Achieving Scope 3 Emissions Reporting Maturity – Part 3
The final piece in building a usable Scope 3 inventory for a meaningful Scope 3 emissions reduction target.
Reporting Mastery or best practice for reporting Scope 3 emissions transcends desktop-based reporting that is siloed to one person or team. A strong governance process is required that calls for a joint effort between an organisation’s decarbonisation* team, procurement team and executives – i.e., it requires companywide buy-in. Scope 3 emissions reporting is fundamentally linked to an organisation’s value chain, and this must be reflected in the reporting process.
This is the 3rd of a 4-part series by Greenbase that Fraser, one of our senior consultants, shared on the stages of Scope 3 reporting maturity. This stage of reporting is the final piece^ of the puzzle in building a usable Scope 3 inventory from which a more meaningful Scope 3 emissions reduction target can be set and worked towards.
But how is the jump made from supplier spend-based generic emission factors to meaningful actions for Scope 3 reductions? The biggest issue with generic industry factors for value chain emissions is that they limit the ability of companies to make impactful choices about their partners and suppliers, which may reduce emissions. A well-intentioned choice to use a less carbon-intensive supplier may end up disconnected from its impact on the reported Scope 3 emissions if a generic Scope 3 factor would just be applied anyway!
This is the secret to Scope 3 reporting mastery:
The reporting process needs to deeply engage with external elements in the value chain.
Engaging with your value chain
In our experience, this is best done through a joint effort between your decarbonisation* and procurement teams. Scope 3 emissions reporting should be embedded in the annual processes of both these groups. Typically, Greenbase sees this being achieved through supplier surveys being distributed to an organisation’s supply chain. Capitalising on the relationship between your procurement team and supplier contacts may elicit an increase in response/uptake.
Other key parts of the value chain, such as downstream processing, may be engaged directly by other elements within an organisation. A survey may be less appropriate here, but accurate information sourced directly from these stakeholders may be more material to some organisations’ overall Scope 3 inventory.
These steps may at first be onerous for an organisation and, therefore, require an embedded governance process supported by the executives of an organisation to drive this important change. In return for this support, an executive team will gain insights into high and low-risk areas in their value chain under ESG reporting frameworks that assess risk, such as TCFD.
This engagement with suppliers aims to provide us with two key pieces of information that are required for Scope 3 reporting mastery:
Supplier-specific emissions factors
Supplier GHG reduction targets
The value of value chain engagement
Supplier-specific emissions factors can then replace industry average emissions factors. These factors provide so much value to a savvy organisation that goes beyond just representative Scope 3 emissions reporting. They are also an indicator to assess climate change-related risks and opportunities in a value chain. Comparisons between the emissions factors for competing suppliers can also provide an immediate opportunity to reduce Scope 3 emissions.
Equally, supplier GHG emissions reduction targets further add to the climate change-related risk profile for an organisation’s value chain partners. These targets can also be used to create a ‘do nothing’ Scope 3 emissions projection for an organisation, where the projection incorporates the actions your value chain has already committed to. This encapsulates Scope 3 emissions reductions that are likely to occur without any action on your organisation’s behalf. For example, if your value chain has already committed to a 50% reduction in emissions by 2023, then it does not make sense for your organisation’s Scope 3 emissions reduction target to be only 30% by 2030. A 30% reduction is a smaller reduction than your existing ‘do nothing’ trajectory!
Using this information for Scope 3 reporting
There is another key piece of information required alongside supplier-specific emissions factors for Scope 3 reporting mastery. That is the quantity of goods and/or services provided to your organisation by each supplier.
For instance, your organisation may buy steel rivets from 3 major suppliers. They have all provided you with an emissions factor per tonne of steel product supplied. Are your procurement or operations team’s data governance systems good enough to tell you the tonnes of steel product procured from each supplier? If not, this is a significant hurdle to Scope 3 emissions reporting.
To bridge this gap in the short term, tonnes of steel products supplied (or the number of rivets) can be requested in the supplier surveys you are sending out. However, this has the downsides of potentially unreliable information coming from suppliers as well as the diminishing likelihood that your supplier surveys will be completed if you request too much of each supplier. Long term, your organisational processes should be adapted to capture this information in the procurement process. This may be a significant improvement project for your organisation that will require cooperation between several areas of your organisation and would most likely require buy-in from your executive team.
In the case of other value chain emissions that are not from your supply chain this may be more trivial; for example, an iron ore producer is likely to have accurate production numbers to then calculate refinery emissions.
Scope 3 reporting governance milestones
To summarise, the governance milestones that are generally required for mastery of Scope 3 emissions reporting are:
Coordination between and input from multiple areas of an organisation, for example, your decarbonisation*, procurement and executive teams.
High value chain engagement on GHG emissions through direct contact and/or surveys.
Embedded organisational processes that capture quantities of goods and services provided by suppliers (not just invoices or total spend).
Difficult, yes. Impossible, no. Highly beneficial, absolutely!
Look out for part 4 of this series where we will look at the value that can be gained through Scope 3 reporting mastery. With these steps completed, opportunities will open to your organisation for finding Scope 3 emissions reduction pathways, setting reduction targets, conducting value chain risk analysis and more!
*This will depend on your organisation's structure. This may also be an environmental, ESG or sustainability team.
^ The keen observers will note that we say this is the final piece of the reporting puzzle despite this being part 3 of 4. This is because a final and complete reporting process is not the final step, using this reporting for meaningful change is the final step, to be discussed next!