The Basics of Scope 3 Emissions

Introduction

The call for climate action and  sustainability performance is louder than ever. As corporations worldwide wrestle with their environmental responsibilities, it’s the complex network of indirect emissions—Scope 3—that looms large. This emissions inventory is fraught with complexity and ambiguity on where and how to quantify and address downstream emissions.

When it comes to greenhouse gas (GHG) emissions, the boundaries stretch beyond the confines of business walls. While Scope 1 emissions are direct emissions from owned/leased assets or controlled sources, and Scope 2 emissions stem from the generation of purchased electricity/district heating and cooling, Scope 3 emissions account for a much larger share. In fact, CDP estimated that Scope 3 emissions account for 75% of a company’s emissions on average. 

What Are Scope 3 Emissions?

Scope 3 emissions   It is crucial for organizations to understand and quantify these emissions for society to effectively tackle carbon reduction efforts and work towards a low-carbon future. Scope 3 emissions are often the most challenging to capture and measure since they occur outside a company’s immediate control. However, it is essential for businesses to quantify these emissions to gain a comprehensive understanding of their carbon footprint. 

Scope 3 emission activities can include everything from the extraction and production of raw materials to the processing of sold products and the transportation and distribution of finished products. They can also include the use and disposal of a company’s products by consumers. In simpler terms, it means that when calculating a company’s Scope 3 emissions, the entire lifecycle of a product, from cradle to grave, is taken into account.

One of the main challenges in understanding and quantifying scope 3 GHG emissions, is the lack of direct control that companies have over these activities. Unlike Scope 1 and Scope 2 emissions, which can be directly monitored and managed within a company’s operations, Scope 3 emissions require collaboration and data sharing with suppliers, customers, and other stakeholders. This collaborative approach is necessary to gather accurate and comprehensive data throughout the value chain of organization’s GHG emissions.

Furthermore, the complexity of the value chain itself is indirectly responsible for the difficulty of measuring these emissions. Companies often have multiple suppliers and subcontractors, making it challenging to track emissions across various stages of their value chains of production and distribution.

Additionally, different industries have different emission sources, different levels of materiality for emission sources and other factors to consider. For example, a company in the manufacturing sector may have to account for emissions from the extraction and production of raw materials, while a company in the professional services sector may have to consider emissions from business travel.

You should always quantify all Scope 3 emission sources during your first GHG inventory so you can understand what the most important and material Scope 3 emission sources are for your industry and specific business. During this first inventory, if you find that any particular Scope 3 emission sources make up less than 1% of your total company-wide emissions, it is safe to say that is not a material emission source and does not need to be quantified and reported at that time. 

Despite the challenges, quantifying Scope 3 emissions is crucial for businesses that are committed to sustainability and reducing their environmental impact. In addition, by understanding the full extent of their emissions, companies can identify hotspots and areas for improvement within their value chain. This knowledge allows them to develop targeted strategies and initiatives to reduce emissions, such as implementing energy-efficient practices, optimizing upstream transportation logistics, or sourcing materials from suppliers with lower carbon footprints.

Moreover, measuring and reporting Scope 3 emissions is becoming increasingly important for companies due to growing stakeholder expectations and regulatory requirements. Governments and regulatory bodies are also implementing stricter regulations and reporting standards, including mandatory Scope 3 emission reporting,  to address climate change and encourage sustainable business practices.

Sources of Scope 3 Emissions: A Breakdown

Diving into the intricate web of Scope 3 emissions, we uncover a diverse array of sources that go beyond a company’s own operations. These emissions can be likened to the unseen part of an iceberg – expansive and often underestimated. From the acquisition of raw materials to end-of-life product disposal, the reach of Scope 3 extends to both upstream and downstream activities.

For instance, a tech firm might revel in the fact they use renewable electricity for their data centers (a Scope 2 achievement), yet the manufacturing and disposal of their devices present emissions hotspots in the Scope 3 category. By pinpointing these other indirect emissions, businesses can unlock novel emissions reduction opportunities, fortifying their sustainability strategies and paving the way for a greener corporate landscape.

