This article is sponsored by Salesforce.
US companies are emissions tracking and reporting their carbon, but many stumble once they try to quantify the impact from their value chain. A company’s carbon footprint is made up of Scope 1, 2 and 3 greenhouse gas (GHG) emissions.
Scope 3 emissions result from activities that are not directly owned or controlled by the reporting organization, including those that come from suppliers, distributors, partners and customers. Measuring and reducing emissions over which you don’t have direct control is difficult but necessary. The era of organizations being judged only on the impact of their operations (Scope 1 and 2) is over. Today, organizations that omit relevant Scope 3 data in their public disclosures face the likelihood that stakeholders will criticize them for providing an incomplete picture of their total climate impact. What’s more, for companies striving to build resilience, reduce risk and address the climate emergency, leaving out Scope 3 overlooks most of a company’s carbon footprint — and the potential risks and opportunities associated with it.
The challenges of collecting Scope 3 data
Because Scope 3 emissions come from external parties, gathering data can be particularly challenging. It often requires working with internal and external partners to gather data or relying on informed estimates when primary source data isn’t available. Many organizations opt for a hybrid approach, aiming to replace estimates with data as they’re able.
Historically, corporate Scope 3 reporting was nonexistent or incomplete. Some companies found it too complex, some didn’t think it was relevant, and others wanted to avoid the spotlight it would shine on the carbon-intensive aspects of their value chain.
Scope 3 emissions often account for a large percentage of a company’s total carbon footprint, so a climate action strategy that ignores them is missing some of the largest levers for addressing the climate crisis. External stakeholders know this and generally don’t consider a company’s disclosures complete without a full accounting of Scope 3 emissions. Although sharing this information is optional for now, the SEC is pushing for mandatory disclosures on climate, and Europe is updating its regulations as well. When that happens, companies that have already calculated and contextualized their Scope 3 emissions will be in a stronger position strategically than those that have not.
Calculating Scope 3 emissions
To get a handle on your Scope 3 emissions, follow these general guidelines:
- Determine which Scope 3 categories are relevant. This information can be found in chapter 5 of the GHG Protocol’s Corporate Value Chain Accounting and Reporting Standard. Certain Scope 3 categories don’t apply to some organizations. In those cases, it’s appropriate to note that the category is irrelevant and move on. But when in doubt, err on the side of inclusion, as what’s generally considered in Scope is increasing. Include optional categories that might be relevant to your unique business or that your stakeholders might expect.
- Collect source data if possible. This requires reaching out to your suppliers and partners and asking for emissions data you’ve purchased for the products and services. When actual data is not available, determines an effective way to estimate the activity data. Remember: The more you ask of your suppliers, the more you enable them to transmit upstream to their own suppliers, starting an important chain reaction throughout the value chain.
- Establish a single source of truth. The data you gather will come via various methodologies and formats, making it challenging to track. Additionally, you’ll need more than one person to manage and access it. To facilitate this, find a technological solution that helps streamline the data gathering process and stores data in a single repository that reflects changes immediately, produces recalculated or re-baselined data in future years and provides data visualizations for everyone to see.
- Calculate the GHG impact of each Scope 3 category using the activity data (estimated or actual) and the appropriate emissions factors. One of the most common methods for estimating Scope 3 emissions is using environmentally extended input output (EEIO) factors. This approach provides a good sense of which activities contribute most significantly to the overall GHG footprint based on spend, so you can prioritize which Scope 3 categories warrant the most effort to collect more specific data and where to focus emissions-reduction efforts.
- If possible, have your Scope 3 calculations verified by a third-party assurance provider. In this process, the verifier will review underlying activity data and inputs, calculation methodology and emissions factors and ask clarifying questions to ensure that emissions have been accurately and comprehensively accounted for. Many organizations do not have their Scope 3 impacts fully vetted even if they are assured Scope 1 and 2 emissions (Note: Upcoming regulations require assurance for all three Scopes). Given the increased focus on Scope 3 impact, Scope 3 assurance will become increasingly common.
Scope 3 accounting involves making well-informed assumptions. It’s critical to carefully track and clearly communicate these assumptions to help third-party auditors understand the logic behind the Scope 3 calculations. Otherwise, you risk a lengthy verification process and may ultimately fail. Clearly documenting your approach to Scope 3 accounting can also help build trust with external stakeholders. Transparency is a critical component of trust regarding companies’ climate action strategies.
Reducing Scope 3 Impact
Calculating your Scope 3 impact is the first step toward reducing emissions. Setting a robust emissions reduction target can help galvanize support throughout the organization and clarify the extent to which reductions are necessary and expected.
We need to collectively reduce global emissions to keep warming at or below 1.5 degrees Celsius. For each organization, this means cutting all emissions in half by 2030 and to near zero by 2050. For Scopes 1 and 2, organizations can change the equipment they use or the energy they purchase. But reducing Scope 3 emissions usually means using one or more of these tactics:
- Implement new policies and establish incentives to make them successful. This may require new tools and technology. For business travel and commuting, for instance, organizations can empower employees to make more sustainable choices by implementing software that provides information on the impacts of air travel. This information, combined with a policy that ties financial incentives to individuals’ or departments’ yearly carbon emissions, can help reduce business travel emissions for the company.
- Engage with suppliers. Partnering with suppliers to reduce emissions can strengthen relationships, build trust and result in cascading positive impact up and down the value chain. Start by asking partners about their values, whether sustainability is included and what their sustainability goals are. Offer to provide visibility into your company’s emissions and ask if they’d be willing to do the same with the goal of helping both companies track and reduce Scope 3 emissions. For new partners, we suggest making carbon emissions contractual. By building sustainability transparency into your contracts, you start each new relationship with all parties understanding expectations and working together to address Scope 3 emissions. (Salesforce’s Sustainability Exhibit is an example of how to build sustainability directly into procurement conversations.)
- Choose different suppliers. If a given partner won’t share emissions data or its emissions are too high, you may want to choose a different vendor altogether. Now is a good time to reevaluate supplier relationships, and as contracts come due, ask (again) for visibility into its emissions data and be ready with competitors’ emissions data for comparison.
- Engage with customers. Engagement can play a key role in managing value chain emissions, especially if the downstream emissions from products sold are material. This is especially relevant for companies that manufacture and sell physical products that require energy both directly and indirectly. As more customers are accelerating their sustainability programs, it will become critical to provide accurate product-level emissions data to customers. Additionally, having firsthand pressure for climate action from your customers can help you build momentum internally and with your suppliers upstream.
Toward a 1.5 degrees Celsius future together
Your organization and the organizations of your full value chain are linked. While it can be challenging to get actual activity data for all relevant Scope 3 categories, it is possible and necessary to build resilience and reduce risk as we face the climate emergency ahead. Every organization should do its best to collect this data, calculate its emissions and then strive to reduce them. By establishing effective internal programs, policies and tools — as well as external transparency agreements — you can get a handle on your Scope 3 emissions and reach net zero across your entire value chain.