What is Scope 3?

Scope 3 emissions are the greenhouse gas emissions produced by activities outside of a business' own operations. This includes supply chain emissions as well as those from the use of a product.

Included in this guide

This guide has been designed for anybody trying to work with suppliers to measure and reduce Scope 3 supply chain emissions.

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Scope 3 emissions definition and categories
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Comparing the Scope 3 standards
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Calculating and reporting on Scope 3 emissions
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Collecting supply chain emissions data from suppliers
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Collaborating with suppliers to reduce emissions
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Commercialising Scope 3 successes without greenwashing
Contents

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.

Category Emissions

Scope 1

  • Fuel combustion (i.e. company controlled boilers, furnaces and vehicles)
  • Fugitive emissions (i.e. leaks or other unintentional releases of gasses) 

Scope 2

  • Purchased electricity, heat and stream

Scope 3

  • Purchased goods and services 
  • Use of sold products
  • Transport and distribution - including "upstream" within your supply chain and "downstream" by your customers
  • Business travel
  • Employee commuting
  • Waste disposal
  • Investments
  • Leased assets and franchises

 

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

Nestlé's total GHG emissions by scope illustrate the significance of Scope 3 emissions for consumer packaged goods (CPG) businesses.

Nestle-example

Source: Nestlé's Net Zero Roadmap (February 2021)

 

Scope 1, 2 and 3 emissions diagram

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

Scope 1 2 and 3 emissions diagram

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

BASF's Scope 3 Inventory illustrates that Category 1 Purchased Goods and Services emissions produced by your suppliers manufacturing your product commonlyare the largest source of Scope 3 emissions.

BASF-example

Source: BASF GHG Inventory Report (February 2020)

 

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 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 at the expected rate
  • 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: 

80-pc-fact

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 how the commercial performance of a business, sustainable practices account for 19%.

sust-perf-chart

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.

supplier-collab-chart

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 rather than 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.

Key stats

When you combine the facts, collaborating with your suppliers to drive sustainable business growth becomes a "no-brainer"

19% of finacial performance

can be accounted for by a business's sustainable practices

92% reduction

in emissions required by 2050 to achieve Paris Agreement targets

Over 80%

of a companies environmental impact comes from the supply chain

Only 25%

of companies engage with their suppliers despite supplier collaboration being the greatest lever

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. There are many organisations with whom you may wish to align your company's goals with.

Organisation Type Primary purpose How to use Learn more
GHG Protocol (GHGP) Scope 3 Accounting Stanard Accounting standard Consistency between companies when quantifying Scope 3 emissions. Calculate your emissions

How to begin your journey calculating and reporting on Scope 3

Science-Based Target Initiative (SBTi) Goals standard Transparency and robustness of corporate emission reduction goals. Validate your goals  
WRAP Scope 3 GHG Measurement and Reporting Protocols for Food and Drink Industry-specific guidance Food and beverage industry-specific guidance on calculating emissions, primarily targeted at growing supplier knowledge. Share with suppliers  
CDP (formerly Carbon Disclosure Project) Reporting mechanism Centrally collate environmental impact disclosures Publish and benchmark your performance  

 

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.

If you'd set a SBTi goal that required you to collect Scope 3 data using GHGP calculations, disclosed via the CDP platform: the six-step process would inform your sequence and approach to supplier collaboration so that you maximised supplier engagement. 

Whereas, 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 GHGP-based data ready for uploading into CDP for disclosure.

 

David Taylor
Director, Supply Pilot


Common Scope 3 data collection mistakes

A common mistake made when setting a target is not considering the maturity, knowledge and current activities of your suppliers. We summarise these attributes as your suppliers' "readiness". Understanding supplier capabilities ensure that your goal is realistic and achievable whilst also starting to grow supplier engagement with any subsequent activities.

A Scope 3 supplier readiness survey should be tailored to your organisation and, as such, it is unlikely that two companies' questionnaires will be the same. However, the following principles should provide a useful starting point:

  • Precede the Scope 3 questionnaire with a supplier contact accuracy campaign to make sure that you are emailing the correct person at your suppliers
  • Contextualise the supplier readiness survey with what your business is trying to achieve and why that matters to your suppliers.
  • Consider using a five-point scale to gauge your suppliers' current emissions activities. Allowing provides you with a richer data set whilst also letting your suppliers know that it's okay not to be perfect.

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

readiness-survey-carbon

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.

benefits-of-supplier-commsSource: Supply Pilot The Complete Guide to Data-driven, People-centric Sustainability

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

readiness-dashboard

Source: Supply Pilot Platform Scope 3 supplier readiness dashboard example

Your Scope 3 emissions are your suppliers' own Scope 1 and 2It is important to recognise those suppliers who are unable to provide any data

Challenges in collecting supplier data

Supply chain data collection exercises are notoriously difficult and time-consuming. Collecting Scope 3 supply chain emissions can be particularly so due to a vast range of supplier Scope 3 knowledge and understanding. Having a good understanding of those challenges will help you proactively mitigate the risk that they will result in low supplier response rates.

data-collection-challenges

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

Maximise supplier engagement in your Scope 3 strategy

This whitepaper consolidates a decades' worth of hands-on experience helping the world's biggest brands implement sustainability initiatives and make an impact.

  • Align and activate your suppliers with your strategy so that they are just as invested as you.​
  • Quickly collect high-quality data to benchmark
  • Monitor performance without the soul-destroying supplier chasing

Join the likes of Walmart, SC Johnson, Coop, John Lewis & Partners and Walgreens Boots Alliance who use these tactics to reduce your environmental impact through supplier collaboration.

 

The complete guide to data-drive people-centric sustainability thumbnail

Case study

Walmart removes 20 million metric tons of GHGs from its global supply chain

Walmart and Supply Pilot partner to benchmark GHGs, engage suppliers and inform realistic and achievable goals for their world-renowned Project Gigaton.

Read more
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Establish your Scope 3 benchmark

It can feel like an impossible task: your board has committed to measuring and reducing Scope 3 supply chain emissions, but you know most suppliers can't give you the data. Our approach solves this problem by facing it head-on.