Blogs

Scope 3 Emissions – How it is evolving?

The Greenhouse Gas (GHG) Protocol provides the most widely recognised accounting standards for greenhouse gas emissions and categorizes GHG emissions into three Scopes.

What are the sources of Scope 1, 2 and 3?

Scope 3 emissions and GHG Protocols (US and EU)

The categorization of emissions into different Scopes is a defining feature of the GHG protocol. Governments across the globe are universally adopting the categorization/standards related to emissions, as climate change is a universal problem and the issues related to climate change span national borders. 

The development of the standards consisted of a broad and all-inclusive multi-stakeholder process, wherein the GHG accounting and reporting standards were developed in conjunction with businesses, government agencies, NGOs, and academic institutions worldwide. In 2008, World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD) launched a three-year process to develop these new standards. Strategic direction for the process was provided by a 25-member steering committee of experts. The first drafts of the standards were developed in 2009 by technical working groups consisting of over 207 members from various industries, government agencies, academic institutions, and non-profit organizations across the globe. Also, in 2010, 60 companies from a variety of industries road-tested the standards and provided feedback regarding their practicality and usability. The organizations participating in the testing included companies such as 3M, DuPont, PepsiCo, Pfizer, BASF, and AkzoNobel, among others. In addition, more than 2,300 participants formed a stakeholder advisory group that provided feedback on each draft of the standards. 

Situation in the UK

Today, governments and environmental organizations, such as the EPA in the US, are aware of the relevance and importance of Scope 3 emissions and are trying to help businesses assess, measure, and minimize such emissions.
Also, the SEC released a final draft of its climate disclosure rule on March 6, 2024. This rule encompasses Scope 3 emissions, and the final draft will require many companies listed in the United States to provide disclosures regarding GHGs and specify expected impact of climate-related risks.

Situation in the US

In the European Union (EU), the Carbon Border Adjustment Mechanism (CBAM) is a tariff on carbon-intensive products imported by members of the region. CBAM considers both direct and indirect emissions (including Scope 1, Scope 2, and some Scope 3). The CBAM has become applicable to all in-scope products from October 2023, ahead of its full rollout in 2026. The tariff currently covers industries such as electricity, hydrogen, cement, fertilisers, aluminum and iron and steel. More industrial sectors such as oil refining, upstream (fuel production), glass and ceramics, acids and organic chemicals, metals, pulp and paper, maritime, aviation, and lime will be added in 2030.

Benefits of assessing and measuring Scope 3 emissions for companies 

  • Help businesses assess emission identify hotspots across value chains and enable prioritization of reduction strategies 
  • Assist organizations in categorizing suppliers as leaders and laggards in terms of their sustainability performance 
  • Enable informed decision making across procurement, product development, and logistics teams regarding interventions that can deliver the most significant emission reductions 
  • Encourage innovations to create more sustainable and energy-efficient products 
  • Help advance strategies to create genuine, quantifiable, and visible change regarding decarbonization thus contributing toward achieving Net Zero targets 
  • Allow organizations to positively engage with employees to reduce emissions from business travel and employee commuting 
  • Assist in prioritizing de-carbonisation efforts and identifying areas where the biggest difference can be made 
  • Help businesses collaborate with suppliers to reduce emissions and demonstrate community level benefits of supply chain decarbonisation 
  • Assist organizations in communicating a comprehensive footprint and progress with stakeholders, such as constituents and communities 
Procurement centric Focus on building capability 
Organizations are adopting measures that can help them embed decarbonization into procurement processes, such as mandatory carbon reporting and carbon reduction requirements in tender proposals. Also, measures such as inclusion of carbon reduction clauses in performance management contracts and specification of penalties, such as termination of contracts of suppliers that fail to meet criteria, are being increasingly adopted. This involves sharing learnings and leading practices related to carbon-reduction efforts being adopted by different organizations via supplier forums and workshops. Also, training and upskilling of suppliers in key areas related to decarbonization along with peer benchmarking to let suppliers know how they compare to their competitors.  
Rewards and incentives Enforcement 
Organizations are providing financial incentives for achieving decarbonization goals, such as financially rewarding a supplier when it meets an emissions target. Also, organizations are looking to invest in promoting long-term initiatives such as power purchase agreements or carbon inset projects of suppliers as well as paying premium prices for low-carbon products and providing preferential payment terms for fulfilment of carbon-reduction targets. This involves adopting measures such as levying financial penalties for failure to meet decarbonization targets. Adoption of such measures can shift accountability to suppliers. Also, direct financial penalties can be agreed upon and levied for scenarios such as failing to meet net zero targets. 
Signify N.V. IBM 
Formerly known as Philips Lighting N.V., a Dutch multinational lighting corporation, has announced that it halved its GHG emissions since 2019 and cut its emissions by 22% in 2023 compared to 2022. The company also stated that it has included Scope 3 emissions to its environmental accounting this year. It stated that though the Paris Agreement is targeting a 30% reduction in Scope 3 emissions by 2030 compared to a 2015 baseline to achieve a 1.5°Celsius reduction, the company had already achieved a 61% reduction, thereby surpassing the target. An American technology company, disclosed recently that it reports Scope 3 emissions in five of the fifteen categories defined by the GHG Protocol’s Corporate Value Chain Emissions Accounting and Reporting standard. IBM considers Scope 3 emissions related to the purchased goods and services category for its calculations, namely, emissions associated with electricity consumed in third-party operated spaces leased out by IBM (co-location data centers). The company is setting goals in alignment with scientific recommendations of the Intergovernmental Panel on Climate Change that aims to limit climate change to 1.5°Celsius above pre-industrial levels. 

