Scope 3 Emissions and Supply Chain Visibility

March 1, 2023

Scope 3 Emissions Visibility: What It Is and Why It Matters

As the world becomes more aware of the impact of greenhouse gas emissions on the environment, companies are under increasing pressure to reduce their carbon footprint. While many companies have been successful in reducing their Scope 1 and 2 emissions, which are emissions directly associated with their operations, Scope 3 emissions, which are indirect emissions associated with a company's value chain, are often overlooked.

Scope 3 emissions can include emissions from sources such as purchased goods and services, employee commuting, and waste disposal. According to the Greenhouse Gas Protocol, Scope 3 emissions can account for up to 80% of a company's total carbon footprint. Therefore, understanding and managing Scope 3 emissions is essential for companies looking to reduce their overall carbon footprint.

The Challenges of Managing Scope 3 Emissions

The complexity of a company's network has a significant impact on their emissions reduction strategies. In certain industries, such as energy, utilities, and natural resources, the majority of upstream emissions are concentrated in suppliers located closer to the purchasing company. However, other industries, including aerospace and defense, high tech, and automotive, have upstream emissions concentrated in suppliers further up the supply chain. For example, upstream emissions make up a significant portion of the total emissions for the high tech industry, with an average of 80% of their upstream emissions coming from Tier 2+ suppliers. This industry also has a complex, multi-tier supplier network, which makes it more challenging to identify the sources of upstream emissions.

The sources of emissions vary significantly by industry sector, with power generation being a hot spot for some industries, and raw materials and transportation being the hot spots for others. It is important to note that hot spots could vary within the same industry depending on where a supplier sits in the supply chain. Therefore, it is crucial for companies to identify and target the right set of hot spots to have the most significant impact on reducing overall Scope 3 emissions. This requires visibility across multi-tier suppliers beyond those in Tier 1. Without this visibility, companies may end up focusing and spending resources on actions for different sources that ultimately may not have much of an impact on reducing overall Scope 3 emissions.

Managing Scope 3 emissions can be a challenging task, as these emissions are often outside of a company's direct control. For example, a company may purchase goods and services from suppliers who are located in countries with less stringent environmental regulations, resulting in higher emissions. Similarly, employee commuting can be difficult to manage, especially for companies with a large workforce.

Another challenge in managing Scope 3 emissions is the lack of visibility into these emissions. Companies often lack the data necessary to accurately track and report on their Scope 3 emissions, making it difficult to identify areas for improvement.

The Importance of Scope 3 Emissions Visibility

Despite the challenges associated with managing Scope 3 emissions, it is essential for companies to gain visibility into these emissions. By understanding their Scope 3 emissions, companies can identify areas where they can reduce their carbon footprint and work with suppliers to implement more sustainable practices. In addition, by tracking and reporting on their Scope 3 emissions, companies can demonstrate their commitment to sustainability to stakeholders and customers.

Implementing a Scope 3 Emissions Management Plan

To effectively manage Scope 3 emissions, companies should implement a comprehensive emissions management plan. This plan should include the following steps:

  1. Identify and prioritise Scope 3 emission sources: Companies should identify the Scope 3 emission sources that have the most significant impact on their carbon footprint and prioritise these sources for improvement.
  2. Collect data on Scope 3 emissions: Companies should work with their suppliers to collect data on their Scope 3 emissions, including emissions from purchased goods and services, employee commuting, and waste disposal.
  3. Set emissions reduction targets: Companies should set targets for reducing their Scope 3 emissions based on the data collected.
  4. Implement emissions reduction initiatives: Companies should work with their suppliers to implement initiatives to reduce their Scope 3 emissions, such as using renewable energy sources and reducing waste.
  5. Track and report on emissions: Companies should track and report on their Scope 3 emissions to demonstrate their commitment to sustainability and identify areas for further improvement.

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