Scope 3 emissions are the indirect greenhouse gas (GHG) emissions that occur in the value chain of a business or reporting organisation, but are not directly owned or controlled by it.
These emissions include both upstream and downstream activities related to the organisation. Specifically, Scope 3 emissions cover all sources not included in Scope 1, which pertains to direct emissions from owned or controlled sources, and Scope 2, which includes indirect emissions from energy such as electricity, steam, heating, and cooling.
Essentially, Scope 3 emissions are the result of the activities of other entities within the value chain, whose Scope 1 and 2 emissions the reporting organisation indirectly impacts.
These emissions can be substantial, often representing the largest portion of an organisation’s total greenhouse gas emissions – in some industries, like retail and wholesale, Scope 3 accounts for as much as 98% of a business’ total emissions, according to a recent study by Oliver Wyman and EuroCommerce.
Scope 3 emissions are categorised into upstream activities (such as those associated with the production of goods and services) and downstream activities (such as the use of products and their end-of-life treatment).
With the global economy facing as much as $38 trillion in damages each year from the effects of climate change, if emissions reduction is not addressed, Scope 3 is likely to come into increased focus in the coming years, becoming a business imperative, rather than a ‘nice to have’.
A hugely valuable resource for businesses looking to learn more about Scope 3 emissions can be found on the Greenhouse Gas Protocol website, in particular this thorough guide, from which several of the following points have been gathered.
How do Scope 3 emissions relate to my business?
For many companies, Scope 3 emissions constitute the largest segment of their total greenhouse gas emissions. Understanding and managing these emissions is crucial for businesses to effectively address changing of the climate and achieving business objectives related to greenhouse gas reductions.
Simply put, what gets measured, gets managed. By creating a comprehensive greenhouse gas emissions inventory that includes Scope 1, Scope 2, and Scope 3 emissions, organisations can gain a thorough understanding of their overall emissions impact.
Scope 3 emissions can represent more than 90% of a company’s total emissions in most cases, incorporating significant impacts such as those from the supply chain and the use of products they sell.
For instance, emissions from the production of raw materials can be major contributors. By accounting for these emissions, companies can better identify and manage climate-related risks and opportunities.
A complete inventory of Scope 1, Scope 2, and Scope 3 emissions allows businesses to focus their reduction efforts where they can achieve the greatest impact. It also provides opportunities for strategic engagement with suppliers and other partners, influencing decisions related to materials, investments, and product design.
What are the business benefits of measuring Scope 3 emissions?
Measuring Scope 3 emissions offers several business advantages. It allows organisations to identify and understand risks and opportunities within their value chain. By recognising GHG-related risks and new market opportunities, companies can make informed investment and procurement decisions. Furthermore, identifying GHG “hot spots” and prioritising reduction efforts can lead to more effective management of emissions and help set realistic reduction targets.
Engaging with value chain partners to manage GHG emissions can also enhance transparency and accountability. Companies that proactively disclose their emissions data and progress can improve their corporate reputation and stakeholder relationships. This public reporting meets the expectations of various stakeholders, including investors, customers, and regulatory bodies, and demonstrates a commitment to environmental stewardship.
Moreover, by addressing Scope 3 emissions, companies can realise cost savings through improved supply chain efficiency and reduced energy use. These measures can mitigate future costs related to energy and emissions, while also positioning the company favourably in an environmentally conscious marketplace.
What are the risks associated with not measuring Scope 3 emissions?
Failing to measure Scope 3 emissions can expose companies to several risks for businesses. Regulatory risks arise from new or proposed GHG emissions-reduction laws or regulations that may impact the company’s operations, its suppliers, or its customers. Supply chain costs and reliability can also be affected if suppliers pass on higher energy or emissions-related costs, potentially leading to business disruptions.
Product and technology risks include the potential for decreased demand for products with high GHG emissions and increased demand for lower-emission alternatives. Companies might also face litigation risks linked to GHG-related issues, either directly or through entities in their value chain.
Reputation risks are significant as well; negative consumer or stakeholder reactions, along with adverse media coverage related to GHG management practices, can damage a company’s public image. Addressing these risks involves a thorough understanding of Scope 3 emissions and proactive management strategies.
What are the business opportunities from measuring Scope 3 emissions?
Measuring Scope 3 emissions presents several opportunities for companies. Efforts to reduce GHG emissions often lead to operational efficiency and cost savings. By improving supply chain management and product design, companies can also drive innovation within their operations, which can open up new market opportunities.
Increasingly, consumers value low-emission products, which can enhance sales and customer loyalty. Proactive disclosure of emissions data can strengthen stakeholder relations and demonstrate environmental responsibility. This transparency can help build trust with shareholders, regulators, and the community, while also improving relationships with customers and suppliers.
In a marketplace that values environmental sustainability, having a documented record of emissions reductions can set a company apart from its competitors. This differentiation can be advantageous as external parties such as customers, investors, and regulators increasingly focus on environmental performance.
What upstream activities can I undertake to reduce Scope 3 emissions?
To address Scope 3 emissions in upstream activities, organisations can take several actions. One approach is to replace high-GHG-emitting raw materials with those that have lower emissions. Implementing procurement policies that favour low-emission materials can also contribute to emissions reductions.
Encouraging tier 1 suppliers to engage their own suppliers in disclosing Scope 3 emissions can help propagate GHG reporting throughout the supply chain – after all, one company’s Scope 1 emission efforts can play a role in another’s efforts to reduce Scope 3 emissions.
For fuel- and energy-related activities not covered by Scope 1 or Scope 2, companies can shift to lower-emitting energy sources and reduce overall energy consumption. Optimising upstream transportation and distribution involves reducing the distance between suppliers and customers, improving transportation efficiency, and opting for lower-emitting transportation modes.
Reducing waste generated in operations and implementing recycling measures can also mitigate Scope 3 emissions. Encouraging more efficient business travel by promoting video conferencing and using lower-emitting travel modes are additional strategies a business could implement.
In terms of employee commuting, locating facilities closer to urban centres and public transport, and providing incentives for using public transport or carpooling, can contribute to emissions reductions.
What downstream activities can I undertake to reduce Scope 3 emissions?
In managing Scope 3 emissions related to downstream activities, companies can focus on several key areas. For transportation and distribution of products, reducing the distance between supplier and customer, optimising distribution efficiency, and shifting to lower-emission transportation modes can all help reduce emissions.
When it comes to the processing of products, improving processing efficiency and using lower-GHG energy sources can be beneficial. Redesigning products to require less processing and developing low- or zero-emitting products are effective strategies.
The end-user use of products presents opportunities to enhance energy efficiency and reduce GHG intensity. Changing user instructions to promote efficient product use and making products recyclable if it leads to net GHG reductions are also important. Additionally, implementing packaging measures that reduce emissions can contribute to overall reductions.
For end-of-life treatment of said products, measures to improve recycling and reduce GHG emissions associated with disposal are crucial.
Addressing emissions from downstream assets involves increasing operational efficiency and shifting to lower-emitting fuel sources. Investing in lower-emitting technologies and projects can further support emissions reduction goals and contribute to a company’s overall environmental performance.
For more information about Scope 3 emissions and how to tackle them, the Greenhouse Gas Protocol website is a hugely valuable resource. Click here for more information.
