What is Scope 3?

Contents

• Scope 3 emissions definition
  • What are Scope 3 emissions?
  • Scope 1, 2 and 3 emissions diagram
  • Scope 3 emissions categories
  • What are Scope 3 supply chain emissions?
  • Why are Scope 3 emissions important?
• Scope 3 emissions data
  • Scope 3 emissions initiatives
  • Common Scope 3 data collection mistakes
  • Challenges in collecting supplier data
    
    

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. 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.

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.

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.

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: 

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%.

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 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.

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.

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: 

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 attributes like 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

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.

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