Understanding GHG emissions
Organisations across the world have made significant strides in understanding their greenhouse gas (GHG) emissions, particularly within their own operations (known as Scope 1 and Scope 2 emissions). However, gathering precise emissions data from across supply chains, commonly referred to as Scope 3 emissions, frequently manifest as the stumbling block in completing a greenhouse gas inventory.
As the climate-related risks for organisations continue to amplify, regulatory drivers like the Corporate Sustainability Reporting Directive (CSRD) have added a new onus on companies to manage these risks.
These regulations are set to shake up organisational sustainability reporting as they mandate annual disclosure of emissions (alongside other ESG data) and the targets set for emission reduction.
The Scope 3 reporting dilemma
While Scope 3 emissions can constitute a substantial part of an organisation’s total emissions, only a fraction of companies have yet to establish targets for them. As well as the increasingly stringent regulations, pressure to address Scope 3 emissions originates from both internal and external sources, including customers and investors. Moreover, for those overseeing their organisations’ associated decarbonisation plans, the challenge often lies in trying to understand and mitigate against emissions that do not fall directly under the reporting company’s control.
Navigating Upstream and Downstream complexity
Companies are now faced with the issue of grappling with complex supply chain dynamics whilst also tackling and reporting on their emissions. Efforts to streamline these complexities and develop transparent emission reduction plans across Scope 3 emissions can be divided into what are known as upstream and downstream aspects.
|Emissions from raw materials, suppliers, components
|Requires active engagement with suppliers and vendors across the whole supply chain
|Emissions generated after the production of a product or service, during use or disposal
|Requires emissions tracking through all the life cycle stages following creation
Sectors with high Scope 3 emissions
Whilst Scope 3 emissions reporting affects all organisations, some sectors have a more significant Scope 3 influence in their total GHG impact. On the high end, scope 3 emissions account for over 99% of emissions in the financial services sector; on the low end, they are responsible for only 16% of emissions in the cement industry.
Due to the CSRD, organisations across all sectors will be required to submit Scope 3 emissions data, provided they are already in scope.
CSRD and the Scope 3 Connection
The arrival of the CSRD regulations ushers in a new era of transparency and accountability for organisational sustainability-related strategies and reporting. These regulations mandate granular emissions disclosure and the establishment of emission reduction targets across Scopes 1, 2, and 3.
The first set of CSRD standards, adopted by the ESRS on July 31, 2023, places an emphasis on the material impacts of organisations on people, the environment, and business / value chain operations. This includes environmental matters such as greenhouse gas emissions, energy efficiency, and associated dependencies. Social considerations are also highlighted, encompassing working conditions, human rights, and equal opportunities in the value chain.
The second set of standards, to be adopted on June 30, 2024, aims to refine reporting by addressing levels and boundaries of reporting, emphasising the significance of Scope 3 emissions in measuring social and environmental impact. Ensuring you are ahead of these regulations on obtaining, monitoring and reporting on your Scope 3 is therefore vital.
What can organisations do to align their supply chains with CSRD?
Establishing clear targets, especially for Scope 3 emissions, and formulating robust strategies to achieve them.
Integrating a comprehensive Scope 3 emissions data model offers opportunities for informed decision-making and supplier engagement beyond compliance.
Aligning stakeholders around a common dataset ensures informed decision-making and grounded strategies.
Proactively addressing Scope 3 emissions positions companies as leaders in the transition to a net-zero future. While regulatory compliance is immediate, the strategic implications of setting a Net Zero target are long-term.
Despite the challenges, addressing Scope 3 emissions presents opportunities for valuable collaboration in supply chains, leading to improved products and services, and more credible green claims.
EXPLORE THE CORPORATE SUSTAINABILITY REPORTING DIRECTIVE (CSRD) GUIDE
Scope 3 regulatory reporting: FAQ
Everyone who has to comply with CSRD. The CSRD requires Scope 3 reporting, which includes the collection of sustainability information across a company’s value chain or supply chain.
A carbon footprint is the total amount of greenhouse gases (including carbon dioxide and methane) that are generated by our actions. Many organisations would normally consider a carbon footprint to only include Scope 1 & 2 emissions; however a comprehensive GHG inventory (i.e. carbon footprint), would also include Scope 3.
The TCFD recommends that companies disclose Scope 3 emissions where they form a significant portion (40% or more) of their overall GHG emissions.
Reporting other Scope 3 emissions is voluntary, but strongly encouraged where this is a material source of emissions.