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Men in Suits

Is Scope 3 emissions tracking optional?

Updated: Jan 2, 2023

It's human nature for the mind to instinctively interpret the word "optional" as "you can delay and save this assignment for later." Scope 3 emissions tracking, which has existed for 11 years and is the only internationally acknowledged mechanism for firms to account for value chain and supply chain emissions, is still included under the Greenhouse Gas Protocol as an optional reporting standard (GHGP). Scope 3 is significantly distinct from Scope 1 (direct emissions from business operations) and Scope 2 (indirect emissions from "bought energy"). The majority of firms have little direct influence over their supply chain partners' actions or emissions.

Scope 3 cannot be overlooked due to its size, which in some circumstances encompasses hundreds or thousands of additional companies that work for or supply a single huge company. Some businesses may account for 70 per cent of their total emissions under Scope 3, dwarfing Scopes 1 and 2 in terms of total climate effect. A supermarket chain that relies on numerous suppliers on a daily basis may have 80 to 90 per cent of its emissions fall into the Scope 3 category. Scope 3 may be the low-hanging fruit for businesses with vast supplier chains or value chains, where a little adjustment in policy or partner criteria can have a significant influence on total emissions. Why designate an area as "optional" if you can make greater progress on climate change with less capital expenditure?

Commencing a Scope 3 project

Despite Scope 3's wide scope, these early steps will help your Scope 3 initiative get out on the right foot.

Start small by focusing on the one or two categories for which you may already have data. Scope 3 contains a total of 15 categories, thus it is necessary to prioritise. This will depend greatly on the industry in which you operate. Are you a professional services consulting firm, comparable to Accenture or McKinsey? Then you might select categories 6 and 7, which are business trips and staff commuting. Or, if you are a large manufacturer, you will want to focus on Category 1 (Purchased goods and services), Category 11 (Use of sold products), or Category 12 (Other expenses) (End of life treatment of the products).

Conduct a materiality analysis. A materiality evaluation employs stakeholder feedback to match corporate ideals with what you can and should do on the ground, thereby facilitating the prioritisation of sustainability concerns for the firm. Do the Scope 3 categories for which you have data correspond to the conclusions of the materiality assessment? You may need to make modifications based on what is reportable.

Choose your method of calculation: expenditure-based or operational. The majority opt for a spend-based measurement because this information is readily accessible in the budget. The danger of relying solely on spend-based measurement is that impacts and expenditures are not necessarily proportional. For instance, if you decide to purchase sustainable office supplies or demand your suppliers to do so, expenses may increase. Another way of calculation is the operational data method. The definition of operational data is emissions data acquired by operational operations, such as kilogrammes of product sold or litres of fuel consumed. This data may be chosen over proxies such as spend data, although it is not always accessible. Decisions on data sources are frequently guided by the adage "let's not allow the perfect be the enemy of the good." If current spending numbers are all you have and you need more time to collect more thorough information, it is preferable to begin there rather than not at all.

If you begin with these three steps, you will be well on your way to monitoring at the Scope 3 level. But the next milestone should be identifying the appropriate standards to gauge your organization's progression. The Science Based Target Initiative (SBTi) of the World Resources Institute, working with CDP-collected disclosure data, is a fantastic place to start if you want independent assessments of your ESG targets and carbon reductions. The targets will be based on peer-reviewed climate research and the 1.5-degree-Celsius limit on global temperature rise above pre-industrial levels that was agreed upon by G20 leaders last year.

Why we may proceed Scope three from the supplementary category

Scope 3 is likely to be moved into a recommended category in the future; therefore, it is prudent to begin now. Proactive ESG reporting that exceeds regulations and requirements improves your organization's credibility and reduces the cost of Scope 3 compliance when it is required by regulation. Demonstrating that your company supports emissions reporting can attract investors and top employees, particularly among members of Generation Z who actively track which companies prioritise sustainable practises.

You may question how you might convince your supply chain partners to join you on this trip. Not every organisation may get on this reporting bandwagon immediately, but I've discovered that encouraging partners to comply is directly proportional to how simple it is to disclose data. Instead of throwing your weight around as a buyer, consider developing a straightforward reporting path for partners that requires minimal commitment and resources on their end. The majority of businesses recognise the significance of the data journey and wish to board the train; please lower the ladder for them.

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