By now, pretty much every industry is familiar with some kind of emissions reporting. Heavy industry, public utilities, and manufacturing are often required to file annual emissions reports to regulators, while customer-facing and institutional organizations often report greenhouse gas (GHG) emissions voluntarily.
But while the methodologies to calculate direct emissions from industrial processes and power generation are well understood, in fact these releases only account for 50% of total emissions. This leaves supply chain emissions—also called scope 3 emissions—unaddressed, which can seriously limit the effectiveness of your carbon reduction program.
Before we look at how to calculate scope 3 emissions, let’s begin by establishing what they are.
what are scope 3 emissions?
Unlike scope 1 emissions, which are released through industrial processes and fleet operation, and scope 2 emissions from sources like comfort heating and materials handling, scope 3 emissions are all the releases involved in your supply chain.
Despite making up the majority of your organization’s total emissions, they are frustratingly outside of your immediate control, making them difficult to quantify and reduce.
According to the US EPA, there are 15 sources of Scope 3 emissions, though not every organization will have to quantify and report all 15. These can be divided into upstream and downstream emissions as follows:
upstream emissions
- Purchased goods and services
- Capital goods
- Fuel- and energy-related activities not covered by Scopes 1 and 2
- Upstream transportation and distribution
- Waste generated in operations
- Business travel
- Employee commuting
- Upstream leased assets
downstream emissions
- Transportation and distribution of sold products
- Processing of sold products
- Use of sold products
- End-of-life treatment of products
- Downstream leased assets
- Franchises
- Investments
benefits of scope 3 emissions reporting
Although quantifying and reporting scope 3 emissions can be challenging, it can also offer significant benefits for your organization’s carbon reduction plan and business operations. These include:
- An exponential reduction of your climate impact. By reducing carbon emissions up and down the supply chain, you can multiply the overall effectiveness of your carbon reduction program
- Reduced risk. Gathering scope 3 emissions data requires detailed conversations with your supply chain, providing an opportunity to better understand their operations and priorities. By identifying any misalignment in organizational or investor priorities, you can reduce risk to your own business
- Improved reputation. Proactive scope 3 emissions reporting shows a commitment to the future of your organization. This can help you build a solid reputation with investors, regulators, and the community at large
barriers to effective scope 3 emissions calculation
Despite the benefits offered by reporting scope 3 emissions, they are also the most difficult to understand and change. The reasons for this include:
- System-wide change. Gathering data on scope 3 emissions often requires initiatives at the industry level, rather than from company to company
- Voluntary reporting. Aside from heavy industry like mining, or in specific manufacturing sectors, many organizations face only voluntary programs for scope 3 emissions calculation
- Non-standardized methodologies. While many organizations provide guidance on calculating scope 3 emissions, the exact methodologies vary between sectors and from one country to the next
engaging with suppliers on scope 3 emissions
The first thing to do when determining scope 3 emissions is to understand the business goals driving your overall program. Carbon calculation and reporting isn’t simply an accounting exercise. In order to best engage with the supply chain, you’ll need to document your reasons for quantifying scope 3 emissions. These might include:
- Identifying risks and opportunities related to supply chain emissions. While carbon reduction can represent a market opportunity for proactive organizations, understanding associated risks will also help your organization make solid investment and procurement decisions
- Clear reduction targets making progress over time. By identifying carbon emission hot spots, you can work with supply chain partners to set and track quantifiable Document successful risk management to share with industry organizations and investors
- Improving corporate reputation and transparency. If more than half of GHG emissions are scope 3, then being able to document reductions from these sources is an effective way of showing corporate responsibility and standing out among competitors
defining the boundaries of your scope 3 emissions
Once the business goals are understood, you’ll be ready to move onto the next steps. Specifically, these are identifying sources of scope 3 emissions and, crucially, setting your scope 3 emissions boundaries.
