Marion Verles is CEO of SustainCERTa global organization monitoring carbon impacts and making credible climate action the new normal.
Scope 3 emissions, as defined by the Greenhouse Gas Protocol Corporate Standard, are greenhouse gas emissions resulting from those of a company value chain. On average they are good for 75% of a company’s carbon footprint, but for some industries it can be as high as 99%.
Addressing scope 3 emissions is an important part of achieving net-zero climate goals. But according to research from the Boston Consulting Group (BCG), two-thirds of companies still need to consult with their suppliers about reducing CO2 emissions. Not for long.
It is already a requirement of the Net Zero standard of the Science Based Target Initiative (SBTi) to establish scope 3 targets. more than 3,000 organizations committed worldwide. That of the EU Corporate Sustainability Reporting Guideline (CSRD) dictates that large companies operating in Europe must report on scope 3 by 2024. And, in the US, the Security and Exchange Commission’s proposed climate disclosure rule changes could require listed companies to report scope 3 emissions in the coming years.
Some companies already collect and report on scope 3 emissions. But for those who haven’t started yet, how can they prepare scope 3 emissions reporting in time for upcoming regulatory changes, capturing data in an accurate and scalable way? Let’s investigate.
Consider a digital-first approach to data collection.
Many companies still manage their climate data in spreadsheets. The average global enterprise has suppliers in multiple markets that provide data – it’s not always feasible to manage this through Excel. Collecting emissions data can be a difficult and time consuming process, with individual suppliers often having data in many places.
To facilitate this process, I suggest that companies digitize their scope 3 accounting. As the CEO of a company helping with this, I’ve seen firsthand how digital systems can make it easier to gather real-time, actionable information from a variety of sources, store it securely, and leverage the latest technologies, like AI, to analyze It.
When digitizing, choose a supplier with experience in your specific industry. Ensure that the program aligns with (currently) credible methodologies (for example, the Science-Based Targets initiative or the Greenhouse Gas Protocol).
Strive to collect vendor-specific data.
Many companies currently use industry or national averages to measure their emissions. This is understandable: it can be very difficult to find supplier or delivery region specific data.
But using averages can cause problems. Calculating emissions with averages cannot show us a company’s actual footprint, so the result is often inaccurate. You also can’t measure your progress: if your dairy suppliers use feed additives to reduce their methane emissions, the progress made over time will not show in your scope 3 inventory if you use outdated regional or national averages.
When you capture supplier-specific data from your own value chain, it is more accurate so you understand how best to reduce emissions in your supply chain. If no vendor-specific data is available, then delivery-region-specific data is next best. I suggest you try to find a scope 3 accounting provider that offers access to more detailed region-specific datasets, but know that this is still an emerging field.
While access to this data can be difficult, more detailed climate data sets are emerging. We are also seeing more and more initiatives that facilitate data sharing between players in the value chain. For example, the Partnership for Carbon Transparency created the Pathfinder Network to facilitate the peer-to-peer exchange of supply chain data through a standardized, interoperable data sharing system.
Verify, verify, verify.
Without verification, scope 3 emissions reporting can pose a reputational risk to companies. According to a recent report from Reuters Insights, 43% of companies are already dealing with scope 3 emissions and 25% plan to do so in the next two years. It’s easy to see why: The International Sustainability Standards Board (ISSB), the SEC and the EU’s CSRD could all require scope 3 reporting in the near future.
To ensure that the scope 3 data companies report is accurate and reliable, independent verification is a must. Independent verifiers can confirm whether datasets and calculators produce reliable results. With some regulators beginning to request verification and scope 3 emissions coming under scrutiny from shareholders and civil society, this is even more important.
Independent verification is also important when carbon performance generates financial or commercial rewards. For example, some food companies are starting to reward their suppliers based on their CO2 performance by linking volumes or prices. In more and more companies, performance bonuses for management and top executives are also linked to the carbon performance from the company.
When selecting an independent verifier, look for an organization with relevant experience and credentials in sustainability or environmental science, including a track record of unlocking recognition of international benchmarks, such as the Science-Based Targets initiative or the Greenhouse Gas Protocol.
Check what methodologies (determined by standards bodies) organizations are testing against, their approach to data quality and their experience of working with companies similar to yours. Avoid verifiers who lack transparency or who cannot clearly explain the methodologies they use to verify. And make sure the verification process is repeatable for consistent results.
Start strengthening your scope 3 reporting approach.
On top of scope 3 regulation looming large, many shareholders and civil society are now calling on companies to do more when it comes to climate action. Climate risk is now business risk.
Having an accurate and reliable view of emissions across the value chain is a key enabler for companies to identify the changes they need to make to transform their business to net zero. To ensure companies can trust the data they report and not put their company’s reputation at risk, they need the right systems and expertise to capture accurate, reliable data in a scalable way.
And to really tackle scope 3, we need to work together. No single company can solve scope 3 alone: it is by nature a collective issue. Thus, cross-sector data sharing and learning initiatives will be essential to get the needle on scope 3 in the coming years.