Scope 3 emissions refer to indirect greenhouse gas (GHG) emissions that occur as a result of a company’s activities, but they are not directly owned or controlled by the company. These emissions are often associated with the entire value chain or supply chain of a company, including activities such as the production and transportation of raw materials, the use of products by customers, and the disposal of products at the end of their life cycle. Scope 3 emissions are also sometimes called “value chain emissions” or “supply chain emissions.”
Scope 3 emissions are often the most significant and challenging to measure because they encompass a wide range of activities throughout the value chain. Some common categories of Scope 3 emissions include:
- Purchased goods and services emissions: Emissions associated with the production and transportation of materials and services purchased by the company.
- Capital goods emissions: Emissions associated with the production and transportation of assets like buildings and machinery.
- Fuel- and energy-related activities not included in Scope 1 or Scope 2: Emissions resulting from activities such as employee commuting, business travel, and distribution of products.
- Upstream and downstream transportation and distribution: Emissions from the transportation of products to and from the company.
Importance of Monitoring Scope 3 Emissions
Companies need full visibility across their supplier base in order to make significant progress on net zero targets by 2050. However, that visibility is challenged by the fact that nearly two-thirds of upstream Scope 3 emissions in supply chains come from suppliers that companies don’t deal with directly.
“Scope 3 emissions are elusive and difficult to track in today’s complex supply chains. Many large companies don’t even know the suppliers beyond Tier 1, let alone have any sort of influence or control over them or their sustainability practices, which is why we have seen little progress in reductions to date,” said Kris Timmermans, Accenture’s Supply Chain lead. “Armed with the knowledge of where their emissions sit, companies can do the really important thing – commit to taking action and collaboration with the entire supplier base and all stakeholders, toward a more sustainable future.”
Analysis reveals that in most cases, if upstream emissions are a significant portion of a company’s total emissions, they tend to occur deeper in the supplier network. For example, upstream Scope 3 emissions for the aerospace and defense industry is many times the size of its Scope 1 and 2 emissions, and these upstream emissions are buried deep in its upstream supplier network — only 20% of its emissions come from its Tier 1 suppliers.
“According to recent research shows that only 7% of companies are on track to reach their net zero commitments, revealing that for the other 93% of businesses, the time to act is now,” said Peter Lacy, Accenture’s Sustainability Services lead and chief responsibility officer. “Even amid economic volatility, ambitions around sustainability are on the rise, however tapping into carbon intelligence is an important piece of the puzzle in converting those ambitions into action and impact. Tomorrow’s leaders are collaborating today to enable circularity and increase sustainable outcomes across the value chain.”
Benefits of Monitoring Scope 3 Carbon Emissions
Monitoring and managing Scope 3 carbon emissions can offer several benefits to organizations, ranging from improved sustainability to enhanced brand reputation and cost savings. Here are some key benefits of actively tracking and addressing Scope 3 emissions:
- Comprehensive Sustainability Reporting: Monitoring Scope 3 emissions allows organizations to provide a more comprehensive and transparent account of their carbon footprint. This can enhance their sustainability reporting and disclosure, demonstrating a commitment to environmental responsibility to stakeholders, including investors, customers, and regulators.
- Risk Mitigation: By understanding the full extent of their carbon emissions, companies can identify potential risks associated with their supply chain and value chain partners. This knowledge enables them to take proactive measures to mitigate these risks, such as diversifying suppliers or investing in more resilient supply chain practices.
- Cost Reduction: Identifying and addressing inefficiencies and emissions hotspots within the value chain can lead to cost reductions. For example, optimizing transportation routes or using more energy-efficient materials and processes can result in lower operational expenses.
- Competitive Advantage: Companies that actively manage Scope 3 emissions are often viewed as leaders in sustainability. This can give them a competitive advantage in attracting environmentally conscious customers, partners, and investors. It can also help them comply with evolving regulations and standards related to carbon emissions.
- Supply Chain Resilience: Understanding Scope 3 emissions can improve supply chain resilience. By diversifying suppliers, sourcing materials responsibly, and reducing dependence on high-emission sources, companies can be better prepared for disruptions related to climate change or regulatory changes.
- Innovation Opportunities: Focusing on Scope 3 emissions can drive innovation in product design, materials sourcing, and supply chain optimization. This can lead to the development of more sustainable and environmentally friendly products and processes, which can, in turn, open up new markets and revenue streams.
- Customer and Investor Demand: Many customers and investors are increasingly demanding transparency and sustainability from the companies they engage with or invest in. Monitoring and reducing Scope 3 emissions can help meet these expectations and strengthen customer and investor relationships.
- Regulatory Compliance: As governments around the world implement stricter regulations to combat climate change, monitoring Scope 3 emissions can help companies stay in compliance with current and future environmental laws. This can reduce the risk of fines and legal liabilities.
- Enhanced Resilience to Climate Risks: Understanding how Scope 3 emissions contribute to climate change can help companies better prepare for and adapt to climate-related risks, such as extreme weather events and resource scarcity.
- Global Supply Chain Collaboration: Monitoring Scope 3 emissions encourages collaboration and engagement with suppliers and partners across the value chain. This can lead to more sustainable and resilient supply chains, with shared goals and initiatives to reduce emissions collectively.
A “carbon footprint” is like a measurement of how much stuff we do or make that causes climate change. It’s about the gases we send into the air, like the ones that make the Earth warmer. These gases can trap heat in the air and make our planet get hotter. So, a carbon footprint tells us how much we’re contributing to this problem by doing certain things or making certain things.
Five key actions that all companies can take now to achieve visibility
- Conduct a real multi-tier emissions hot spot analysis to set targets and drive the right actions. The insights from such an analysis provide the foundation for an action plan to address the areas of most significant impact.
- Embed sustainability into category planning and supplier selection. Depending on the hot spot areas identified, a company can customize category plans, including emission-reduction strategies, to address hot spots as appropriate.
- Integrate emissions into the supply chain control tower and implement a digital twin. Control towers that centralize visibility and decision making and guiding actions with short- and long-term benefits combined with a digital twin of the supply chain generates the end-to-end visibility necessary to optimize supply chain networks across service, costs, quality, and sustainability — in real time.
- Support suppliers in their ongoing decarbonization efforts. Segmenting the supplier base can help companies tailor their engagement programs appropriately, as long as they’re also improving supplier data quality.
- Collaborate across sectors, with peers, suppliers and ecosystem partners to speed up decarbonization at scale. An intelligent platform solution to aggregate data from multiple
Conclusion
Addressing Scope 3 emissions is critical for a comprehensive approach to corporate sustainability and environmental responsibility. Companies that want to reduce their overall carbon footprint often need to collaborate with their suppliers, customers, and other partners in the value chain to find ways to lower these emissions. This can involve measures like using more sustainable materials, improving transportation efficiency, and promoting product recycling and reuse. Understanding and managing Scope 3 emissions is an important step in achieving a more sustainable and environmentally responsible business model.
In summary, monitoring and addressing Scope 3 carbon emissions is not only a responsible approach to environmental stewardship but also a strategic decision that can yield numerous benefits, including cost savings, competitive advantages, and improved relationships with stakeholders. It positions organizations for long-term sustainability and resilience in a world increasingly focused on climate change and sustainability.
