What are Scope 3 emissions and why are they important?
Reducing Scope 1 and 2 emissions, those under the direct ownership and operational control of the business is usually the first target in a company’s carbon reduction strategy. However, to become truly carbon neutral, Scope 3 emissions, which are indirect emissions released upstream and downstream in a company’s value chain, need to be prioritised too.
What are Scope 3 emissions?
There are three groups of greenhouse gas emissions that every company owner should be aware of. The emissions are categorised into groups which are known as Scopes by the Greenhouse Gas (GHG) Protocol. Emissions created directly from an owned asset such as fuel combustion for space heating in a building, company-owned vehicle emissions and fugitive emissions such a refrigerant gas leakage from an AC unit, would be classed as Scope 1. Scope 2 would cover indirect emissions from purchased electricity, heat,steam and cooling. Scope 3 includes all other indirect emissions that occur in a company’s value chain such as business travel, purchased goods and services, waste disposal and employee commuting. In many sectors, these emissions make up a huge proportion of a company’s emissions scale but because they generally fall outside a company’s direct control, they are difficult to account for. This means they are often overlooked making net zero goals unachievable.
Although they are rarely recorded, Scope 3 emissions, depending on the nature of the company, could be the largest source of a company’s emissions and can even account for several times the impact of Scope 1 and 2. Up until now, most companies have focused on measuring Scope 1 and 2 emissions as these are the emissions for which they have the most control. But with the climate emergency demanding more immediate action, there is a growing need to reduce GHG emissions wherever possible and it is increasingly expected that companies have a greater understanding of their true carbon footprint by taking more responsibility in accounting for Scope 3.
Why to include Scope 3 emissions in your NZC target
Reducing Scope 3 emissions and including them in net zero carbon targets can deliver substantial business benefits as well as the potential to prevent the worst impacts of climate change. Companies can avoid risks within their value chains, unlock new innovations and get a better idea of their carbon footprint allowing for more accurate reporting. It can also reduce operating costs and companies are better able to protect their business from the risks that come with emerging carbon restrictions from governments and regulatory bodies.
At the moment, only one emission classed as Scope 3 is mandatory to report, for large unquoted companies and large LLPs, and that is fuel burned during business-related travel if the vehicle is rented or belongs to an employee who buys the fuel.
Although it’s not yet compulsory to report on all Scope 3 emissions for all companies, we strongly advice that you do so. It seems highly likely that the rules around energy and carbon reporting will be amended as the UK nears its net zero deadline which means compulsory reporting for all companies, so it makes sense to get to grips with this now.
Companies may also want to set Scope 3 targets to be approved by the Science-Based Targets initiative (SBTi) if they want to be classed as 1.5c compatible and reach a zero-carbon target.
Challenges of including Scope 3 emissions
Despite the benefits of including Scope 3 emissions in your NZC target, doing so does come with some challenges. Many companies will not have the expert knowledge in-house who can explain where greenhouse gas hotspots are and who understands which elements of the supply chain are the most carbon intensive. It also may be difficult to source primary data on supply chain impacts without an internal source to identify, engage and source the data and many companies may face resistance when approaching suppliers for data due to confidentially or due diligence concerns.
However, as climate change becomes more urgent it pays for companies to be proactive and will send the right message to investors, potential customers and employees if you’re setting more ambitious science-based targets.
By failing to include Scope 3 emissions in your NZC targets, your company will not be classed as 1.5C compatible and this can de-rail your whole strategy.
Many of the challenges brought on by measuring Scope 3 emissions, involves the possible lack of expert knowledge in a relatively new field. Because of this, the best way to tackle them is to bring in the experts who can identify and measure your Scope 3 emissions and advise on the solutions to help you reduce them.
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