In our previous blog post, we explained how the Greenhouse Gas Protocol provides a standardized framework to help public- and private-sector organizations measure and reduce their green greenhouse gas emissions (GHG) emissions—with the ultimate goal of hitting their environmental, social and governance (ESG) targets.
DESCRIPTION OF SCOPE 3 EMISSIONS
Scope 3 emissions fall under 15 categories,
which include:
- Purchased goods and services from suppliers
- Energy-related activities
- Transportation and distribution
- Generated waste
- Employee travel and commuting
- Management sold products
- Use of sold products
- End of life processing of sold products
Why is Scope 3 so important?
According to industry experts, including the Greenhouse Gas Protocol, for many businesses, Scope 3 GHG emissions account for more than 70% of their carbon footprint. In some cases, that number rises as high as 85% to 95%. Some reports have even shown that Scope 3 emissions are 11.4x higher than their Scope 1 and 2 emissions combined.
Because Scope 3 emissions represent the largest portion of a company’s GHG inventories, it stands to reason that they represent a huge potential to prevent the worst impacts of climate change.
In fact, many researchers believe that if companies around the world could set—and achieve—Scope 3 emissions reduction targets, they could almost immediately preserve the world’s fast-shrinking global carbon budget. In one case, suppliers undertook initiatives to reduce GHG emissions by 691 million metric tons, or the equivalent of shutting down nearly 160 coal plants for a year. What’s more: they collectively saved $33.7 billion while doing so!
WHAT ARE THE CORPORATE BENEFITS OF REDUCING SCOPE 3 GHG EMISSIONS?
Apart from the obvious reason of helping to fight climate change and protect the planet for future generations, organizations of all types stand to benefit from reducing Scope 3 GHG emissions.
As Global Compact Network UK indicates, once an organization identifies where the emission hotspots are in its value chain as well as the associated resource and energy risks, it can then:
- Determine which suppliers are leaders or laggards when it comes to sustainability practices; this can guide the organization’s future selection of suppliers
- Pinpoint energy efficiency and cost reduction opportunities throughout the supply chain
- More aggressively hit their ESG targets
- Improve brand perception and loyalty among stakeholders, including customers, partners and suppliers
One particularly interesting trend is how governments, financial institutions and investors are leveraging ESG compliance and the reduction of GHG emissions to tighten—or open—their purse strings.
In other words, if a company doesn’t prove adequate performance to curb its carbon footprint, it can say goodbye to government grants and subsidies or new investments from VCs or private investors. For financial institutions, Scope 3 emissions are actually embedded in their lending, equity and insurance portfolios. As a result, many organizations’ C-suite are facing mounting pressure from their boards of directors to actually fulfill their bold ESG commitments—including by drastically cutting Scope 3 emissions.
WHY ARE COMPANIES SLOW TO MONITOR, MEASURE AND SLASH SCOPE 3 EMISSIONS?
As Deloitte explained in its recent analysis of Scope 1, 2, and 3 GHG emissions report: “for many businesses have less control over how Scope 3 emissions are addressed. […] suppliers will have considerable influence on how emissions are reduced through their own purchasing decisions, and product design.”
In theory, it is very noble that an organization and its entire value chain share a common vision and shared willingness to tackle Scope 3 emissions. But a huge problem still remains: data gaps and a lack of an integrated process to collect, share and consolidate emissions data.
In a global survey by Capital Group, “nearly half of investors say a lack of robust ESG data is holding back their organizations.” A complex supply chain, a large number of supply partners, and disparate data capture processes can make emissions reporting difficult, if not almost impossible.
Moreover, GHG reporting is only as good as the transparency, accuracy, timeliness and standardization of the data collection and calculation process. One cog in the reporting chain and the overall quality and reliability of the information exchanged is compromised. This problem is only exacerbated by the complexities and depth of Scope 3 GHG emissions reporting.
Some stakeholders in the supply chain may even be reluctant to disclose emissions data—either from a lack of understanding or fear of both confidentiality breaches and legal ramifications.
Still others are grappling with limited access to technology, data entry performed by people who may struggle to read and write, and problematic Internet access, or paper-based processes.
CONSULTANT REPORTS: THEY’RE ONLY THE TIP OF THE SCOPE 3 REPORTING ICEBERG
Scope 1, 2 and 3 evaluations have often been initially viewed and conducted as life cycle assessments (LCAs). A consulting or in-house team is tasked with measuring GHG emissions and reporting back findings to management.
The problem with this approach is that they are static studies: models and analyses are based on a specific period of time and are already outdated by the time management reads the report.
How can an organization’s management possibly provide the utmost transparency and make the right organizational decisions with dated data? In today’s hyperconnected, “always-on” economies, real-time data is simply a must.
DIGITALIZED END-TO-END TRACEABILITY PLATFORMS: THE SOLUTION TO SCOPE 3 GHG EMISSION REPORTING
In order to overcome the major hurdles in Scope 3 assessments, more and more organizations are turning to intelligent supply chain platforms that offer real-time, end-to-end traceability, both upstream and downstream, for all potential GHG hotspots in the value chain.
Contrary to enterprise resource management platforms (ERPs), consulting services, and other supply chain management software, OPTEL’s OptchainTM, the industry’s first intelligent supply chain platforms offer the best of both worlds: better visibility and management across an organization’s supply chain to optimize performance—with modules specifically designed to monitor GHG hotspots and detect opportunities to mitigate them for Scope 1, 2 and 3 emissions.
OPTEL’s OptchainTM also provides a myriad of tools to enable stakeholders to enter and manage GHG emissions data based on their unique processes and technology maturity. Care to learn more? Schedule a demo today.
