What are scope 3 emissions, how can organisations measure them, and what benefits do they offer?
What are scope 3 emissions?
Scope 3 emissions are a category of greenhouse gas emissions that represent all the indirect emissions that occur in a company’s value chain, outside of its own operations. These emissions occur as a result of a company’s suppliers, customers, and other business partners, as well as the use and disposal of its products.
The category usually makes up a significant portion of a company’s overall carbon footprint – sometimes more than 70%. Therefore, addressing scope 3 can be challenging, often requiring collaboration and coordination with external stakeholders throughout the value chain.
Alongside indirect emissions are scope 1, which covers direct emissions from owned or controlled sources and scope 2 that covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the company.
You can learn more about emission scoping in our explainer on what are scope 1 2 3 emissions.
What is an example of scope 3 emissions?
Because scope 3 carbon emissions cover every aspect of a businesses value chain, there are plenty of examples to pick from:
- Purchased goods and services
- Upstream transportation and downstream distribution
- Business travel
- Employee commuting
Why should organisations measure their emissions?
Measuring scope 3 emissions comes with several benefits. Because most companies emissions fall into this category, the majority of improvements can be found there.
By measuring these emissions, organisations can:
- See cost savings: Identifying and reducing scope 3 emissions can lead to significant cost savings for companies. This can include optimising, or ‘trimming’ supply chains, reducing waste, and improving energy efficiency.
- Gain a competitive and reputational advantage: Measuring scope 3 emissions and implementing strategies to reduce them can lead to companies gaining a competitive edge with value-driven consumers and investors by demonstrating their commitment to sustainability by reducing their environmental impact.
- Achieve compliance: For some companies, measuring and reporting scope 3 emissions may be necessary to comply with regulations and standards related to greenhouse gas emissions reporting and sustainability disclosures.
- Risk management: Understanding and reducing scope 3 emissions can help companies identify and mitigate potential supply chain risks. The recent Covid-19 pandemic illustrates how global events can disrupt unprepared supply chains and bring businesses to a halt. Additionally, as the regulatory landscape is always subject to change, the scope of companies required to disclose on emissions will increase, companies can take proactive measures now to prepare for such changes.
Where should companies begin?
Measuring and reducing scope 3 emissions is far more challenging than scope 1 & 2, this is because the category is so broad, but also due to the fact that many sources are not within the company’s purview.
There are two ways to measure your scope 3 emissions:
- You can work with third-party providers
- You can record it yourself
Using third-party software
There has been an upsurge in start-ups and other companies pivoting to provide this vital function, as companies seek to account for and reduce their emissions.
Partnering with a third-party provider can help you quickly get started and give you assurance that you are addressing the problem in the most effective way possible. This will often come at a cost, but working with experts is likely to save money in the long run as you’re able to avoid the pitfalls such as measuring the wrong sources or collating unreliable and unusable data.
Finding the right accounting software depends on your business, as some will cater to small and medium-sized (SME) businesses, and others to enterprise-level organisations.
Greenly, in particular, has curated a useful list of the top five companies in this industry to look out for.
Measuring scope 3 emissions yourself
Measuring scope 1 and 2 emissions can be a relatively straightforward process. You can collect data such as energy bills, fuel consumption records and business travel logs, which are often readily available and can provide a comprehensive overview of your business’s emissions.
However, now you know what scope 3 emissions are, you can imagine that measuring them is more ambitious.
Step 1 – First, you will need to determine the boundaries of your scope 3 by identifying the sources of emissions within your business operations that sit outside of scope 1 and 2, this could be a very comprehensive list. You may encounter sources from upstream suppliers, end-user customers and other relevant stakeholders throughout your value chain.
Step 2 – Once you know where your scope 3 emissions sources mainly lie, you’ll need to begin collecting data to understand the amount produced from each one. This will require working with partners to understand their own emissions (which might be unknown) and assessing the emissions associated with the use of your products or services by the end consumer. Whilst third-party software may rely on global carbon accounting standards to produce accurate results, you may struggle to know if the information you’ve collated is reliable.
Step 3 – Once you have gathered all the necessary data, you can start to analyse the results and begin developing a plan to reduce emissions throughout your value chain.
Step 4 – Emission accounting and reduction is a continuous process. It is crucial to continually monitor changes in your emissions to determine the effectiveness of your plan and continually identify areas for improvement.
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