The Importance of Measuring Scope 3 Supply Chain Emissions and How to Get Started
Scope 3 incorporates all indirect emissions released across a company’s supply and value chain. Learn how your business can measure Scope 3 emissions for optimal supply chain compliance.
The world has reached a crucial point in its effort to combat the climate crisis. Right now, businesses have a huge role to play in limiting the increase in average global temperature to below 1.5C—as planned out by the Paris Agreement— which will keep the planet from warming to catastrophic levels.
To achieve the Paris Agreement’s envisioned limitation, countries and leaders worldwide must strive towards reducing emissions by approximately 45% by 2030 from 2010 levels. According to the Intergovernmental Panel on Climate Change (IPCC), achieving that feat would put the world on a positive trajectory to reach net-zero emissions by 2050.
However, as McKinsey points out, the typical company’s supply chain creates far greater social and environmental costs than its own operations. In fact, the supply chain usually accounts for more than 80% of greenhouse gas (GHG) emissions and more than 90% of the impact on air, land, water, biodiversity, and geological resources.
It’s clear that supply chain operations external to a company’s own internal operations are a big problem. This area should be the focal point of all efforts to push the world towards its sustainability goals. For professionals and organizations in this space, it’s imperative that they make a monumental effort to address Scopes 1, 2, and 3 emissions, starting now.
What are Scope 3 Emissions?
Greenhouse gas emissions are currently categorized into three “Scopes” by the leading international accounting tools—GHG Protocol, most notably.
Here’s how they’re broken down:
Scope 1
- Scope 1 covers direct emissions from owned or controlled sources—for example, fuel combustion, company vehicles, and fugitive emissions.
Scope 2
- Scope 2 covers indirect emissions generated by purchased energy—for example, cooling systems, electricity, heating, and steam.
Scope 3
- Scope 3 incorporates all other indirect emissions that are released across a company’s entire supply and value chain. This could include business travel, employee commuting, investments, purchased goods and services, transportation and distribution—up and downstream—and waste disposal.
The Bulk of the Problem
Corporations are now playing an active role in the effort to be net-zero by 2050. Currently, 1,387 companies are “taking action” by actively setting emissions reduction targets that are aligned with climate science research provided by the Science Based Targets initiative (SBTi). These companies include Mars Inc., PepsiCo, and McCormick & Company, and many other reputable organizations.
Many carbon-conscious companies have been working on decarbonizing their operations for quite some time. Some leading organizations have already eradicated their Scope 1 and 2 emissions through the decarbonization of their facilities, operations, and purchased energy, because it is often easier to see and change these emissions.
Harder to see are Scope 3 emissions, which reside in organizations’ external supply chain operations. This is an area of the business network that often isn’t under a company’s direct management. In many cases, it is quite literally “a world away.”
What are the Benefits of Measuring Scope 3 Emissions?
The GHG Protocol gives Scope 3 emissions a broad definition, which is one of the reasons why it’s a much harder area for organizations to focus on: “all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream.”
As broad as this definition may be, it’s crucial that companies start prioritizing Scope 3 emissions. When it comes to Scope 3, there are a myriad of benefits associated with measuring.
By measuring Scope 3 emissions, organizations can:
- Figure out where emission hotspots are in their supply chain.
- Identify energy and resource risks across their supply chain.
- Find out which suppliers are leading and lagging in their sustainability performance.
- Find key cost reduction opportunities.
- Identify areas to increase energy efficiency.
- Help their suppliers bring their sustainability initiatives up to an acceptable standard.
- Improve the overall sustainability rating of their products and services.
Just from this small selection of benefits, you can see that measuring Scope 3 will help your business ascertain its supply chain’s impact on global GHG emissions. This will open the door to innovation, improvement, increased ESG performance, and more.
How Can Your Organization Start Measuring?
Right now really is the time to get on board with the sustainability initiatives you keep seeing advertised. The pressure on companies to mitigate their climate impact will only keep increasing. To address this, executives must shift their focus to include global supply chain networks—where the biggest climate risks and opportunities are found.
It’s daunting to take the first step, and at Sphera, we are here to help launch companies’ Scope 3 emission measuring initiatives. CDP, SBTi, and other organizations offer resources to help companies calculate their Scope 3 footprint. While these resources can be useful, they often simply ask suppliers what their emissions are. However, in many cases, and especially for SMEs, suppliers don’t know how or have difficulty calculating their emissions. This results in incomplete or inaccurate data. It is crucial that brands continue building capacity with and empowering their suppliers so they can accurately measure their emissions.
Sphera does offer tools that align with the “tell me your emissions” approach to measurement spelled out above. See our CDP Supply Chain Data Import program or the Greenhouse Gas Starter Assessment.
Sphera also offers more innovative approaches. For example, we might ask your suppliers how much of each energy type they used in their total production volume last year. With this data in hand, our system can automatically calculate the emissions intensity for each supplier based on the amount of product sold to the end company, then calculate the Scope 3 footprint in aggregate.
You can see this method applied in our case study with Wrangler, who used Sphera to calculate their Scope 3 emissions for 98% of the company’s production volume, in addition to satisfying their retail sustainability reporting requirement.
If you’re looking for low-touch, standards-aligned methods to measure your company’s Scope 3 emissions, Sphera has options for you. Check out our Supply Chain GHG Emissions solutions or get in touch to start turning your company’s insights into action at this pivotal time in the world’s fight against climate change.