One of the challenges in scope 3 emissions calculations is that while it’s important to dig a little and find potentially “hidden” emissions sources in the supply chain, it is also possible to dig forever, since organizations in your supply chain will also have their own scope 3 emissions that could be calculated. At some point, from the perspective of your own carbon reporting program, the potential benefits and control you may have on these wider range emissions is limited.
When defining the boundaries of your scope 3 emissions, the US EPA provides guidance on what the minimum requirements for each of their 15 sources should be. It’s worth pointing out here that what is considered a scope 3 emission for your business’s operations will be scope 1 and 2 emissions for the companies in your supply chain.
data collection for scope 3 emissions
As you have probably already realized, collecting scope 3 emissions data can be a labor-intensive undertaking. You’ll be requesting information from companies that may already have a comprehensive carbon reporting program in place, as well as those who have never even attempted to do their own carbon accounting before.
Engaging with supply chain stakeholders is a critical part of this process. They need to understand the value of the undertaking and the expectations in terms of the information they need to provide. Without a standardized methodology for defining the scope and completing calculations, the final report will be prone to incomplete data sets and poor data quality.
If you’ve properly identified potential sources of scope 3 emissions, you’ll have a good idea of where the most significant releases are coming from. Most organizations will prioritize data collection from these sources over smaller emitters.
One of the biggest challenges in data collection for scope 3 emissions, however, is receiving the same information from different sources in varying units. This is especially true where these emissions haven’t already been calculated as part of scope 1 or 2 reporting. For example, natural gas consumption could be provided in imperial units from some parties, and metric in others, creating an extra step.
Utilizing software tools to streamline data gathering can help here. Cloud-based platforms like the AMCS Sustainability Platform allow companies to automate scope 3 data capture in a variety of units, leaving the software to do any conversions before completing emissions calculations, reducing the opportunity for errors.
how to calculate scope 3 emissions
The methodologies for calculating for scope 3 emissions will obviously vary based on your industry sector and supply chain, which emission sources need to be quantified, and what data can be collected. While accuracy is important, sometimes estimates are the best available option.
In general, typical methodologies include:
- Supplier-specific or industry-specific methodologies. As annual carbon reporting has become more prevalent, many suppliers and industry groups have developed their own methodologies. This can provide higher data quality than using older, publicly available, approaches like US EPA emission factors
- Hybrid method. While supplier-specific data may be available, it may be necessary to adjust it for your own needs. Your supplier may have an operation-wide scope 1 emission number, but if you’re not their only customer, you’ll have to estimate what proportion of that constitutes your own organization’s scope 3 emissions
- Average data method. This is used largely for estimating scope 3 emissions from purchased goods and services. Estimates are made using the average weight or other metric of a product, and an industry standard emission factor per mass of product
- Spend-based method. Where mass of a product isn’t available, or when estimating scope 3 emissions from a purchased service, the best available information might be the annual spend, multiplied by a standard emission factor
Knowing which methodology to use will depend on what data you can obtain from suppliers and customers, and the availability of published emission factors. You may also be able to find additional resources through industry associations and government agencies.
how to reduce your scope 3 emissions
There are various levers you can activate to reduce your scope 3 emissions, from changing your product and service design, to altering procurement policy and choices.
Obviously, the most effective strategy will be to engage with your suppliers so you can work to reduce their emissions, maximizing collaboration and communication such that you can monitor their progress and create incentives for action.
In order to do this, you’ll need accurate data at your fingertips.
If you’re just starting to understand how to quantify scope 3 emissions for your operation, you’ll need to embed this within your program. And if you’ve already attempted it, maybe it’s time to upgrade your efforts and move away from the tangle of spreadsheets and repeated email requests to suppliers for information.
AMCS can streamline your scope 3 emissions data collection and calculate and organize your report to comply with carbon accounting frameworks. If you’re ready to address your scope 3 emissions, or even if you don’t know where to start, reach out to one of our experts to schedule a conversation.