Expert insight: Upping the ante on scope 3 emissions to drive net zero goals 

Katie Eisenbrown, global technical director of sustainability measurement at Arcadis, provides tips on where to begin, and how to move forward, in addressing scope 3 greenhouse gas emissions across the value chain. She will continue the debate as one of our net zero expert panelists at EA’s 2024 Sustainability Delivery Summit.  

EA: What are the key differences between the CSRD & European disclosure requirements and those expected of the SEC (and elsewhere), especially where scope 3 ghg emissions are concerned?

KE: Scope 3 represents the emissions associated with a reporting organization’s value chain, upstream of its business operations such as purchased goods and services, and downstream such as use of sold products. This is in contrast to scopes 1 and 2, which represent the emissions associated with operating the business, for example, electricity and heating. Scope 3 reporting is not required through the US Securities and Exchange Commission rule to ‘enhance and standardize climate-related disclosures for investors (the ‘SEC rule’).  

However, scope 3 has become commonplace for many organizations who have been voluntarily reporting on ghg emissions. Leaders and most companies setting targets are including scope 3 either as part of the target or as part of their reporting alongside operational emissions of scopes 1 and 2 reporting. Scope 3 is not new, and it is not going away. While the SEC rule may not require it, the ‘California climate accountability package’ is another US regulatory requirement that is applicable to any business doing significant operations in the state of California and it does require scope 3 reporting. The European Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) both require reporting on scope 3. Other voluntary reporting frameworks such as CDP, the Global Real Estate Sustainability Benchmark (GRESB) and EcoVadis incentivize scope 3 reporting. The Science Based Targets initiative (SBTi) requires scope 3 to be evaluated and if significant to be included in the target boundary. 

For all organizations, scope 3 is something that should be evaluated to consider the complete impact of the organization’s emissions. In some cases, depending on the nature of the business, scope 3 may be small, but for the vast majority of industries and especially in consumer goods, the supply chain is where most of the emissions occur. 

EA: What are your expert tips on how to get started on scope 3, and how to avoid the common challenges with data quality, gaps and trade-offs, etc?

KE: The first step for any scope 3 ghg inventory is to complete a relevance assessment. Review the GHG Protocol’s corporate value chain (scope 3) accounting and reporting standard (‘scope 3 standard’) to determine which of the 15 categories are relevant. There are 8 upstream categories to address the emissions of direct or indirect purchases by the organization such as raw material inputs, business travel, leased assets, waste transport and employee commuting (which is where work from home emissions are optionally included). There are 6 downstream categories, including the emissions associated with products after they leave control of the company like processing or intermediary goods, use phase, and end of life. Downstream also includes franchises and investments. 

Relevance can be defined by several items. While size of emissions is an important component to determining relevance, so is influence, stakeholder interest, risk, and considering other industry guidance. Completing a screening assessment, such as a rough calculation based on reasonable assumptions to determine the order of magnitude, size, for the category may be necessary before relevance can be finalized.  

Once the relevance assessment is complete, then we recommend making a plan to prioritize which categories to quantify first, and which to focus on gathering primary data. It can be daunting to try to complete a scope 3 inventory for all relevant categories in the first year. As such it is necessary to mature the data sources and calculation methodologies over time. Scope 3 is by definition harder to collect primary data as compared to scopes 1 and 2 since the reporting organization does not have control over these emission categories. There are several platforms to help collect primary data such as CDP Supply Chain, and others that may be relevant to specific industries. 

Scope 3 is not new, the GHG Protocol published the scope 3 standard in 2011. Many corporate leaders have been calculating scope 3 for more than a decade. However, the regulatory changes are driving an increase in companies beginning to quantify emissions. If you are evaluating scope 3 for the first time, conducting a benchmark to see how peers may already be reporting or working with a subject matter expert will help deepen knowledge and uncover potential emission sources, data, and methodologies. 

EA: How do collaborative partnerships and industry initiatives support sustainable sourcing and product innovation, and help drive better climate outcomes?

KE: Collaborative partnerships driven by industry specific challenges allow space for competitors to innovate together and support the supply chain to become more sustainable. Climate change poses a unique problem that will require collaboration and innovation to address. I would encourage competitors to work together to help the collective supply chain where feasible.

There are several examples specifically focused on the supply chain, such as Smart Freight Center with several different working groups focused on transportation and logistics and SEMI focused on semiconductors. The World Business Council for Sustainable Development (WBCSD) has an active working group on the Partnership for Carbon Transparency (PACT), developing tools and mechanisms to share product footprints which may be a possible primary data source for future use. 

EA: How are emerging software and technologies such as AI shifting the goalposts in supply chain accounting and transparency? 

KE: There are several platforms that aid in collecting data from suppliers. CDP Supply Chain, EcoVadis, the Sustainable Apparel Coalition Higg index and the Responsible Business Alliance (RBA) for the technology sector are a few.  

Some of the carbon accounting software platforms are focusing on bringing in data from organizations such as CDP to enable customers to use data already reported by suppliers to allocate emissions. There have been a lot of new software companies, or new modules added to existing software platforms to aid in calculating ghg emissions. Each business will need to evaluate their objectives to determine what the right path for them will be.  

Depending on the organization, the downstream impacts from investments may be significant and equally as difficult to collect data. Quantifying organization-wide ghg emissions requires subjective decision making that AI and technologies will need to consider as well as allow for changes in requirements and priorities by each business. The software space is rapidly evolving, and the competition is leading to more innovation. I recommend evaluating your primary pain points as an organization prior to evaluating if and which software is the right fit for you.