The three sustainability numbers you need to know and why

Since California recently enacted a law that requires large businesses operating in California to report their scope 1, 2 and 3 emissions, and the SEC is soon to issue their emission reporting rule, the time to increase clarity on emissions reporting is now.? Do you know the three important numbers: 7, 3 and 15?

7 Greenhouse Gasses. The Greenhouse Gas Protocol is the most widely used and accepted standard for categorizing and reporting the seven greenhouse gases (GHGs) covered by the Kyoto Protocol:

1. Carbon dioxide (CO2) comes from both natural and human-made sources. Natural CO2?comes from animal and plant respiration and decomposition of organic matter. There are also naturally occurring CO2?deposits found in the Earth’s crust. Human-made CO2?sources include power generation, transportation, industrial sources, chemical production and petroleum production. Combustion of fossil fuels generate CO2?as a byproduct.
2. Methane (CH4) is a colorless, odorless and highly flammable gas. Like CO2, it has natural and human-made sources. Natural CH4 comes from decaying organic material like in landfills or in wetlands or the digestion of food by cows. Human-made CH4 comes from the extraction and processing of natural gas and coal.
3. Nitrous oxide (N2O) comes from the agriculture ecosystem including nitrogen in the soil; it’s also produced in the oceans, by fossil fuel combustion and industrial processes, and from burning biomass like forests.
4. Hydrofluorocarbons (HFCs) are a group of synthetic gases primarily used for cooling and refrigeration.
5. Perfluorocarbons (PFCs) are a group of chemicals used to make coatings and products that resist heat, oil, stains, grease, and water. Fluoropolymer coatings can be used in varied products including clothing, furniture, adhesives, food packaging, heat-resistant non-stick cooking surfaces, and electrical wire.
6. Sulphur hexafluoride (SF6) are used by utilities in electric power systems in the?transmission and distribution of electricity, for example in voltage electrical insulation and current interruption.
7. Nitrogen trifluoride (NF3) was added to the list of Kyoto Protocol GHGs in 2012 as scientific understanding of the chemicals that contribute to climate change evolved. NF3 is used in high-tech industries, including in the manufacture of many electronics.

3 Scopes. The 7 GHGs are segmented into 3 scopes (i.e. categories or buckets).

Scope 1 emissions are direct emissions generated from assets owned or controlled by the organization.

Scope 2 emissions come from the generation of electricity, heating/ cooling, or steam purchased for the organization’s own consumption.

Scope 3 are indirect emissions (excluding those in scope 2) that occur upstream and downstream in the organization’s value chain from activities on behalf of the reporting company but occurring through assets owned or controlled by another company. They also include emissions from use of a company’s products.

There are 15 categories of scope 3 emissions.

1. Purchased goods and services
2. Capital goods
3. Fuel- and energy-related activities (not included in scope 1 or scope 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments

There are two primary ways to estimate the emissions of the15. The direct method requires receiving primary data from an organization’s suppliers—this is super hard. Thus, the current most realistic way to estimate them is the calculation method which requires breaking down the business model into activities and applying industry average factors to the activities. Examples of activities are liters of fuel consumed or kilowatt-hours of electricity consumed.?

Bottom line

As businesses prepare for increased greenhouse gas scrutiny, they need to understand three foundational numbers in emissions reporting: 7 greenhouse gasses, 3 scopes and 15 categories. It’s not only publicly traded companies that will need to be prepared. Anyone doing business with them will be asked for their data and carbon-mitigating actions. Failure to provide information could result in reduced business opportunities.

Sources & further reading

The standards from the Greenhouse Gas Protocol: https://ghgprotocol.org/standards