Sustainable operations are far from optional today — and they involve evaluating more than the direct emissions associated with product designs, development and operations. Modern sustainability extends to all indirect Scope 3 emissions, which come from the value chain. Not only is the fate of the environment on the line but a whole range of escalating regulatory consequences, such as fines, jail time and investor backlash.
The mere thought of these new standards is enough to make any ESG leader shudder. Don’t panic. In the following post, we explain why transitioning from spend-based to life cycle assessment (LCA) data takes the weight off sustainability teams, increases the accuracy of corporate sustainability reporting and supports ESG compliance from start to finish.
In this post, we’ll unpack how an integrated approach that combines centralized technology, collaboration with experts and life cycle data can address these immediate challenges—and drive more sustainable practices over the long term.
HOW IT’S CONDUCTED
The failures of spend-based reporting
A rising tide of mandatory Scope 3 reporting requirements is ushering in a new era of ethical and sustainable operations across the globe. Between legislation like the California Senate Bill 253 and the EU’s Corporate Sustainability Reporting Directive (CSRD), supply chain transparency and ESG standards don’t leave any room for emissions blind spots.
This new regulatory burden is significant — especially for busy sustainability leaders. While many executives have strategies for making long-term improvements to supply chain sustainability, a study from Accenture shows that nearly 2 out of 3 upstream emissions lay beyond Tier 1 suppliers, where limited visibility and lack of technology makes it difficult to measure and report on progress. At a time when regulations demand insight into every emissions hotspot — and alignment with every carrier, supplier and supply chain partner — this is a major weakness.
Let’s pinpoint the problem: data. According to a Sphera study, over 50% of companies still struggle with the availability and quality of external data, as well as the availability of life cycle emissions factors. Each data source has its advantages and disadvantages. However, one of the most common — spend-based data — increases the risk and difficulty of corporate sustainability reporting over the long run.
These spend-based emissions estimates are typically produced with online calculators which use procurement spend to approximate a company’s carbon footprint. While the approach may seem sufficient, it fails to account for the deep complexities involved in value chain emissions reporting, leaving companies sorely unequipped to track improvements — a necessity in the new regulatory reality. Based on aggregated data, it also risks being outdated.
In short, spend-based estimates place the entire value chain reporting process on a shaky foundation. Yet, despite its risks, approximately 43% of companies are either still reliant on spend-based data or unsure of how they quantify emissions. Fortunately, there is a better way forward.
WHAT YOU NEED TO DO
Reliable LCA data helps build a scalable foundation for supply chain decarbonization
While spend-based data may have helped some businesses stay compliant thus far, the standards are more stringent today. Companies now need visibility into every phase in the product life cycle. They also need actionable decarbonization strategies and the tools to identify improvement opportunities — whether in a specific supplier, a supplied product or material or some other area.
LCA data, emission factors and product carbon footprint (PCF) data can help transform what can feel like an overwhelming set of requirements into an opportunity for businesses to shine:
- Supplier-specific product carbon footprint (PCF) data is the most accurate approach to calculating emissions, consisting of direct data from suppliers. But it is also difficult to scale as the number of suppliers increases, and it depends on the responsiveness and sophistication of suppliers to provide thorough, accurate information.
- Product life cycle assessment (LCA) data allows businesses to take on new sustainability reporting requirements as their activities cross into new markets and regions. This data reflects the impact of each step in the production process, with the ability to accommodate every product in the company’s portfolio. Though it can be a big lift, using life cycle assessment data for Scope 3 compliance is potentially simpler to implement than supplier-specific PCF data and more accurate than spend-based data.
THE BENEFITS
The right data makes your life easier and helps your business thrive
With 69% of companies having performed LCA assessments on less than 25% of their product lines, there is plenty of room for improvement in Scope 3 emissions assessments. Using life cycle assessment data for Scope 3 reporting increases visibility, so teams can identify emissions hotspots and accelerate decarbonization efforts. It also improves overall supply chain and operational efficiency. According to a 2023 Gartner study, around 80% of surveyed business leaders say their sustainability programs contributed to tangible business benefits — namely, lowering costs and optimizing reactions to disruptions.
But collecting comprehensive LCA data across the entire value chain can be highly labor intensive, especially when performed for many products. Taking on this challenge without automation and an experienced partner can take thousands of hours. That’s why Sphera combines high-quality LCA data with automation and modeling and reporting software. Sphera’s Managed LCA Content (MLC) is the world’s largest industry-based and third-party verified LCA database, which benefits users thanks to its:
- 20,000+ datasets.
- Verification by DEKRA, the world’s largest independent testing, inspection and certification organization.
- Annual updates.
With the MLC, Sphera is able to provide approximately 500,000 emissions factors which can be used to quantify greenhouse gases associated with specific aspects of a business’s operations. And through our consulting services, we can use this information to help organizations pinpoint their most carbon-intensive operations, comply with environmental regulations, and work toward sustainability goals.
Whether businesses want to go the LCA route or put their faith in supplier-reported data, a technology-backed approach makes this data visible and actionable. And many companies are already experiencing the benefits. The manufacturing, automotive and chemical industries — which often have long, complex, cross-border value chains — are leading the charge in implementing LCA data. And for one U.S. pharmaceutical company, the switch from spend-based estimates to supplier-reported data lowered Scope 3 Category 1 emissions by 5%.
However, it’s important to note the importance of collaboration in making this shift. For a sustainability leader to move from a spend-based model to an LCA approach, they’ll need involvement from product and development teams to generate the LCA data that can then funnel into corporate sustainability metrics. This is an iterative and ongoing process; quite often companies use a hybrid approach as their company continues down their maturity curve.
WHAT HAPPENS NEXT
Take the headache out of corporate sustainability reporting
Modern regulatory pressures are asking something new of sustainability leaders: unprecedented visibility, a relentless push towards a greener future and greater collaboration with company stakeholders and supply chain partners than ever before. Through a powerful combination of LCA data, consulting and advanced software, Sphera gives sustainability teams around the world the tools and expertise to take on decarbonization with confidence.
The times are changing, and businesses must change with them — or get left behind. Sphera helps leaders stay ahead of evolving regulations and accomplish their sustainability and growth goals. Uncover our full Scope 3 analysis in our report.
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