The practical limitations of the spend-based method to estimate Scope 3 emissions

16 Feb 2023
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Team Supply Pilot
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If you read our previous blog, we stated that there are typically four ways to estimate Scope 3 emissions data - spend, average, hybrid, and supplier-specific. However, there are advantages and disadvantages to each method. 

The spend and weight-based estimates calculation:

       Unit of measure (spend, weight or quantity)  x  emissions factor       

Because of this, there are limitations that businesses will face if they rely solely upon calculations which use the spend-based method. 

Limitations of spend-based emissions data calculation and the importance of specific emissions factors

Units of measure

Quantifying the amount of materials or goods you procure from your suppliers is done through units of measure. These could be in spend, number of units, or weight. Spend varies by organization and is also tied to both inflation and resource scarcity. Therefore, it is not intrinsically linked to emissions. Simply quantifying changing emissions data by spend alone is not going to provide an accurate reflection of your specific supply chain activity. The only way businesses can estimate reductions in supply chain emissions using spend data is if prices of materials drop, or they spend less (particularly in the most carbon-intensive categories)

The internal categorization of spend by a business may vary and may not align with the most relevant emissions factor categorizations. Consequently, businesses will have to manually recategorize their spend against the most relevant emissions factor, which can be a resource-intensive task subject to human and manual error. As a result, calculations can be imprecise and lead to unreliable data from which to draw conclusions about emissions reduction progress. 

Emissions factors

Emissions factors are estimates for emissions of a particular industrial commodity, product, or activity. They are researched and provided by various different bodies, such as DEFRA, BEIS, EPA, or HIGG. 

However, because emissions factors are only representative of an industry average for a certain activity or commodity, their categories are often very broad and lack the granular detail required to distinguish one purchased good or service from another. Therefore, a unit of two entirely different purchased goods could have the same emissions factor. For example, if you choose to use DEFRA’s emissions categories, steak and potatoes have the same emissions factor since they are both categorised as ‘food and beverage’. This means that by opting for emissions data which relies on broad industry emissions factors, a business’ estimates can often bear little resemblance to their actual supply chain activity and emissions. 

As part of the Kickstart Assessment, Supply Pilot engages suppliers to identify whether much more specific and product-oriented emissions factors can be obtained from within your existing supply base. These will then be used in any calculations going forward to maintain a better degree of data accuracy which relates more directly to your supply chain activity.

Estimates based on unit or weight using data directly collected from suppliers is the most reflective of an individual business’ supply chain activity (and therefore much more accurate than spend-based estimates). It allows for any supply chain initiatives focused on emissions reduction to be reflected in data, enabling businesses to effectively demonstrate progress towards internal goals (or science-based targets). 

Leveraging supplier resources and expertise to collect emissions data

By taking advantage of the Supply Pilot Kickstart Assessment to initially engage suppliers and gauge their maturity and capabilities around emissions data (and wider sustainability topics), you will be in the best position to identify what kind of emissions data it is possible for you to collect.

You can then leverage supplier resources and expertise to identify new emissions factors, validate units or weights, and categorise the products and services they supply against the most appropriate emissions factor. All of this is made possible through our full-service supplier data collection campaign and will help establish an emissions benchmark for purchased goods and services in your chosen categories (categories 1 and 4). 

Other categories of Scope 3 emissions data for which supplier engagement is not required and is best obtained from internal departments, such as Finance.  

Our Platform also enables you to target your communications to engage and collaborate with your suppliers based on where they are in their own sustainability journeys. You are then able to create and monitor supplier-specific action plans based on different segments of your supply base. Furthermore, being able to easily share knowledge and training around collecting emissions data with your suppliers, alongside wider sustainability topics, is invaluable to supply chain emissions reduction. Enabling you to enhance the capabilities of your supply base without distracting or taking valuable resources from your internal teams. 

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