What Are Scope 3 Emissions?

As the environmental impact of business operations becomes increasingly apparent, governments around the world are adopting new policies and incentives to ensure companies disclose and reduce their greenhouse gas (GHG) emissions. These emissions are commonly divided into three categories: Scopes 1, 2 and 3. Scope 3 emissions have taken the spotlight because, according to the World Resources Institute, they account for 75% of corporate greenhouse gas emissions. But what exactly are scope 3 emissions? In this article, we address the following themes:

What are scope 3 emissions?
Examples of scope 1, 2 and 3 emissions
Developing a scope 3 strategy
Conclusion

A couple of decades ago, the Greenhouse Gas Protocol (GHGP) established scopes 1, 2 and 3 emissions to help measure the reductions needed to limit the rise in global temperatures. At the time, most companies were focused on measuring emissions from their own operations and electricity consumption. But what about all the emissions occurring in their value chain as a result of their activities?

According to the United States Environmental Protection Agency (EPA), “Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain” (2023). Naturally, scope 3 impacts vary by industry and business model, but, for many companies, a large chunk of emissions happen through suppliers and raw materials.

EXAMPLES OF SCOPE 1, 2 AND 3 EMISSIONS

SCOPE 1 EMISSIONS

Direct emissions from owned or controlled sources

EXAMPLES:

Company facilities and vehicles

SCOPE 2 EMISSIONS

Indirect emissions from the generation of purchased energy

EXAMPLES:

Purchased electricity, heating and cooling for own use

SCOPE 3 EMISSIONS

All other indirect emissions that occur in a company’s value chain

EXAMPLES:

Purchased goods and services; waste generated in production and business travel; transportation and distribution, etc.

Developing a scope 3 strategy

The importance of measuring scope 3 emissions is increasingly understood, but many challenges are involved in accomplishing this. Measuring and reducing scope 3 emissions implies understanding activities across the entire business, from suppliers to end users. A lack of accurate data and standardized methodology adds to the challenge. Traceability can provide the understanding to meet this challenge by giving companies the tools and technology to gain visibility over their entire supply chains.

Begin your scope 3 strategy by understanding your business’s environmental impact and what you would like to measure. Ideally, when making these assessments, you should focus first on the categories that have the largest impact on your organization’s total GHG inventory and are the easiest to reach. You may notice that although some scope 3 categories are relevant, they may lack readily available data to use in estimating emissions. This is OK for now; over time, you’ll be able to expand your reported categories and identify opportunities to improve practices, reduce risk and discover competitive advantages.

Once you’ve established your top categories, you’ll then move on to measuring and managing their emissions. To do so, you may want to refer to the GHGP Calculation Guide. Scope 3 requires working closely with suppliers and customers, as they influence how emissions are reduced through their own purchasing decisions, and product design. Leverage partnerships within your supply chain to ensure your project’s success.

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CONCLUSION

Despite the difficulty of cutting scope 3 emissions, this is a path companies will sooner or later need to take. If a company wants to be in business in the future, they need to join the climate change cause. The EU Corporate Sustainability Reporting Directive, the SEC Requirements and the Carbon Border Adjustment Mechanism are just the beginning of sustainability regulations being implemented worldwide.

The best part of this is that helping the environment, investing in understanding and controlling scope 3 emissions can also reap significant benefits for your company. For instance, the data can reveal missed opportunities and mitigate risks. Are you ready for this journey? Contact OPTEL.

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EU Corporate Sustainability Reporting Directive

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