Scope 3 emissions and how small businesses can manage them
For small business owners, there’s a lot to get your head around when trying to measure your business’s carbon footprint. And with the EU urging nations at COP26 to give strong commitments to reach net zero by 2030, the pressure is certainly on.
Understanding greenhouse gas emissions is a particular challenge, and while the The Greenhouse Gas (GHG) Protocol aims to simplify this process, having a good understanding of the three scopes of emissions defined by the Protocol is an important starting point.
While many companies understand their own actions that generate direct carbon emissions (Scope 1), and are aware that using power intensive appliances will boost their indirect emissions (Scope 2), mapping the emission footprint right across the supply chain is a much bigger challenge (Scope 3).
In this guide, we’ve explored exactly what Scope 3 emissions are, and why small business leaders need to think about the accountability of their supply chain in order to be truly sustainable.
What are Scope 3 emissions and why are they important?
These are the emissions associated not with a company itself, but with the other entities it interacts with up and down the supply chain. Examples of upstream Scope 3 emissions include those generated by the production of raw materials. Downstream Scope 3 emissions include those caused using or disposing of the end product sold by a company.
Emissions are split into three ‘Scopes’ by the GHG Protocol but they are rarely distributed evenly between the three - businesses invariably find that their Scope 3 emissions account for more than 70% of their total carbon footprint. As Tom Cumberlege at the Carbon Trust says: “Scope 3 is crucial to all the forms of climate change activity”, and with only 5% of Europe’s largest listed companies on track to reach their net zero ambitions across Scope 1 and 2, let alone Scope 3, it’s vital all three Scopes are managed with urgency.
What are the key challenges?
Lack of control
Businesses have far less control over the emissions produced in their supply chain compared to those produced by the business itself. There needs to be a willingness of suppliers to support with addressing Scope 3 emissions and this will depend on many elements such as their own green ambitions.
Hard to track
It’s hard to ring-fence Scope 3 emissions and accurately keep track of them. Businesses will have all the source data needed when it comes to their own emissions to track their footprint, but are unlikely to have the same access to key information when it comes to their suppliers. Many put their company’s reputation at risk in their ‘de-scoping’ efforts, as they do this by outsourcing emission-heavy activities like manufacturing.
Four key steps for achieving a greener ‘Scope’ emissions footprint
Get an approximate figure for your supply chain emissions
Take advantage of the range of accounting software programmes available, e.g., Normative’s emission accuracy engine which gathers thousands of data. All you need to do is upload your financial information - the accounting engine then finds the corresponding emissions factors for your suppliers and, in a matter of seconds, displays your complete emissions profile, broken down by scope.
Decide who’s in charge
Consider a ‘top down’ strategy and ensure your company’s leadership team plays a vital role in educating their staff about the business’ decarbonisation journey. Schroder’s CEO, Peter Harrison, warned at the recent Net Zero festival that investors will not shy away from voting against management teams if companies do not drive meaningful change when it comes to decarbonisation.
Identify your priorities
Your emissions footprint can be mapped by scale as well as how much control you have over the source. Identify the key hotspots within easy reach and focus on these first – this could lead you to reconsider the suppliers you choose to work with or find new partners to collaborate with on your decarbonisation journey.
Collaborate, collaborate, collaborate
Communicate with your supply chain – share your goals and constantly be on the lookout for ways in which you can run a greener ship. Focussing on cutting down Scope 3 emissions could result in changes such as suppliers using electric vehicles. Explore ways in which you can support your customer on the journey, e.g., by including new instructions on packaging. Use benchmarking as a way to motivate suppliers to identify different areas for decarbonisation potential.
Most organisations find that a significant proportion of their total emissions footprint is in fact indirect, making Scope 3 emissions a vital focus for the net-zero transition. To this point, reporting of Scope 3 emissions aren’t yet mandatory across Europe, but this is increasingly being encouraged – for example the UK government has strongly advised businesses disclose them under Streamlined Energy and Carbon Reporting (SECR). It has also been pushed by green groups to do more to standardise emissions disclosure, so businesses may see this state of play change at a pace in coming years. The sooner businesses start to embrace the challenges and make headway on their net zero journey, the better.
Looking for tips on how to achieve a greener Scope 3 emissions footprint for your business? Speak to one of our V-Hub Digital Advisers.
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