Measuring Scope 1 and 2 emissions is standard practice for many companies. Our research into the sustainability reporting performance of the FTSE 100 found only one company not providing this information publicly. In the context of stakeholder demand and the need to manage business risk, companies are increasingly looking to understand emissions in their value chain (Scope 3 emissions).66 FTSE 100 companies are already reporting some Scope 3 data. In many cases, these businesses are reporting emissions that are easy to calculate – for example business travel – which is great. But these emissions may not be the most important to the business. In fact, our research showed that only a quarter of companies are performing materiality assessments of their Scope 3 emissions, suggesting that in many cases the reported Scope 3 categories may be the ones that are the most readily available, rather than those which are most significant within the business.
Measuring emissions in the value chain helps identify key focus areas and where action needs to be taken. It also contributes to a range of business needs as well as addressing stakeholder demands.
- a structured approach to defining and analysing the value chain and finding risk in the most carbon intensive areas
- investments in fossil fuels and their use in the supply chain
- legislative and non-compliant risk
- more efficient operating practices
- energy and cost savings
- new operational possibilities
- annual reporting
- Science Based Target Initiative – if Scope 3 emissions equate to more than 40% of your company footprint the SBTI will only endorse your SBT if Scope 3 is included.
How can I measure emissions that are not my own?
Scope 3 emissions often account for a significant proportion of a company’s carbon impact. For example, one of our client’s Scope 3 emissions accounts for over 90% of their total footprint. However, understanding emissions in the value chain can be challenging, as they are emissions that are not ‘owned’ by the company and data collection involves multiple stakeholders and data sources.
Our experience helping companies’ to footprint their value chain emissions in a robust way means we have tried and tested tools that simplify data collection and analysis in a two-step process.
To help us do this we will aim to help companies understand and categorise Scope 3 emissions into those that are:
- the largest emissions to the business
- the most material emissions
- straightforward to calculate
We then assess emissions that are classed in one or more of the categories above using either primary source data or financial data mapped to an economic input-output database. And while that may sound complicated, it’s actually extremely simple.
Calculate using financial data
An economic input-output database is a set of emissions factors that can be used to calculate emissions based on financial spend data. This means that your company knows the data that needs to be input into the system, reducing time and simplifying the data collection process.
This allows you to identify ‘hotspot’ areas where further work can be done to engage suppliers on emissions reductions opportunities. You may decide that there are certain categories (according to GHG Protocol Value Chain Guidelines) of Scope 3 that need further investigation. Beyond that, you may want to assess the energy intensity of your suppliers.
Whatever approach you want to take, the economic input-output database is a step in the process towards effectively understanding your value chain emissions and taking action to engage suppliers and buyers.
We understand that engaging the supply chain to get to grips with Scope 3 emissions can be daunting. But taking an approach that assesses materiality and uses financial data to calculate emissions can simplify the process and allow your company to start getting to grips with the value chain. Managing impacts in the value chain is an ongoing process that allows annual reporting, ongoing improvements, co-innovation with suppliers and engagement opportunities.
Photo by Dmitrii Vaccinium