Between January and June 2010, 34 companies had implemented the GHG Protocol Scope 3 Standard in their organizations in a bid to provide WRI and WBCSD feedback on the practicality of the standards. In May 2010, the companies participated in an in-person workshop in Washington DC and submitted their inventory reports and detailed written feedback by mid-2010.  

Companies participating in the road-testing exercise pertaining to the Scope 3 Accounting and Reporting Standards found that it was possible to complete a Scope 3 inventory and many of these companies felt that it was practical to complete an inventory annually. 

Given below are the names of some companies that participated in this exercise. 

3M Mitsubishi Chemical Corporation 
Abengoa National Grid 
Acer Inc. New Belgium Brewing 
Airbus S.A.S Ocean Spray Cranberries 
AkzoNobel PE International 
Amcor Pfizer 
Autodesk Inc. Pinchin Environmental Ltd. 
Baoshan Iron & Steel Co. Ltd. PricewaterhouseCoopers 
BASF SE Procter & Gamble Eurocor 
Coca-Cola Erfrischungsgetränke AG Public Service Enterprise Group Inc. 
Danisco A/S SAP AG 
Deutsche Post DHL SC Johnson 
Deutsche Telekom AG Shanghai Zidan Food Packaging and Printing Co., Ltd. 
Ford Motor Company Shell International Petroleum Company Ltd. 
IKEA Siemens AG 
Italcementi Group Suzano Pulp and Paper 
Kraft Foods Swire Beverages 
Lenovo Veolia Water 
Levi Strauss & Co. Webcor Builders 

The emissions are categorized into Scope 1, 2, and 3; however, this classification and related standards are not a part of any act or regulation; however, they are aligned with existing environmental regulations and, thus, have become generally accepted norms. Companies and organizations are not bound to accept them but most of them are voluntarily adopting these norms because it helps them manage their GHG emissions better if they can classify them based on their source. 

Today, governments and companies across the globe are cognizant of this classification and coming up with plans for decarbonization based on this categorization, and it is expected to become a universally recognized and accepted norm in the near future. 

Talk to Our Experts

From retail to healthcare, businesses are scraping the bottom of the barrel hoping to find the next opportunity for topline growth or spending cutbacks. Contextualized category intelligence is increasingly the key differentiator.

Contact Us

FAQs

The evolution of Scope 3 emissions reporting is being shaped by several key trends, including increasing regulatory requirements, stakeholder demand for greater transparency, and the rise of advanced data analytics and technology solutions. Companies are increasingly expected to disclose their entire carbon footprint, which includes indirect emissions from their supply chains and product lifecycles. This has led to the development of standardized reporting frameworks and methodologies, such as the Greenhouse Gas Protocol. Additionally, there is a growing emphasis on collaboration across supply chains to collect accurate data, alongside the use of blockchain and IoT technologies to enhance the precision and efficiency of emissions tracking.

Measuring Scope 3 emissions is crucial for organizations because it provides a comprehensive understanding of their total environmental impact, beyond their direct operations (Scope 1) and energy use (Scope 2). By identifying and quantifying these indirect emissions, companies can uncover significant opportunities for reducing their carbon footprint and improving sustainability. This not only helps in meeting regulatory and stakeholder expectations but also enhances corporate reputation, drives operational efficiencies, and can lead to cost savings. Furthermore, understanding Scope 3 emissions enables organizations to mitigate risks associated with climate change and aligns them with global sustainability goals, such as the Paris Agreement targets.

To measure Scope 3 emissions, organizations should start by mapping their value chain to identify all relevant emission sources, which can be categorized into upstream and downstream activities. This includes purchased goods and services, business travel, employee commuting, waste disposal, and use of sold products, among others. Utilizing the Greenhouse Gas Protocol’s Corporate Value Chain (Scope 3) Standard can provide a structured approach to data collection and calculation. Companies should engage with their suppliers to obtain accurate data, and leverage technology tools such as carbon accounting software, life cycle assessment (LCA) tools, and data analytics platforms to streamline the process. Regularly reviewing and updating the data, along with setting clear reduction targets, will ensure continuous improvement in managing Scope 3 emissions.

An example of a Scope 3 carbon emission is the emissions generated from the production and transportation of raw materials that a company purchases from its suppliers. For instance, a clothing manufacturer’s Scope 3 emissions would include the carbon footprint of the cotton grown, processed, and transported to their production facilities. These emissions are considered Scope 3 because they occur outside the direct operations and energy use of the clothing manufacturer, but are a critical part of the overall carbon footprint of the final product.

Recent Posts

Ways to Tackle Volatile Commodity Price Changes With Ease

Written by: Srinivas Procurement organizations must think ahead of the curve!   Commodity prices are expect...

Read More
Cybersecurity lessons

Essentials of Procurement Strategy for the Semiconductor Industry

By: Yatheesh Chandrasekaran The semiconductor industry is a cornerstone of modern technology, underpinning everything...

Read More

Robotics in the Packaging Industry: Transforming Efficiency, Speed, and Safety

The packaging industry is undergoing a significant transformation, driven by the increasing adoption of automation an...

Read More
SpendEdge Central: Comprehensive procurement intelligence platform
x