Navigating Scope 3 Emissions: A Pragmatic Approach with an Impact

In the quest to address climate change, organizations are becoming increasingly aware of the need to reduce their carbon footprint. While focusing on direct emissions (Scope 1) and those from purchased energy (Scope 2) is crucial, it’s equally important to consider Scope 3 emissions – those indirect emissions that occur along the value chain. Scope 3 emissions encompass a wide range of activities, from supplier operations and transportation to product use and disposal. Let’s delve into the significance of Scope 3 emissions and provide pragmatic insights on how to measure and manage them effectively.

The Significance of Scope 3 Emissions

Scope 3 emissions are often the largest and most complex portion of an organization’s carbon footprint. Data from the Carbon Disclosure Project (CDP) shows that on average 75% of a company’s emissions are in Scope 3. These emissions account for the downstream and upstream impacts associated with a company’s operations, products, and services. Neglecting Scope 3 emissions undermines a comprehensive sustainability strategy and limits the potential for meaningful carbon reduction.

Here’s why focusing on Scope 3 emissions is crucial:

• • Complete Carbon Picture: Scope 3 emissions provide a holistic view of an organization’s environmental impact, ensuring that no emission sources are overlooked.

• • Value Chain Influence: Organizations can drive positive change across their value chain by collaborating with suppliers, customers, and partners to collectively reduce emissions.

• • Stakeholder Expectations: Investors and customers are increasingly demanding transparency and action on Scope 3 emissions, making it a critical aspect of corporate climate action.

• • Regulatory Compliance: Companies that have to follow CSRD, will have to report scope 3 emissions and have them audited.

• • Science–based targets: A full GHG-protocol compliant scope 3 inventory is a prerequisite to develop & validate your climate ambition with the Science-Based Target initiative (SBTi).

Measuring Scope 3 Emissions Pragmatically

Measuring Scope 3 emissions can be a complex endeavor, but a pragmatic approach can simplify the process and yield actionable insights. A structured approach combining expertise about the companies’ specific value-chain and corporate climate action is key to focus resources on those emission sources that are significant & actionable, whilst not losing track of (mandatory) compliance with the GHG protocol.

Here’s a step-by-step guide to get you started:

• • 1. Define organizational boundaries: A robust carbon footprint always starts with a clear definition of the organizational boundaries. It requires a rigorous screening to define which entities are under operational control and for which the value chain emissions should be included.

• • 2. Identify Emission Categories: The GHG-protocol corporate value chain Scope 3 standards divides indirect emissions into 15 specific categories. It also provides the mandatory emission-producing activities to include in each of those categories (so-called ‘minimal boundary’). The first step is to scan the companies’ operations & value chain to identify all activities that fall within those minimal boundaries and potentially other activities that might be material. It is important at this point to cast a wide net and not exclude any activity because it is deemed negligible or difficult to collect data.

• • 3. Prioritize Emission Sources: Of course, some emission sources might clearly be very small and are hard to collect data from. That is why a pragmatic prioritization of emissions sources is based on their significance, considering factors like emissions intensity, supplier influence, data availability, potential for climate action, and links with the overall company strategy. The prioritization will also determine the type of data that might be collected (see ). For the top priority categories, this means collecting supplier-specific or activity data where possible. Whilst for lower priority categories monetary data or estimations of activity data can be use as a first computation.

Emissions can be calculated based on different types of data. This figure shows, based on carbon footprint disclosures of 175 large companies, what data was used for each scope 3 categories.

Supplier specific: emission calculations are based on specific (3^rd-party validated) product carbon footprint data. This is the most accurate, but also the most difficult type of data to collect.

Activity-based: Emissions are calculated based on physical activity data (kg, ton. km, #products, etc.). This data can either be estimated or measured. It is an accurate way of calculating emissions, based on data that is available in the organization or estimations from your experts. Therefore, it is the most used data source for Scope 3, except for purchases & capital goods.

Spend-based: Emissions are calculated based on spending data. The data itself is very accurate since it comes from financial reporting. However, the emission factors that are available have a high degree of uncertainty. It is therefore a good way to identify the emission hotspots in your purchases in a resource-efficient way. However, it doesn’t allow to define & track concrete emission reduction actions.

Hybrid: A hybrid approach between different data sources is possible depending on the availability of data and resources to collect it.

• • 4. Data Collection: The data collection itself requires engaging different internal and potentially external stakeholders. Custom-made tools, as well as software solutions, can help you organize & track the whole process. There are three key points of attention for any data collection. Firstly, internal capacity building: stakeholders have to understand what data they should gather and for what reason. Appointing data owners will ensure accuracy & completeness. Secondly, sources and assumptions should be rigorously documented to ensure auditability. Thirdly, builing a carbon footprint will be a recurring exercise, which means data collection processes should be repeatable and where possible (semi-)automated.

• • 5. Quantify Emissions: Calculate emissions for each category using the collected data and emission factors. Emission factors should be selected from reputable sources or based on specific supplier information. Software tools can automate this process and provide real-time insights. Besides emissions also the level of uncertainty on both the activity data as well as the emission factors should be consolidated.

• • 6. Monitor, Report & Improve: The company should ensure an adequate governance structure to monitor the Scope 3 emissions over time. As well as ensure improvements in the accuracy, completeness, and resource intensity of the footprint by setting up a robust data roadmap. It is furthermore important to consider how to disseminate the results internally so that they can inform the development and tracking of action plans. The results will also feed into external reporting, such as sustainability reports and CSRD reporting.

• • 7. Take Action: Once the Scope 3 inventory is calculated & analyzed, it is time to start taking action to reduce it. A robust & complete Scope 3 is the ideal starting point to define ambitious reduction goals and to develop an action plan to reach them.

In the fight against climate change, addressing Scope 3 emissions is no longer a choice but a necessity for organizations committed to sustainability. By embracing a pragmatic approach to measurement and management, businesses can uncover opportunities for emission reductions, cost savings, and improved relationships across their value chain. Remember, every emission reduction, no matter how small, contributes to a more resilient and sustainable future.

We implemented this with multiple clients in diverse sectors and are happy to support you on this journey.

Do you want to know more? Reach out to our expert Pieterjan Vaneerdewegh

pva@climact.com