The Scope 3 Data Problem
Every day, more organisations set science-based net zero targets, aligning their carbon reduction strategies with global climate targets. But as they turn from target setting to target achievement, they run into a stark realisation – they lack the data needed to effectively measure and reduce their carbon footprint.
To understand the root of this data problem, and why it matters, we need to look at how organisations measure their carbon footprint.
An organisation’s carbon footprint is comprised of three types, or scopes, of emissions:
- Scope 1 consists of emissions generated directly by an organisation, typically through their use of fossil fuels on site and in company owned vehicles and equipment.
- Scope 2 consists of emissions resulting from an organisation’s purchased electricity and energy.
- Scope 3 consists of all other emissions associated with an organisation’s value chain – the goods, services and activities which they rely on, or enable.
Measuring Scope 3 emissions
Organisations generally have a good handle on their Scope 1 and 2 emissions. These are relatively easy to measure directly, providing organisations with actionable data that shows where and why emissions occur, from which targeted reduction efforts can be made, and their effects measured.
The problem arises in Scope 3, which for an average organisation, accounts for around 90% of their total carbon footprint. Organisations cannot measure their impacts directly since they occur throughout their value chain and beyond their direct sight and control. To get around this, many organisations estimate Scope 3 using existing data and environmentally extended input-output data (EEIO). In essence, this involves applying a standard sector-specific carbon factor (e.g., agriculture, manufacturing, banking) to what an organisation spends in that sector. For example, if a company spends £1m/year on manufactured goods, they multiply this figure by the standard manufacturing carbon factor (x kgCO2e/£).
The use of EEIO emission factors
The use of EEIO data to estimate an organisation’s carbon footprint is useful for getting an initial sense of where Scope 3 impacts are greatest, and where reduction efforts should first focus, but it is not suitable for informing or measuring reduction efforts. That’s because EEIO estimates are only sensitive to changes in spending; they cannot measure or inform real emissions reduction efforts on the ground. As the old adage goes, “you can’t manage what you can’t measure”. So, as organisations set their sights on achieving their net zero targets, a top priority must be transitioning to better quality Scope 3 data that, and like Scope 1 and 2 data, shows where and why impacts occur. Only then will they be able to come up with, and measure, effective reduction strategies.
So, what is the solution to this Scope 3 data problem?
Scope 3 Data Collection
To solve the Scope 3 data problem, organisations must obtain regularly updated carbon footprint data and reduction forecasts directly from their suppliers for the products and services they provide, placing the onus to measure and reduce on those best positioned to do so. This might sound simple enough, but the implications are massive. It means transforming the way customer organisations and their suppliers interact and placing carbon accountability at the core of their relationship. But the benefits are equally massive, for suppliers, their customers, and the climate.
What does Value Chain Carbon Accountability mean for Customer Organisations?
Transitioning to supplier-provided carbon footprint and reduction forecast data for Scope 3 will do nothing less than revolutionise an organisation’s ability to achieve its net zero target, enabling it to see for the first time:
- what their Scope 3 impacts are and where and why they occur;
- how changes in their procurement and/or product/service design could affect scope 3 reductions;
- what reductions their suppliers can achieve, and where their support may be needed;
- how close cumulative supplier reduction plans get them to their net zero target, and by extension, what more needs to be done; and
- whether supplier reduction forecasts are ultimately delivered, through updated carbon footprints.
With this wealth of actionable information, an organisation will have what it needs to develop an effective, living net zero strategy that they can revise when needed to close any shortfalls that emerge, and ultimately achieve their target. Little wonder a growing number of organisations, from the automotive sector to healthcare (the UK’s NHS for instance, will require all its suppliers to provide carbon footprint data by 2028) to supermarkets, are starting to make the Scope 3 data transition.
How to calculate Scope 3 emissions
To make the Scope 3 emissions data transition organisations must:
- Tell your supplier what you need – Provide clear guidance to your suppliers on the carbon footprint data (including methodology to ensure consistency, transparency and comparability) you want them to provide, as well as the scale of action-attributable reductions you want them to aim for when developing their footprint reduction plans.
- Implement a pain-free data management and reporting system – A digital data management system that enables suppliers to easily provide their carbon footprint and reduction forecast data, and automatically rolls this up into an interrogatable Scope 3 report is essential too, unless you want to be swimming in emails and trying to make sense of a mountain of spreadsheet files.
