The concept of “emissions” has recently widened in environmental impact discourse to include both direct and indirect sources of excess CO2. Rather than focus narrowly on direct emissions from a company’s manufacturing or energy consumption, Scope 3 is broadening the concept of environmental impact which includes all the activities a company’s business calls into being, throughout their supply and distribution chains (the “product lifecycle”).
The US Environmental Protection Agency (EPA) defined the three Scope areas of concern as part of their Greenhouse Gas Inventory project (GHG), which aims to encourage companies to consider their environmental effect in a much broader context when carbon offsetting or reducing their footprint.
Definition of Scope 3 Emissions
To understand Scope 3, you must appreciate how it sits alongside the wider GHG definitions. Here’s a short breakdown:
Scope 1
Example
Scope 2
Example
Scope 3
Example
Scope 3 is wide enough to include considerations of source materials (mining or farming for instance) on the upstream side and recycling or destruction on the downstream end.
What are product lifecycle emissions?
Product lifecycle emissions is another term for Scope 3 impact. This term describes the whole product journey from raw materials through manufacturing, storage, transportation, sales, and obsolescence. By totaling the typical cost in terms of environmental impact, a company can calculate the carbon footprint of a product more honestly and completely than ever before.
What’s the difference between Scope 1, 2, and 3?
While a company has complete control over direct causes of CO2 emissions, it has, by definition, only partial oversight over all the activities of collaborators in the product lifecycle. Nevertheless, the EPA would argue, it befits a business to learn as much as possible about their suppliers, manufacturers, distributors, and sales outlets to help reduce their overall impact.
Scope 3 activities don’t just widen out the definition of responsibility for CO2 emissions, they also widen the company’s field of influence geographically and across time. With global supply chains as wide-ranging as they have become in recent decades, a global brand might source raw materials in one continent, ship them to another for manufacture, then distribute them in a third. At each stage in the product lifecycle, there are environmental consequences.
Type of Scope 3 indirect emissions
The EPA provides a useful illustration of the various types of Scope 3 emission sources:
You can see that the Scope 3 components are far more numerous and wide-reaching than Scope 1 or 2. Each reporting company’s Scope 3 Indirect portions will overlap significantly with those of other businesses, due to the range of companies that contribute to the product lifecycle for numerous clients.
Here are the main types of emission covered by Scope 3:
- Upstream
- Bought-in materials and services
- Capital goods i.e., plant, fleet, etc.
- Fuel and energy production in-house
- Transportation of supplies
- Waste management
- Business travel and employee commuting
- Leased assets
- Downstream
- Processing of products
- Distribution to market
- Cost of franchises
- Consumer product use
- End of useful life treatment (i.e., recycling, refuse)
- Investments
- Leased assets
Why should companies care about Scope 3?
A company’s full carbon footprint is far bigger than that caused by its direct activities, such as the staffing of offices or running of a factory. Even such items as marketing and advertising or client hospitality can have a significant impact (billboards, jet planes).
Therefore, for several reasons, it makes sense to use your GHG Scope 3 assessment as an opportunity to set a true benchmark for your carbon emissions.
Doing so allows a business to develop a reputation for being green, rather than profligate, which in today’s environmentally conscious world can increase competitiveness. New businesses can position themselves as focused on Scope 3 impact. They can do so with more ease than an established brand, which may have to disentangle a whole network of business contracts that are already in place.
A new brand entering the marketplace can quickly seize the advantage of being GHG-conscious and caring about its environmental impact. This creates a real opportunity for new entrants into traditionally wasteful sectors such as FMCG, clothing, or automobiles.
Why is there a focus on Scope 3 Emissions now?
With inescapable evidence of climate change all around us, and world leaders convening at UN global summits annually to set Carbon Zero targets, there’s evidently a growing interest in environmental impact. The priorities of these high-profile summits are threefold:
- Pressure for companies to set individual corporate goals and make these public in shareholder communications, annual reports, and advertising.
- They must do so against a ticking clock, both on agreed political timescales and, more importantly, in terms of humanity’s ability to save the environment for future generations.
- Lastly, they must do so in concordance with a raft of recent standards and regulations from industry bodies, advisory organizations, and governmental regulators including the EPA, European Financial Reporting Advisory Group (EFRAG), the IPCC, and many more.
Among the financial reporting standards that companies must adhere to are the following:
- EFRAG’s proposed European Sustainability Reporting Standards (ESRS) – which would require Scope 3 emissions to be calculated in a certain way.
- An Environmental Statement is required by the UK government, as part of the environmental impact assessment (EIA) of any development project.
- The US Securities and Exchange Commission (SEC)’s move towards greater transparency in environmental impact reporting.
Every company has the opportunity to influence its vendors and value chain partners to get ahead of the curve on environmental impact and position itself as the consumer-preferred choice.
Here’s a quote from the Carbon Trust, an organization devoted to measuring and evaluating the environmental impact of commerce: “90% of an organization’s environmental impact lies in the value chain – either upstream (supply chain) or downstream like purchased goods and product use phases.”
Given the truth underlying this assertion, it makes sense for every company to put in place policies to systematically reduce their product lifecycle climate impact.
Here are just a few brief examples of how businesses have addressed Scope 3 emissions:
- US breakfast cereal giant Kellogg vowed to “reduce scope 3 emissions by 20% by 2030, and by 50% by 2050.”
- Telecom giant O2 was recently recertified by the Carbon Trust as achieving the Trust’s highest standard for supply chain emissions management.
- General Motors has positioned itself at the top of a historically poorly performing industry in terms of its commitment to GHG reduction.
Improve your Scope 3 emissions and see how your partners contribute to your Scope 3 score with Evalueserve’s Decarbonization product. Please reach out to us at SCDecarb@evalueserve.com.