Why Scope 3 Emission Assessment Matters for Businesses

By understanding the full extent of their greenhouse gas emissions, companies can identify hotspots and areas for improvement within their value chain emissions. This knowledge allows them to develop targeted strategies and initiatives to reduce emissions, such as implementing energy-efficient practices, optimizing downstream transportation logistics, or sourcing capital goods from suppliers with lower carbon footprints.

1. Scope 3 emissions typically make up around 75% of a company’s total emissions. 
2. It allows organizations to gain a complete picture of their environmental impact and identify areas where they can make improvements. Understanding the specific sources of emissions can guide more effective sustainability measures.
3. It enables companies to set achievable and actionable reduction targets. By understanding the extent of their indirect emissions, organizations can establish realistic goals that align with their overall sustainability objectives. For instance, a company may aim to reduce their Scope 3 emissions by 20% within the next five years, knowing that this reduction will contribute significantly to their overall carbon footprint reduction.
4. Quantifying emissions reductions is vital for transparency and reporting. Stakeholders, including investors, customers, and employees, are increasingly interested in companies’ environmental performance and will scrutinize their efforts to address climate change.
5. Accurate and transparent reporting can enhance a company’s reputation and build trust with stakeholders. When organizations quantify and disclose this information in their sustainability reports, they demonstrate a commitment to environmental responsibility. This level of transparency allows stakeholders to track progress of a company, hold them accountable, and make informed decisions about their support or investment.
6. It can also lead to competitive advantages. Companies that proactively measure and manage their indirect emissions can differentiate themselves in the market. They can attract environmentally conscious customers who prioritize sustainability and are more likely to choose products or services from companies that demonstrate a commitment to lowering carbon emissions.

Best Practices for Accurately Quantifying Scope 3 Emissions

Accurately quantifying Scope 3 emissions can be a complex task, but there are best practices that organizations can follow to ensure accuracy and reliability. There are spend-based emission factors that allow companies to quantify Scope 3 emission sources based on dollars spent on different products and services, but these are emission factors created based on high level averages across many different situations and countries/regions. When using spend-based emission factors, the only true way to reduce emission is to reduce spend. But, if you are getting supplier-specific data and emission factors, companies can then understand the true emissions associated with their value chains and make changes that actually reduce their emissions.

Engaging Stakeholders

It is crucial to engage and collaborate with relevant stakeholders within the value chain. This collaboration helps in obtaining data and information necessary for accurate calculations. When engaging with stakeholders, it is important to establish clear communication channels and foster a sense of shared responsibility. This can be achieved through regular meetings, workshops, and forums where all parties can discuss their emissions data and share best practices. By engaging stakeholders, developing a comprehensive data collection and management system, utilizing standardized methodologies to report emissions, prioritizing emission sources, and seeking external expertise, organizations can ensure the accuracy and reliability of their emissions calculations.

Using Quality Data

Developing a comprehensive data collection and management system is essential. This system should capture data from various sources and allow for regular monitoring and reporting. Organizations can leverage technology solutions, such as data management software and automated data collection tools, to streamline the process and minimize errors. For example, North Star Carbon Management has functionality that allows companies to send surveys directly to all of their suppliers to collect all of the emissions data needed to quantify a company’s true Scope 3 emissions. 

Implementing a robust data collection and management system involves establishing clear data collection protocols and ensuring data integrity. This includes defining data sources, setting up data validation processes, and implementing quality control measures. By having a well-defined system in place, organizations can ensure that their emissions data is reliable and consistent.

Following Accepted Methodology

Utilizing standardized methodologies, such as the GHG Protocol, can provide consistency and comparability in emissions reporting across industries. The GHG Protocol is widely recognized and accepted as the global standard for greenhouse gas accounting. It provides organizations with a clear framework and guidelines for measuring and reporting emissions.

