When it comes to reducing their environmental impact and managing greenhouse gases, many businesses are familiar with Scope 1 and Scope 2 emissions. However, Scope 3 emissions represent the largest—and most challenging—category to address. In this article, we’ll explore what Scope 3 emissions are, why they matter, and how businesses can manage and reduce them effectively.
What Are Scope 3 Emissions?
Scope 3 emissions are indirect greenhouse gas emissions that occur throughout a company’s value chain, both upstream and downstream. Unlike Scope 1 and 2 emissions, which are generated directly by a company’s operations (like company vehicles or purchased electricity), Scope 3 emissions arise from activities beyond the company’s direct control – making them harder to manage. These include emissions from suppliers, product use, waste disposal, and transportation.
According to the Greenhouse Gas Protocol, Scope 3 emissions are split into 15 categories, covering everything from purchased goods and services to employee commuting and end-of-life product treatment. For many businesses, Scope 3 emissions account for the vast majority of their carbon footprint—sometimes as much as 80% to 90%.
What Are the Current Guidelines Around Scope 3 Emission Disclosure?
As businesses become more accountable for their climate impacts, there is increasing pressure to disclose Scope 3 emissions. However, reporting Scope 3 emissions is often more complex due to the need to gather data from external suppliers, contractors, and customers.
The Greenhouse Gas Protocol encourages companies to report Scope 3 emissions, especially when they are material to the business. Although not always legally required, voluntary frameworks like the Carbon Disclosure Project (CDP) and the Task Force on Climate-related Financial Disclosures (TCFD) recommend that companies report these emissions to provide a comprehensive picture of their environmental impact.
While these are currently voluntary, it is expected that these may become obligatory in the future. Currently, some governments and regions, such as the European Union, are tightening regulations and may soon mandate disclosure of Scope 3 emissions, especially for large companies. Businesses can anticipate future regulations by proactively tracking and disclosing these emissions now.
What Are Examples of Scope 3 Emissions?
Scope 3 emissions cover a wide range of activities, both upstream (before the product reaches the company) and downstream (after the product leaves the company). Here are some common examples:
Upstream Scope 3 Emissions:
- Purchased Goods and Services: Emissions from the production of goods and services that a company buys, including raw materials and components.
- Capital Goods: Emissions from the manufacturing of machinery, equipment, and infrastructure used by the company.
- Transportation and Distribution: Emissions from transporting goods between suppliers and the company.
- Waste Generated in Operations: Emissions from waste disposal, including landfilling, recycling, and incineration.
- Employee Commuting: Emissions from employees traveling to and from work.
- Business Travel: Emissions from flights, trains, and vehicles used for business purposes.
Downstream Scope 3 Emissions:
- Transportation and Distribution: Emissions from transporting goods to customers or end-users.
- Use of Sold Products: Emissions from the use of a company’s products, especially if they require energy or fuel (e.g., vehicles or electronics).
- End-of-Life Treatment of Products: Emissions from the disposal or recycling of products after consumers are done with them.
How Can Companies Get Better Insight Into Their Scope 3 Emissions?
Given the complexity of Scope 3 emissions, many businesses struggle to gain accurate insights. Here are some strategies to improve visibility:
1. Engage with Suppliers
Collaborating with suppliers is critical for gathering accurate emissions data. Companies can work with their suppliers to measure and report emissions, provide training on sustainable practices, and require emission disclosures as part of procurement contracts.
2. Conduct Life Cycle Assessments (LCA)
A life cycle assessment (LCA) helps businesses evaluate the environmental impact of a product or service from raw material extraction to disposal. LCAs provide a detailed look at emissions across the entire value chain and are useful for identifying key areas for reduction.
3. Leverage Technology
Companies can use software solutions and data analytics platforms to track and analyze emissions across their supply chain. These tools can help gather data from various sources, calculate emissions, and report findings in line with international standards.
4. Set Science-Based Targets
By adopting science-based targets, companies can commit to measurable reductions in Scope 3 emissions, aligning their goals with the global ambition to limit global warming to 1.5°C. Many businesses have found this framework helpful for setting clear, achievable goals for emissions reduction.
Which Reporting Guidelines Require Disclosure of Scope 3 Emissions?
Several reporting guidelines and frameworks require or encourage the disclosure of Scope 3 emissions, particularly for businesses looking to demonstrate leadership in sustainability:
1. The Greenhouse Gas Protocol
The GHG Protocol is the most widely used global standard for measuring and managing emissions. It divides emissions into three scopes and encourages businesses to report Scope 3 emissions when they are significant. The protocol provides a comprehensive framework for measuring emissions across all 15 categories of Scope 3.
2. Carbon Disclosure Project (CDP)
The CDP is a global disclosure system that enables companies to report their environmental impacts, including Scope 3 emissions. Many investors and stakeholders rely on CDP reports to assess a company’s sustainability efforts. CDP also encourages full transparency on value chain emissions.
3. Task Force on Climate-related Financial Disclosures (TCFD)
The TCFD provides guidance on disclosing climate-related financial risks, including risks associated with carbon emissions. While not mandatory, the TCFD recommends that companies report all material emissions, including Scope 3, to give stakeholders a clear view of their climate exposure.
4. Science-Based Targets initiative (SBTi)
Companies that commit to the SBTi often need to report on Scope 3 emissions, especially if these emissions represent a significant portion of their overall carbon footprint. The initiative helps businesses set emissions reduction goals that align with the latest climate science.
Tackling Scope 3 Emissions for a Sustainable Future
Managing and reducing Scope 3 emissions is essential for businesses aiming to improve their sustainability performance and reduce their overall carbon footprint. While it can be challenging due to the indirect nature of these emissions, engaging suppliers, using technology, and following international reporting guidelines can help companies gain better insights and make impactful changes. Addressing Scope 3 emissions not only benefits the environment but also strengthens a company’s reputation and aligns it with emerging regulatory standards.
By taking a proactive approach to Scope 3 emission disclosure, businesses can lead the way in sustainability and ensure long-term success in a low-carbon economy.
