Scope 3 Emissions: The Untapped Key to Effective Corporate Climate Action
A significant portion of a company's emissions are not directly within their operational control but originate from the manufacturing processes upstream or the utilization of their products downstream. These are called Scope 3 emissions and are often overlooked and underreported, although they usually account for the vast majority of retailers’ carbon footprint.
Scope 3 can reach percentages as high as 85% or 90% of total emissions. Companies cannot effectively determine relevant impact reduction strategies or develop a meaningful decarbonization path without a comprehensive understanding of Scope 3 emissions.
What are Scope 3 Emissions?
The Greenhouse Gas Protocol categorizes greenhouse gas (GHG) emissions into three scopes. Scope 1 covers direct emissions from owned or controlled sources, while Scope 2 accounts for indirect emissions from the purchase and use of electricity, steam, heating and cooling.
Scope 3 emissions are often referred to as ‘supply chain emissions’ or ‘embodied carbon’ as they include all other indirect emissions that occur in the upstream and downstream activities of an organization.
In essence, a company’s Scope 3 emissions are someone else’s operational Scope 1 and 2 emissions. Large companies often have extensive networks encompassing thousands of organizations, including suppliers, customers and portfolio companies.
This interconnected web across corporate value chains represents a catalyst with the biggest potential for decarbonization at scale. Larger companies hold influence over their network and can help drive action, lowering their Scope 3 impact in turn.
Navigating the Complexity of Scope 3 Emissions Calculations
The calculation of Scope 3 emissions faces a multitude of challenges that often hinder or prevent retailers from accurately measuring and managing supply chain emissions. As a result, Scope 3 accounting is not as widely embraced or comprehended in comparison to the accounting of Scope 1 and 2 emissions.
Obstacles include opaque carbon-accounting and tracking practices, the need to work seamlessly in collaboration with customers, supply networks and industry groups, and the difficulty of keeping stakeholders engaged in a complex, multiyear change effort. A deeper dive on some of the most common challenges that cause a paralysis around Scope 3 calculations are detailed below.
The Time-Consuming and Delayed Data Challenge
Collecting and reporting data for Scope 3 emissions calculations can be a laborious and resource-intensive task when performed manually. In addition, the data is collected retrospectively months or even years later, meaning retailers can only action their climate strategy reactively. Using Vaayu, retailers are able to act proactively and in real-time. Vaayu automates both data collection — via easy-to-use APIs that plug directly into the systems already in place — and the calculation of emissions from deliveries, packaging and production processes, which form some of the biggest contributors to Scope 3 emissions.
Reliance on Spend-Based and Industry-Average Data
Scope 3 modelling approaches, such as those based on product spend with suppliers, may lack the necessary granularity to support effective management decisions or identify specific opportunities for reducing carbon emissions. Reliance on industry-average emissions factors in spend-based modelling often fails to accurately reflect a company's actual emissions footprint. In response to this challenge, at Vaayu we use an activity-based methodology that is certified by TÜV Rheinland and have created models that lean on as much supplier-specific data as possible to reflect the actual scenario at hand.
Quality of Primary Data
Ensuring the consistency and reliability of the primary data provided by suppliers can be a complex task. Suppliers may have varying reporting standards and data collection methodologies, and even limited awareness of their own utilities consumption. This variability introduces potential data quality issues and uncertainties, making it challenging to obtain a clear and complete picture of Scope 3 emissions. At Vaayu, we have developed impact calculation software using AI and machine learning technology that incorporates advanced features for automated error detection and anomaly identification. The software utilizes a rigorous data verification method which involves systematic checks and validation processes to ensure the reliability and integrity of the collected data, and most importantly, increases the accuracy of the calculations.
The key to addressing Scope 3 and making supply chain emissions calculations meaningful and actionable is in moving beyond assumptions and industry averages and tapping into supplier-specific data. Vaayu’s solution is included as an example here to demonstrate how retailers can do exactly that, allowing for a better understanding on which suppliers, processes and products contribute the most to Scope 3 emissions, and ultimately, where the biggest impact reduction potential lies.
Breaking Boundaries: Scope 3 as a Lever for Meaningful Impact Reduction Strategies
Unlocking the power of Scope 3 emissions in corporate climate strategies is crucial. In addition to meeting evolving regulatory requirements, the measurement of Scope 3 emissions brings various benefits to retailers, empowering them to:
- Identify Emission Hotspots: Scope 3 emissions data serves as a valuable tool for decision making across different business functions, including procurement, product development and logistics. By quantifying Scope 3 emissions, retailers can identify the areas within their value chain that contribute the most to their overall footprint. This enables them to prioritize reduction strategies and allocate resources effectively, pairing emissions optimization with cost reductions.
- Assess Supplier Sustainability Performance: Measuring Scope 3 emissions allows businesses to discern the sustainability performance of their suppliers. It helps identify suppliers who are leaders in sustainability practices as well as those who may lag behind, enabling informed decisions regarding supplier partnerships and engagement.
- Drive Product Innovation: Scope 3 emissions analysis encourages teams to explore product innovation opportunities. By uncovering emission hotspots within their value chain, companies can focus on developing more sustainable and energy-efficient products, driving positive change and meeting the growing demand for environmentally preferred offerings.
- Advance Climate Strategy: By measuring Scope 3 emissions, businesses can advance their climate strategies and transparently demonstrate a quantifiable progress against reduction targets and SBT initiatives (SBTi). This enhances their sustainability credentials and fosters trust among stakeholders, customers, and investors.
Enabling Effective Scope 3 Emission Reduction
At Vaayu, we provide cutting-edge capabilities for measuring Scope 3 emissions, catering to the evolving needs of enterprise customers. Our approach emphasizes the significance of activity-based, real-time data to drive accurate and actionable insights. Unlike other methods such as spend-based emissions accounting, Vaayu's activity-based methodology focuses on delivering the highest level of precision in calculating emissions associated with specific activities within the value chain.
In action, this looks like our work with Ace & Tate, the Amsterdam-based producer of iconic, quality eyewear, which helped them uncover hidden emission hotspots and use a comprehensive Scope 3 carbon inventory to set clearly defined science-based targets and reduction pathways.
Automation plays a pivotal role in streamlining Scope 3 emission calculations. Vaayu's impact software integrates automated processes for calculating emissions related to deliveries and product carbon footprints (PCFs). By automating these calculations, retailers obtain timely and reliable data, facilitating more efficient monitoring and analysis of Scope 3 emissions. Vaayu has already helped household names like Klarna analyze product carbon footprints and Vinted calculate their home delivery emissions in comparison to delivering to a collection and drop-off point (CDP).
In addition, the access to actionable supply chain emissions data and tailored reduction strategies helps retailers set clear expectations, track suppliers performance and strategically engage with them to drive action.
While retailers unarguably face a huge challenge when it comes to accounting for and reducing complex Scope 3 emissions, reductions can no longer be avoided. In order to move the needle on decarbonizing the industry, brands and retailers must implement ambitious yet achievable strategies and leverage automatic and accurate carbon accounting technology to start hitting those reduction KPIs.
To learn more about Vaayu — the world's first automated carbon software for retailers to measure, monitor and reduce their carbon footprint in real-time — or our work in calculating Scope 3 emissions, reach out to a member of our specialist team today.
