Scope 3: Measuring the Unmeasured

As industries go about delivering optimal products and services, a certain percentage of emissions go unmeasured and unaccounted for.?

Purchase of goods and services, business travel or even Investments releases a considerable amount of carbon. Scope 3, as we call it is emissions released throughout the production to the consumption journey in a supply chain.?

Value chain emissions, or Scope 3 emissions, have long troubled enterprises due to the visibility factor. Not that it can’t be measured, but it is trickier, unlike Scope 1 and Scope 2. The supply chain accounts for 11.4 times more emissions than operational emissions, according to the Carbon Disclosure Project (CDP). Indirect emissions in a value chain can comprise up to 80% of a company's total greenhouse gas (GHG) footprint, estimates the Environmental Protection Agency (EPA).

As per CDP, greenhouse gas emissions make up the largest portion of a company's carbon footprint. If the impact of carbonization in the value chain cannot be measured, it becomes challenging to create an end-to-end greenhouse emission reduction strategy. All of these made decarbonizing, a mandate and not a choice for the reporting organizations.

The question is, what makes measuring Scope 3 emissions a rocky terrain?

Understanding Scope - 3 Emissions?

Measuring the impact of emissions in the supply chain helps enterprises become responsible participants in the global decarbonization mission. The World Economic Forum (WEF) highlights that addressing Scope 3 emissions is essential for companies to achieve credible climate change commitments. It empowers enterprises, especially those in the customer-facing sector. It helps them leverage their influence over suppliers, vendors, and every stakeholder in the system and accelerate the race towards net-zero emissions. Moreover, these enterprises have an advantage in educating supply chain stakeholders about the emissions they may have missed.

Unlike Scope 1 and Scope 2 emissions, the value chain accounts for upstream and downstream emissions. Furthermore, an organization's greenhouse gas (GHG) emissions are ring-fenced, reducing the visibility of overall emissions. To simplify the process, the GHG Protocol classified 15 categories of indirect emissions.

A few emission scenarios as per category (as defined by a study by IBM);

• Fast Moving Consumer Goods (FMCG) companies: Most emissions result from purchased goods and services [upstream Category 1].
• Automobile companies: A significant portion of their Scope 3 emissions originate from the use of sold products [downstream Category 11].
• Commercial real estate sector: A real estate firm that constructs new buildings will have a different Scope 3 category mix than a real estate investment trust that only invests in existing constructions.

Quantifying Value Chain Emissions and Setting Science-Based Targets?

Quantifying Scope 3 emissions require an enterprise to become both a supplier to the customer and vice versa. And success in tackling decarbonization involves setting targets that are not aspirational but science-based.

Here is how it is done;

The Science Based Targets initiative (SBTi) suggests that enterprises require near-term and long-term targets to measure Scope 3. An enterprise achieves net zero when it fulfils its long-term science-based target, which includes 95% of Scope 3 emissions and must be met by 2050. SBTi explores this in-depth.

1. Long-term science-based targets: Includes 95% Scope 3 emissions and the targets are set to be met by 2050?
2. Near-term science-based targets: Targets that must be met within a 5- to 10-year period.?

If a company’s Scope 3 emissions make up more than 40% of its total emissions, then the near-term target must cover two-thirds (67%) of Scope 3 emissions.?

The need for a streamlined, science-based target framework is no longer a choice for reporting organizations. It is a guideline providing clarity into centralized and decentralized approaches to collect and assess data on greenhouse gas emissions. The objective here is to measure Scope 3 emissions with utmost accuracy.

Strategizing Decarbonization?

Preparing inventory reports, tracking the supply chain activities or measuring emissions to reduce them cannot run ad hoc. It needs a systematic and strategic approach. Below are a few questions to kick-start the strategy planning.?

• Is the leadership aware of the implications of emissions??
• How is the strategy going to help the business??
• What is the near-term target and what is the long-term target??
• How is the strategy going to enhance the business profitability while reducing emissions??
• Is the strategy designed for enhancement in the emission reduction plan??

What takes a strategy further is collaboration within the teams and an understanding that it will have a larger impact across functions. Because tracking scope 3 involves multiple layers of complexities from opaque carbon accounting to tracking practices, as stated by McKinsey. Cross-collaboration helps enterprises estimate the emission rate with visibility into the industry performance and measure the impact created through decarbonization efforts.

Every enterprise across economic categories has a role to play in decarbonizing the value chain. According to Supply Chain Digital, greener small to medium-sized enterprises (SMEs) are said to be the secret to tackling Scope 3 emissions, with big businesses key to making this happen.