👷 Scope 3 explained

Scope 3 emissions are indirect greenhouse gases emitted throughout a company's value chain. They include both upstream emissions, such as product transportation and waste generation, and downstream emissions, such as product distribution and end-of-life treatment. Understanding Scope 3 is crucial for identifying risks and opportunities in the supply chain, preparing for future regulations, providing stakeholders with a holistic view of the company's environmental impact, and enabling simultaneous action on overlapping emission sources. While calculating Scope 3 emissions presents challenges due to data collection difficulties and uncertainties, it is essential for companies to address these challenges and report Scope 3 emissions to meet evolving regulations and stakeholder expectations. By doing so, companies can reduce their carbon footprint and contribute to a more sustainable future.

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What is Scope 3?

Scope 3 emissions encompass greenhouse gas emissions linked to a company's value chain activities but originating from sources not owned or directly operated by the company. These emissions are divided into upstream scope 3 emissions, involving activities like product transportation, waste generation, business travel, employee commuting, and leased asset operation, and downstream scope 3 emissions, including product distribution, processing, use, and end-of-life treatment, etc.

Why is Scope 3 important?

There are several compelling reasons

• Risk and Opportunity: Measuring Scope 3 emissions unveils the hidden risks and opportunities associated with a company's entire supply chain. This includes potential liabilities like fluctuating resource costs, changing regulations, and consumer preferences driven by environmental concerns.
• Future-proofing: Understanding Scope 3 helps companies prepare for potential future regulations, such as carbon taxes or emissions caps, that could impact their supply chain.
• Stakeholder Insights: Scope 3 provides a holistic view of a company's environmental impact for stakeholders. This allows the company to prioritise areas within the value chain where they can significantly influence emissions reduction, improving their overall carbon footprint and reputation.
• Simultaneous Action on Overlapping Emissions: Scope 3 accounting enables simultaneous action on overlapping emission sources within a company’s supply chain. This facilitates the identification of opportunities for emission reduction and sustainable decisions by different entities involved in the supply chain. For instance, the emissions generated by a power generator that are also associated with the use of electricity by an appliance user, each entity has distinct opportunities to reduce emissions relevant to their operations.

Different categories of Scope 3?

Scope 3 emissions include 15 categories. These categories are segmented into upstream and downstream. This framework gives organisations a comprehensive structure to calculate, track, and decrease their carbon footprint beyond their direct operations. The categories are as follows

Challenges in calculating Scope 3 emissions

Scope 3 emissions, while insightful, are complex to calculate. Gathering reliable data across diverse supply chains presents a significant challenge. The robustness of these inventories relies heavily on external partners' cooperation and data quality. Furthermore, the mix of data sources, assumptions, and inherent uncertainties in areas like product use and disposal makes assurance challenging. The limited control over emission sources beyond the company's direct operations hinders obtaining sufficient evidence for verification. Companies manage these challenges by investing in technology to manage and standardise data collection. Increased collaboration and engagement with critical suppliers also helps align expectations. Often companies use secondary data to plug data gaps.

Conclusion

In conclusion, understanding and reporting Scope 3 emissions is no longer a choice, but a necessity. Evolving regulations and demanding stakeholder expectations are pushing companies to disclose Scope 3 footprint. While calculating Scope 3 emissions presents challenges, the potential benefits of improved risk management, future-proofing, and stakeholder engagement are undeniable. By embracing transparency, collaboration, and data-driven approaches, companies can unlock hidden opportunities to reduce their overall carbon footprint and contribute to a more sustainable future.