- Support your suppliers – Your organisation cannot achieve its net zero target without your suppliers making real investments to measure and reduce their own impacts. To ensure they are successful, consider whether and how you can help. This may include:
- Providing them with a pre-approved list of carbon footprint providers who understand your requirements, so they don’t have to spend time looking.
- Co-funding their carbon footprinting, particularly for smaller suppliers who may not have the means to fund it on their own.
- Investing in their reduction strategy, particularly where this involves large capital investments. Afterall, any net zero money you have set aside is best spent where it will have the biggest impact per unit of spend, regardless of whether that is in your own operations (Scopes 1 & 2), or your supply chain (Scope 3). Adopting internal carbon pricing will help ensure you achieve the biggest carbon bang for your buck.
What does Scope 3 Carbon Accountability mean for B2B Suppliers?
For suppliers, value chain carbon accountability means supporting your customers to achieve their net zero journey and reducing your own environmental impact in the process. Many B2B businesses have already received a request for carbon footprint information from their customers, and for those that haven’t, it is only a matter of time. So why wait? In just a few steps, you can start providing carbon accountability to your existing customers as a value added service, and start winning new ones from competitors who drag their feet:
- Know your customers’ climate commitments – Good businesses should always know what their customers need and what their priorities are, and yet so few B2B businesses know whether their core and target customers have set net zero targets. By conducting a quick landscape review to find out what their commitments you can discover useful priorities or datapoints which can help you stand-out as a long-term supplier of choice.
- Conduct a carbon footprint of your product(s) and/or service(s) – If you’ve got a big portfolio and are unsure where to start, use the results of your core and target customer landscape review to prioritise the products those with targets buy the most of. You can streamline the process by also focusing on products/services that share common lifecycle features (e.g., they contain the same materials or components, or are made at the same facility). Look for the right balance between detailed analysis, and scalability but remember, the more detailed your carbon footprint is, the better able you’ll be to identify, implement and measure reduction efforts in future.
- Develop a carbon footprint reduction plan for your product or service – This should consist of specific actions, each with an estimate impact, timeline for implementation, and associated costs.
- Share your carbon footprint and reduction plan with your existing and target customers – Be sure to explain to your customer that you’ve done this work because you are committed to reducing your own climate impacts, and supporting their net zero journey, by providing regularly updated carbon footprint and reduction data. You may also seek their support in implementing your reduction plan (e.g., co-funding capital projects).
As organisations move from net zero target setting to target achievement, they inevitably need Scope 3 data that measures and informs reduction efforts across their supply chain. Value chain carbon accountability is emerging as the solution to this problem, transforming the customer-supplier relationship and placing carbon reductions front and centre.
What are Scope 3 emissions?
Scope 3 emissions are indirect emissions that occur as a result of upstream and downstream activities from a company’s value chain. These emissions are not directly owned or controlled by the company but often account for 90% or more of a company’s total emissions.
The GHG Protocol breaks down Scope 3 emissions into 15 different categories, which can be further classified into eight upstream and seven downstream categories.
A Scope 3 Example
A global online retailer may sell dishwashers that are manufactured by a third party directly to consumers.
For the retailer, the upstream impact of these dishwashers would include the embodied impact of each material used, the energy consumed in assembling the dishwasher in a factory and the impact of transporting that product to the consumer.
The downstream impacts would include the energy consumed by the dishwasher each time it is used by the final consumer, as well as the impact associated with disposing of the dishwasher at end of life.
Upstream vs downstream emissions
Upstream emissions include those generated from activities such as raw material extraction, production, transportation and energy use in manufacturing.
Downstream emissions occur from the use, disposal, and end-of-life treatment of a company’s products, such as the energy consumed by appliances or transportation of goods to end-users.
Why should you measure scope 3 emissions?
Measuring Scope 3 emissions is crucial for businesses and public sectors for a range of reasons, including:
- Business Benefits: By measuring Scope 3 emissions, companies can identify opportunities for improvement in their value chain activities and operations, leading to cost savings and increased efficiency and collaboration.
- Rulings and Regulations: Increasingly, companies are required to report their Scope 3 emissions. Failure to do so may result in financial penalties or reputational damage.
- Supplier benefits: Suppliers are increasingly being asked to provide data on their carbon footprint as part of their client’s scope 3 reporting. Reporting on scope 3 emissions can allow suppliers to get ahead of these requirements and differentiate against competitors.
- Public Sector Benefits: Governments can use Scope 3 emissions data to develop policies and regulations that encourage sustainable practices and reduce GHG emissions.