Scope 3 emissions: The key to net-zero

Scope 3 emissions are indirect greenhouse gas (GHG) emissions throughout a company’s value chain, including its suppliers, customers, and other stakeholders. This includes upstream – e.g. purchased goods and services which are brought into an organisation to make products or carry out services, and downstream – e.g what happens to a product after it has been taken to market and used by a customer.

These emissions are often the largest source of a company’s carbon footprint, making up as much as 90% of its total emissions. Yet, Net-Zero Tracker’s analysis published in November 2022, warns that most targets “suffer from an overall deficit of credibility”. Of 2,000+ companies analysed by the Tracker, “only a minority of companies include the full scope of their emissions within their net zero targets”.

The importance of Scope 3 emissions

Investors are increasingly focusing on Scope 3 emissions as they recognise the critical role they play in achieving global net-zero emissions. Companies that address Scope 3 emissions are likely to be more resilient to climate risks and are better positioned to capture opportunities arising from the transition to a low-carbon economy. It’s important to address and reduce Scope 3 emissions because they represent a significant share of a company’s carbon footprint, and a company cannot achieve net-zero emissions without reducing these. 

Moreover, companies that address their Scope 3 emissions can improve their reputation, enhance their brand value, and strengthen their relationships with suppliers and customers.

The challenges of managing Scope 3 emissions

Measuring Scope 3 emissions is challenging, as they are often outside a company’s direct control and may involve complex and fragmented value chains. The Greenhouse Gas Protocol, a widely recognised accounting tool for GHG emissions, provides a framework for calculating Scope 3 emissions. The framework categorises Scope 3 emissions into 15 categories, including purchased goods and services, upstream transportation and distribution, waste generated in operations, and the use of sold products.

To calculate their Scope 3 emissions, companies need to collect data from their suppliers and other stakeholders, which can be challenging due to the lack of standardisation and transparency in reporting. However, several initiatives, such as the Task Force on Climate-related Financial Disclosures (TCFD) and the Science-Based Targets Initiative, provide guidance and frameworks for measuring and reporting Scope 3 emissions.

Reducing Scope 3 emissions

Improved reporting and disclosure can help companies better understand their Scope 3 emissions, identify opportunities for emissions reductions, and engage with suppliers and customers to drive emissions reductions across their value chain.

Companies can reduce their Scope 3 emissions by improving the energy efficiency of their products and services, increasing the use of renewable energy, reducing waste and promoting circular economy practices, and engaging with suppliers to reduce their emissions.

Addressing Scope 3 emissions is critical for companies to achieve net-zero emissions and improve their resilience and competitiveness. Although measuring and reducing Scope 3 emissions can be challenging, companies that take action are likely to reap significant business benefits while contributing to a more sustainable future.

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