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One critical aspect to understanding climate-related disclosure is how businesses measure and manage their Scope 3 emissions. An often overlooked but significant component of a company's carbon footprint - Scope 3 -is not without controversy. The carbon footprint of a business is divided into three scopes: Scope 1, 2 and 3. Scope 1 includes all emissions under the business’ direct control such as company cars. Scope 2 includes all emissions which a business can choose how to procure, but not how to generate: utilities. Scope 3 is everything that remains in the value/supply chain. According to the GHG Protocol, Scope 3 greenhouse gas (GHG) emissions account for more than 70% of a business’s carbon footprint. For big businesses, this means an enormous tail end of SME suppliers. The controversy around Scope 3 can be best described by one of Startmate’s ClimateTech Fellows: “why is the onus of Scope 3 emissions on the reporting company when they’re the Scope 1 emissions of their supplier?”
Scope 3 emissions represent the indirect greenhouse gas emissions that result from a company's activities, but are beyond immediate operational control. These emissions extend across the entire value chain through various stages such as raw material extraction, production, transportation, product use, and eventual disposal. Unlike Scope 1 emissions and Scope 2 emissions, Scope 3 emissions often comprise the lion's share of a business's carbon footprint.
"Conducting a comprehensive carbon footprint assessment can be a highly technical and data-intensive process that may be beyond the capabilities of many SMEs. The good news is, it’s a lot easier to start this journey than you think." Mei-Ling Ho, Social Change Headquarters
One reason SMEs find it challenging to measure their Scope 3 emissions is that these emissions lie outside their operational boundaries. This means that gathering data about your Scope 3 emissions requires collaboration with your suppliers and distributors. This may be difficult to achieve without strong relationships and communication channels in place.
It should be noted that measuring Scope 3 emissions is going to be harder for product-based companies than for service-based companies. Companies with more complex supply chains, particularly wholesale-retail companies or manufacturing companies that are dealing with everything from raw materials to the final product, will find it the most challenging to get a grasp of their Scope 3 emissions. Conversely, service companies are more likely to be dealing with a handful of suppliers for office supplies, technological solutions and financial services.
To understand the mechanics of Scope 3 emissions, consider a clothing manufacturer. While the manufacturer may be able to track and control emissions from its own factories (Scope 1) and account for the energy it consumes (Scope 2), the true environmental impact of its products spans a much broader spectrum. Scope 3 emissions in this context would involve the carbon emissions produced during the growing and export of cotton (a raw material), the manufacturing and transportation of the clothing, and within a life-cycle analysis, even the emissions resulting from customers washing and caring for the garments. Additionally, the emissions from the eventual disposal or recycling of the clothing contribute to the overall Scope 3 emissions.
Managing Scope 3 emissions involves a multi-faceted approach that targets a multitude of key business functions:
The significance of Scope 3 emissions cannot be overstated in the context of corporate sustainability. As businesses navigate the complexities of a rapidly changing world, understanding and addressing these indirect emissions is crucial for creating a positive environmental impact and ensuring long-term success. By embracing the responsibility to manage Scope 3 emissions, businesses not only contribute to a healthier planet but also pave the way for a more resilient and sustainable future.
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