress for less capital expenditure?
Starting a Scope 3 initiative
While Scope 3 may have broad reach, consider these first steps to help get your Scope 3 initiative off on the right track.
- Start small by targeting the one or two categories you might already have the data on. There are 15 total categories contained in Scope 3, so it’s important to prioritize. This will depend heavily on what industry you work in. Are you a consultancy like Accenture or McKinsey that provides professional services? Then you might choose categories 6 and 7 – business travel and employee commuting. Or if you’re a big manufacturing company, you will want to focus on Category 1 (Purchased goods and services), 11 (Use of sold products), or 12 (End of life treatment of the products).
- Do a materiality assessment. A materiality assessment uses stakeholder feedback to align corporate values with what you can do and should be doing on the ground, helping with the prioritisation of sustainability issues for the organization. Do the Scope 3 categories you have data on match up with the materiality assessment results? You may have to make some adjustments based on what’s reportable.
- Choose your method of calculation: Operational or spend-based? Most choose a spend-based measurement because that data is readily available in a budget. The risk of using only spend-based measurement is that impacts and dollars spent aren’t always parallel. For example, if you make a decision to buy sustainable office products or require suppliers to do so, costs may go up. Operational data method of calculation is another option. Operational data is defined as emissions data acquired through operational activities – things like kilograms of product sold or liters of fuel consumed. While this data might be preferred to a proxy source like spend data, it’s not always readily available. Data source decisions often come down to the old saying, “let’s not make the perfect be the enemy of the good.” If spending numbers are what you have today and you need more time to get more detailed data, best to start there rather than not start at all.
If you start with those three steps, you’re well on your way to Scope 3 monitoring. But finding the right benchmarks to measure your organization’s progress should be the next milestone. The World Resources Institute’s Science Based Target Initiative (SBTi), working with disclosure data collected by CDP, is a good place to start if you want independent assessments of your ESG goals and emissions reductions. The targets will be based on vetted climate science and the 1.5-degree-Celsius cap on global temperature rise above pre-industrial levels, which has been agreed on by last year’s G20 leaders.
Why we can move Scope 3 out of the optional category
Scope 3 is likely to be moved into a recommended category some day, so getting started today is a smart move. Proactive ESG reporting that goes beyond regulations and requirements enhances your organization’s credibility and lowers the cost of Scope 3 compliance when regulation does require it. Showing that your company values emissions reporting can attract investors and top talent, especially among Gen Zers who are closely following which companies value sustainable practices.
You might be wondering how you get your supply chain partners to come with you on this journey. Not every company may be jumping on this reporting train right away – but I have found that getting partners to cooperate is directly linked to how easy you make it to report data. Rather than throw your weight around as a buyer, try creating a reporting pathway for partners that is simple, with little investment or resources needed on their end. Most companies understand the importance of the data journey and want to climb aboard that train – just lower the ladder for them.