When using standardized methodologies, organizations should ensure that they are applying the most up-to-date versions and following the recommended and calculation methods and methodologies. Regularly reviewing and updating emission factors and calculation methodologies can help organizations stay aligned with the latest scientific understanding and industry best practices.

Prioritize Largest Emission Sources

Prioritize and focus efforts on emission sources with the most significant impact. Conducting a thorough assessment of the wider value chain of supply chain emissions, and identifying hotspots can help companies allocate resources effectively. By understanding which activities or processes contribute the most to Scope 3 emissions, organizations can develop targeted strategies to reduce their carbon footprint. The North Star target setting and planning function allows companies to analyze all of their emission sources, build scenarios to understand how changes in practices might affect a company’s overall carbon footprint and utilize AI to build a decarbonization roadmap for all Scope 3 emission sources.  

Consider engaging third-party experts or consultants with experience in sustainability reporting to ensure accuracy and compliance with international standards. These experts can provide valuable insights and guidance throughout the quantification process, from data collection to reporting.

Understanding Lifecycle Impacts in Scope 3 Emissions

Quantifying Scope 3 emissions demands a deep dive into the complexities of the value chain, from raw material extraction to end-of-life disposal. Each stage contributes differently to total emissions, making it crucial to understanding lifecycle impacts.

For instance, raw material extraction involves activities like mining and logging, which have significant environmental impacts such as deforestation and water pollution. Manufacturing processes, especially in industries like electronics, can release harmful chemicals and greenhouse gasses. Transportation, whether by air, sea, or land, also varies in its energy consumption and emissions characteristics. Effective recycling and waste management practices at the end-of-life stage can significantly reduce emissions.

Adhering to the Greenhouse Gas Protocol ensures a standardized approach to capturing these emissions across Scope 3 categories. Proactive engagement with suppliers and partners enhances data accuracy, enabling organizations to set net zero targets. By understanding the emissions from owned or controlled sources as well as the broader value chain, companies can make informed decisions to reduce their ecological impact and move toward a more sustainable future.

Calculating Your Carbon Footprint with Scope 3 Emissions

To calculate a company’s carbon emissions level accurately, Scope 3 emissions must be included. This holistic approach provides a more comprehensive view of the ecological footprint. Calculating Scope 3 emissions involves collecting data on various activities, including business travel, employee commuting, waste generated and supplier emissions. This data is then converted into CO2 equivalent based on specific emissions factors or industry-specific protocols.

We talked earlier about getting supplier-specific data to understand a company’s true Scope 3 emission sources. Oftentimes it is not totally feasible to get this data from all suppliers. In these cases, you may look to use average data such as spend data, material use data, miles traveled data etc. 

While the process of carbon emissions may seem daunting, numerous tools and software are available to support organizations in calculating their carbon impact accurately. These tools streamline data collection, simplify calculations, and ensure adherence to reporting standards.

Mitigating Scope 3 Emissions: Strategies & Best Practices

Collaborating with suppliers to implement sustainability initiatives, such as energy efficiency measures, waste diversion, sustainable material use, or sustainable transportation, can help many businesses reduce emissions throughout the value chain.

Companies can also explore the option of setting science-based targets to align their emissions reduction goals with climate targets outlined by the scientific community. These targets provide a clear framework for action and ensure that companies are making meaningful contributions to combat climate change through the reduction of third-tier carbon output.

Future of Sustainability

The importance of Scope 3 emissions in sustainability practices will continue to grow in the future. As companies strive to become more sustainable and tackle climate issues, understanding and managing these indirect emissions will be vital.

Written By Josh Prigge

Josh is a renowned sustainability professional with extensive experience in leading sustainability programs and initiatives for large organizations. His expertise is not just limited to consulting; he is also a sought-after public speaker and a college professor. To learn more about him, read about him here – About North Star Carbon Management.