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Karim Emami

Scope 3 Emissions - Overcoming Challenges and Misconceptions

Updated: May 1, 2023


Scope 1, 2,  3 Emissions Diagram

While Scope 1 and 2 emissions are more straightforward to comprehend and manage, Scope 3 emissions pose a unique set of challenges for organizations striving to reduce their carbon footprint. Often underestimated or overlooked, these indirect emissions from the value chain are essential for meaningful climate action. In a previous blog, we outlined an overview of scopes 1, 2, 3 emissions and in this blog we’ll dive deeper into the specifics of Scope 3 emissions, common misconceptions, and ways organizations can better understand and manage them.


On average, scope 3 emissions make up 70%-80% of corporate emissions. Scope 3 emissions encompass a wide range of activities, both upstream and downstream in the value chain. These emissions include but are not limited to raw material extraction, transportation, product use, and end-of-life disposal. The vastness and variability of these sources make Scope 3 emissions challenging to track and manage. Nevertheless, they often account for the largest share of a company's total emissions and are thus crucial to address.


Share of Scope 3 Emissions to Total Emissions, by Sector


 


There are 15 categories that encompass scope 3 emissions across a supply chain*

​Upstream Emissions

​Downstream Emissions

  1. ​Purchased goods and services

  2. Capital goods

  3. Fuel and energy related activities (not includes in scopes 1 & 2)

  4. Upstream transportation and distribution

  5. Waste generated in operations

  6. Business travel

  7. Employee commuting

  8. Upstream leased assets

9. Downstream transportation and distribution

10. Processing of sold products

11. Use of sold products

12. End-of-life treatment of sold products

13. Downstream leased assets

14. Franchises

15. Investments

Emission Disclosures are Being Mandated

Once merely a voluntary set of recommendations, the Task Force on Climate-related Financial Disclosures (TCFD) has now been integrated into the regulatory framework of various jurisdictions, including the European Union, Singapore, Canada, Japan, and South Africa. The United Kingdom has already mandated climate risk disclosures in accordance with the TCFD.


Similarly, the US Securities and Exchange Commission's (SEC) climate-related rule proposal in March 2022 requires public companies to disclose their Scope 3 emissions when they are materially relevant to the organization or when the organization has set a target encompassing Scope 3 emissions. [2]


An update to TCFD emphasized that organizations should consider disclosing Scope 3 GHG emissions in addition to the mandated Scope 1 and 2 emissions disclosure. If Scope 3 emissions present a material source of climate risk, they must be quantified and integrated into the financial impact calculations of climate change.


While these disclosure frameworks focus on revealing Scope 3 emissions when material, and companies determine their materiality, it is worth noting that Scope 3 emissions typically constitute the majority of an organization's value chain emissions. As a result, it would be difficult to convincingly argue that they are not material.



Misconceptions and Challenges

A common misconception is that Scope 3 emissions are not the responsibility of the organization. However, addressing these emissions is increasingly expected by investors, customers, and regulators. Some companies may not understand Scope 3 emissions due to a lack of standardized reporting methodologies or the belief that they have little control over emissions produced by external stakeholders. Additionally, organizations may find it difficult to obtain accurate and complete data on their supply chains and product lifecycles.


Overcoming Challenges & Managing Scope 3 Emissions


  1. Develop a comprehensive understanding: Organizations must first educate themselves on the various sources of Scope 3 emissions and recognize the importance of addressing them to achieve meaningful carbon reduction.

  2. Establish a robust measurement and reporting framework: Adopt standardized methodologies, such as the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard, to consistently track and report Scope 3 emissions.

  3. Engage suppliers and stakeholders: Collaborate with suppliers to improve emissions data quality and work together on emission reduction initiatives. Engage with other stakeholders, such as industry peers and NGOs, to share best practices and develop common goals.

  4. Set science-based targets: Embrace targets that align with global climate goals and include Scope 3 emissions to ensure a comprehensive approach to carbon reduction.

  5. Implement targeted strategies: Focus on high-impact areas within the value chain, such as raw material sourcing, transportation, and waste management, and employ strategies like circular economy practices, sustainable procurement, and product redesign.


In summary, taking action to start now is key


Understanding and managing Scope 3 emissions is critical for organizations to make a genuine impact on climate change and fulfill their ESG commitments. By addressing common misconceptions and embracing a comprehensive approach to emissions management, companies can not only reduce their environmental impact but also enhance their reputation and create long-term value for stakeholders.


Disclosure of Scope 1-3 emissions and carbon management is an iterative journey. Whether you are at the starting point or have already advanced in your decarbonization efforts, Earthara is ready to partner with you to identify your emission sources, determine the most effective solutions for a net-zero path, and create impact reports based on standardized frameworks.



 

*Sources & References:

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