What is Scope 3?

Scope 3 Emissions Definition

What are Scope 3 emissions?

Greenhouse gas emissions are categorised into three groups (or "Scopes") by the Greenhouse Gas Protocol (GHGP). The GHGP standard has been adopted by several influential organisations such as the CDP (formerly Carbon Disclosure Project). As such, the terminology is being quickly adopted into sustainability and environmental social governance (ESG) business circles.

 

It is important to recognise that your Scope 3 emissions include your suppliers' Scope 1, 2 and 3 emissions and are out of your organisation's direct control. As such, it is important to understand all three groups of emissions when leading a Scope 3 emissions measurement or reduction initiative.

Within CPG, Scope 3 emissions typically account for 95% of the company's overall footprint, of which the supply chain emissions account for around 80%. Therefore, tackling Scope 3 supply chain emissions by collaborating with suppliers is one of the main ways a business can reduce its negative environmental impact.

 

 

 

 

Scope 1, 2 and 3 emissions diagram

Greenhouse gases (GHG) are the gases that are contributing to global warming and climate change. Parties to the United Nations Framework Convention on Climate Change (UNFCCC)  agreed to curb the emission of these gases as part of the Kyoto Protocol in 1997.

GHGP have produced one of the most widely used diagrams to illustrate the different emission and their scopes. Importantly it highlights that Scope 3 extends both "upstream" within the supply chain and "downstream" to the reporting organisation's customers.

Source: GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard

 

Scope 3 Emissions Categories

Scope 3 emissions are categorised by the GHG Protocol into 15 Scope 3 categories:

Upstream

• Category 1 - Purchased goods and services
• Category 2 - Capital goods
• Category 3 - Fuel- and energy-related activities (not included in Scope 1 or Scope 2)
• Category 4 - Upstream transportation and distribution
• Category 5 - Waste generated in operations
• Category 6 - Business travel
• Category 7 - Employee community
• Category 8 - Upstream leased assets

Downstream

• Category 9 -  Downstream transportation and distribution
• Category 10 - Processing of sold products
• Category 11 - Use of sold products
• Category 12 -End-of-life treatment of sold products
• Category 13 - Downstream leased assets
• Category 14 - Franchises
• Category 15 - Investments

 

 

 

What are Scope 3 supply chain emissions?

Your Scope 3 supply chain emissions are typically the combination of your Category 1 Purchased Goods and Services, and Category 4 Upstream Transport and Distribution. These upstream emissions are sometimes called "cradle-to-gate" and differ in profile by industry.

Source: Courtauld 2030 Scope 3 GHG Measurement and Reporting Protocols for Food and Drink

Scope 3 supply chain emissions can be the most difficult to measure and reduce due to the complexity and scale of the modern supply chain. For example, the typical consumer packaged goods (CPG) supply chain has between 100 and 10,000 companies within its supply chain. In theory, accurately measuring your Scope 3 emissions would mean collecting data from all of these businesses on an annual basis. 

Why are Scope 3 emissions important?

Tackling climate change

A significant cut in greenhouse gas emissions is required by CPG companies if they are to:

• Maintain growth within the boundaries of the planet and its resources
• Reduce emissions in line with the Paris Agreement on climate change

The supply chain is critical to achieving this cut as most of the environmental impact associated with the consumer sector is embedded in the supply chain: 

Source: McKinsey Starting at the source

Therefore, businesses can have a significantly greater impact in reducing their greenhouse gas emissions by focusing on supplier collaboration.

Sustainability and financial performance

Recent research by Supply Pilot has shown that becoming more sustainable has a significant impact on a business's financial performance. Of all of the factors that impact the commercial performance of a business, sustainable practices account for 19%.

Source: Supply Pilot Advancing Brand Sustainability Whitepaper

The research also looked at the different sustainable practices that businesses were adopting and how they in turn impacted firm performance. Supplier collaboration was found to have the most influence on business performance.

Source: Supply Pilot Advancing Brand Sustainability Whitepaper

Our research supports McKinsey's findings that businesses can have the greatest impact by focusing on reducing Scope 3 emissions as well as Scope 1 and 2 emissions. In doing so, a business can play their part in tackling climate change and maximise their company's financial performance.

Ready to Collect Scope 3 Emissions Data?

Scope 3 emission initiatives

Once you have identified Scope 3 supply chain emissions as a materially important issue to your business and stakeholders, you should set a SMART goal around measuring and reducing those emissions. Measuring your progress against your Scope 3 goal will require collecting data from suppliers.

Whilst there are some core principles associated with Scope 3 data, there are many organisations with whom you may wish to align your company's goals and Scope 3 data with.

 

The Supply Pilot Platform and Six-step Process are compatible with all Scope 3 Supply Chain emissions standards and reporting mechanisms. Supply Pilot's six-step process is a methodology for driving any change within the supply chain. Therefore, the process could be used in conjunction with any Scope 3 emissions standard or reporting mechanism. Likewise, the Supply Pilot Platform simply improves the efficiency, effectiveness and impact of your supplier engagement and collaboration activities.

The Supply Pilot Platform brings together all of the tools you need to communicate with and support suppliers, maximising response rates and quality when collecting your Scope 3 data.

For example, if you'd set a SBTi goal that required you to collect Scope 3 data using GHGP calculations that are to be disclosed via the CDP platform; Supply Pilot would signficantly reduce the overhead and timeline of doing this.

 

David Taylor
Director, Supply Pilot

 

Collecting Scope 3 data from suppliers

In order to report on actual Scope 3 emissions data, you must engage your suppliers as part of a supply chain data collection exercise.

In fact, those participating in the CDP Climate Change disclosure cannot achieve greater than a D rating without collecting data from their suppliers. Furthermore, the CDP has introduced a new Supplier Engagement Rating (SER) to recognise those businesses excelling at supplier engagement. Between 2016 and 2021, the number of organisations engaging with suppliers as part of the CDP Climate Change disclosure had increased from 24% to 43%.

Common Scope 3 data collection challenge

A common challenge is not fully understanding the maturity, knowledge and current activities of your suppliers. We call this supplier “readiness”. However, once you understand your suppliers’ capabilities, you will be in a much better position to set a realistic and achievable goal. The following principles give a starting point:

• Suppliers are often burdened by different customer questionnaires so try to ask questions using information they are likely to be familiar with for example, from the Carbon Trust. (Supply Pilot’s Readiness Survey is configured with this guidance).
• Before sending your survey, check that your supplier contacts are right. (We call this a Supplier Contact Accuracy campaign at Supply Pilot).
• When you send your survey, explain what you are trying to achieve and why that matters to you your suppliers.
• Use a scale to gauge suppliers’ current emissions activities (we use a 5 point scale at Supply Pilot). Explain that this is to understand suppliers’ current status and to know where they need support to improve.

Here is an example Scope 3 supplier readiness survey configured within the Supply Pilot Platform based upon guidance produced by the Carbon Trust: 

Source: Supply Pilot Platform Scope 3 supplier readiness questionnaire example

Segmenting supply base by carbon literacy

Your Scope 3 supplier readiness survey allows you to segment your supply base based on their current knowledge and activities. Understanding where suppliers are on their own sustainability journey enables you to target all future communications, information and requests so that they are most relevant and valuable. In turn, this maximises supplier engagement in your scope 3 emissions reduction strategy.

Source: Supply Pilot The Complete Guide to Data-driven, People-centric Sustainability

Using software like the Supply Pilot Platform makes it easy to use your suppliers' Scope 3 knowledge to target supplier communications, training and creating tailored action plans.

Source: Supply Pilot Platform Scope 3 supplier readiness dashboard example