Scope 3 Greenhouse Gas Emissions & Effective Corporate Climate Action

Scope 3 accounts for up to 90% of a retailer's impact but is harder to understand and reduce. Here's how to unlock Scope 3's decarbonization potential.

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Scope 3 Greenhouse Gas Emissions & Effective Corporate Climate Action

Scope 3 Carbon Emissions: The Untapped Key to Effective Corporate Climate Action

A significant portion of a company’s emissions are greenhouse gas emissions across the supply chain, not directly within their operational control but originating from the manufacturing processes upstream or the utilization of their products downstream. These indirect carbon emissions are called Scope 3 carbon emissions, and are often overlooked and underreported, although Scope 3 carbon emissions actually usually account for the vast majority of retailers’ carbon footprint.

Scope 3 carbon emissions, or supply chain emissions, 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 these indirect Scope 3 supply chain carbon emissions. Here’s everything you need to know about these indirect carbon emissions, including what they are, navigating greenhouse gas emissions across the supply chain and, crucially, reduction.

What are Scope 3 Emissions?

The Greenhouse Gas Protocol categorizes greenhouse gas (GHG) emissions, including those across the supply chain, 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’, ‘indirect carbon emissions’ or ‘embodied carbon’ as they include all other indirect carbon emissions that occur in the upstream and downstream activities of an organization, including supply chain emissions.

A diagram that shows your Scope 3 emissions are your suppliers' and customers' own Scope 1 and 2 emissions

Some common Scope 3 emissions examples include:

Purchased goods and services
Business travel
Employee commuting
Waste generated in operations
Use of sold products
Transportation and distribution (upstream and downstream)
Leased assets and franchises
End-of-life treatment of sold products

These Scope 3 emissions examples are some of the most common cases of greenhouse gas emissions across the supply chain within a business. 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, and so their Scope 3 will encompass many indirect supply chain carbon emissions.

This interconnected web of greenhouse gas emissions across the corporate supply chain and value chain, while presenting significant challenges, also 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 Challenges of Scope 3 Carbon Emissions Calculations

Due to the complexity of greenhouse gas across the supply chain, 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, calculation methodology and reporting is not as widely embraced or comprehended in comparison to the accounting of Scope 1 and 2 emissions.

Scope 3 emissions challenges and 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. Scope 3 indirect carbon emissions data itself also poses a huge obstacle up and down their supply chain. 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

Supply chain emissions are not easy to navigate. Greenhouse gas emissions across the supply chain present a real challenge in collecting and reporting data for Scope 3 emissions calculations, and it can be a laborious and resource-intensive task when performed manually. In addition, the Scope 3 emissions 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 Scope 3 emissions 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 emissions challenges include existing calculation methodology and modelling approaches, such as those based on product spend with suppliers, which 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. One size does not fit all when it comes to “averages” in greenhouse gas emissions across the supply chain, so benchmarking is difficult. In response to this challenge, at Vaayu we use an activity-based Scope 3 emissions calculation 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 indirect carbon emissions data provided by suppliers can be a complex task. Suppliers may have varying Scope 3 emissions reporting standards and data collection methodologies, and even limited awareness of their own utilities consumption. This variability in greenhouse gas emissions across the supply chain introduces potential data quality issues and uncertainties, making it challenging to obtain a clear and complete picture of Scope 3 emissions via traditional reporting. 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, making Scope 3 emissions reporting is more accurate than ever before.

The key to addressing indirect Scope 3 carbon emissions challenges and making supply chain calculations methodology 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

Accurately measuring and unlocking the power of Scope 3 emissions in corporate climate strategies is crucial. Carbon emissions reduction in the supply chain is no longer a nice-to-have, but is crucial to lowering impact at scale.

To see change, the industry must collectively work to reduce Scope 3 greenhouse gas emissions across the supply chain. In addition to meeting evolving regulatory requirements, measuring Scope 3 emissions with the goal to reduce them brings various benefits to retailers. Indirect carbon emissions reduction throughout the supply chain empowers retail brands and businesses 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. Uncovering indirect carbon emission hotspots in the supply chain is key to reduction. Companies can focus on developing more sustainable and energy-efficient products, driving positive change and meeting the growing demand for environmentally preferred offerings with a simultaneous focus to reduce Scope 3 emissions. Starting innovation in the product design stage can help lower greenhouse gas emissions across the entire supply chain.

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). Measuring Scope 3 emissions enhances sustainability credentials and fosters trust among stakeholders, customers, and investors.

Enabling Effective Scope 3 Emission Reduction

Understanding how to reduce Scope 3 emissions starts with education. You need guidance for calculating Scope 3 emissions before you can effectively lower greenhouse gas emissions across the supply chain. Here is some guidance for calculating Scope 3 carbon emissions as we approach it at Vaayu.

At Vaayu, we provide cutting-edge capabilities for measuring Scope 3 emissions, catering to the evolving needs of enterprise customers. Our approach to calculate Scope 3 emissions 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. We also help our partners understand how to reduce Scope 3 emissions, providing support beyond the Vaayu platform to help retailers implement a Scope 3 emissions reduction strategy that works.

In action, this looks like our work with Ace & Tate, the Amsterdam-based producer of iconic, quality eyewear. Using Vaayu, the team was able to receive sound guidance for calculating Scope 3 emissions, with the software able to automatically calculate these Scope 3 emissions much faster and less manually than traditional methods. The work 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 indirect 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. Activating the supply chain and its partners is absolutely crucial for lowering greenhouse gas emissions across the supply chain and beyond.

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 a rigorous, ambitious yet achievable Scope 3 emissions reduction strategy, 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 indirect Scope 3 carbon emissions, reach out to a member of our specialist team today.

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