A Step-by-Step Guide to Scope 3

Comprehending and managing greenhouse gas (GHG) emissions is vital for businesses. Corporate GHG emissions remain a significant concern influenced by factors such as resource costs, regulations, and reputation. Hence, developing a comprehensive Scope 3 inventory provides valuable insights into emission-related risks and opportunities, aiding strategic planning, procurement decisions, and low GHG impact product development. Scope 3 inventory transparency enables effective communication of emissions impacts, fosters proactive measures, and identifies new market opportunities driven by increasing demand for environmentally friendly goods and services.

Understanding and quantifying Scope 3 emissions is essential for a comprehensive sustainability strategy. It plays a crucial role in stakeholder engagement, demonstrating a company's commitment to environmental responsibility and building trust.

Measuring Scope 3 is also legally required if your organization falls under the EU's Corporate Sustainability Reporting Directive (CSRD). Non-EU entities with products sold within the EU will soon be subject to this legislation.

If you are a small-medium enterprise and have received a request from a large customer to supply them with their Scope 3 data, even if you are not yet subject to the CSRD, there is no need to worry! iimpcoll is here to support you throughout your value chain with our workshops and consultancy services. Contact us today to learn more and take advantage of our expertise.

The following steps adhere to the Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

Use our FREE ESG software tool! There are more than 150 ESG software solutions on the market. Get the right one and only pay for what you need! TAKE ME TO THE TOOL

Step 1: Identify your business goals in relation to Scope 3

To effectively address Scope 3 emissions, it is crucial to first establish clear business goals and motivations for undertaking a comprehensive greenhouse gas (GHG) emissions inventory. By defining these objectives, companies can drive corporate reputation, meet environmental expectations, mitigate supply chain risks, establish robust reporting frameworks, and foster collaboration for emission reductions.

Defining business goals is a prerequisite before engaging in Scope 3 calculations. Not only does it ensure the efficient allocation of resources and facilitate goal achievement, but it also aligns with the overall business strategy and sustainability objectives of the company. By understanding the value and opportunities that addressing Scope 3 emissions brings, organizations can navigate toward long-term sustainability.

Addressing Scope 3 emissions is more than just a corporate reporting tool. It provides insights into the value chain, allowing companies to evaluate risks, discover opportunities, and capitalize on energy and material savings. With inadequate visibility of Tier 2 and higher suppliers in the supply chain, a Scope 3 inventory enhances awareness of value chain operations, highlighting both risks and opportunities. Leveraging this knowledge becomes vital for managing risks and maximizing advantages, especially considering the limited resources on our planet.

Once business goals are defined, it is essential to review reporting principles and ensure their alignment with the business objectives. Adhering to the five critical principles of relevance, completeness, consistency, transparency, and accuracy becomes imperative for robust and reliable Scope 3 reporting.

Materiality and double materiality explained in under 60s!

iimpcoll supports SMEs in their sustainability transition. Contact us and learn more about our workshops and expert advisory. Claim your FREE consultation today!Claim your FREE consultation today!

Step 2: Identify & understand the reporting principles in relation to your business

Just like financial accounting and reporting, generally accepted GHG accounting principles are crucial for accurate and meaningful GHG accounting and reporting. These principles ensure proper representation of a company's GHG emissions, providing a faithful and fair inventory. The following five principles (GHG Protocol Scope 3 in the Value Chain Standard) serve as a framework for accounting and reporting a company's Scope 3 inventory:

1. Relevance: The GHG inventory should accurately reflect the company's emissions and address the needs of both internal and external users.

2. Completeness: All GHG emission sources and activities within the inventory boundary should be accounted for and reported on. Any exclusions should be disclosed and justified.

3. Consistency: In order to ensure meaningful performance tracking of emissions over time, it is crucial to employ consistent methodologies. It is important to transparently document any changes to data, inventory boundaries, methods, or other factors.

4. Transparency: All relevant issues should be addressed in a factual and coherent manner, supported by a clear audit trail. Assumptions, accounting methods, and data sources should be openly disclosed.

5. Accuracy: The quantification of GHG emissions should reflect actual emissions without overestimating or underestimating while striving to reduce uncertainties. Sufficient accuracy should be achieved to inspire confidence in the reported information for decision-making.

Following these principles ensures a robust and reliable GHG accounting and reporting system.

Make sure you look through your accounting processes and take time to select a suitable software solution for GHG accounting.

Need help selecting your ESG software? Use iimpcoll’s independent ESG software selection tool to get a shortlist for your business in just a few clicks! TAKE ME TO THE TOOL

Step 3: Identify your Scope 3 activities

Direct emissions are produced by sources owned or controlled by the reporting company, whereas indirect emissions are generated by activities within the reporting company but take place at sources owned or controlled by other entities.

These emissions are further divided into three Scopes: Scope 1, Scope 2, and Scope 3. Scope 1 includes direct emissions, while Scope 2 and Scope 3 comprise indirect emissions. It's important to note that a company has control over its direct emissions but only* has influence over its indirect emissions (*but a company does have a direct influence over the suppliers it chooses to do business with). Therefore, a complete GHG inventory must include all three Scopes to produce a comprehensive overview of a company's total greenhouse gas emissions.

In particular, Scope 3 emissions originate from sources (partially) outside the company's control, such as materials suppliers, travel suppliers, waste management suppliers, logistics providers, employees, lessees and lessors, franchisees, retailers, and customers. Thorough accounting within each Scope is crucial to avoid duplication in Scope 1 and Scope 2 emissions.

It is important to note that in specific scenarios, multiple companies may be responsible for the same emission within Scope 3.

To illustrate: the Scope 1 emissions of a power generator transform into the Scope 2 emissions for an electrical appliance user, subsequently becoming the Scope 3 emissions for both the appliance manufacturer and the appliance retailer.

Step 4: How to set your Scope 3 boundary

Firstly, it is crucial to establish the organizational boundary. This is done using the three consolidation approaches found in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard: equity share, financial control, and operational control (detailed explanation here).

Establishing an organizational boundary for Scope 3 is crucial. Consistency in this decision is essential across inventories for Scope 1, Scope 2, and Scope 3. These approaches, based on financial accounting principles, aim to align financial and carbon accounting terms to address greenhouse gas (GHG) emissions as future liabilities and emission allowances.

The term "organizational boundary" refers to defining business entities and assets within a company's inventory. It encompasses financial and legal structures such as joint ventures, subsidiaries, and wholly-owned operations. The organizational boundary plays a vital role in determining emissions.

When companies have complete ownership of their operations, the organizational boundary remains consistent regardless of the approach used. However, businesses with intricate structures, such as oil companies with partially owned assets, will have different organizational boundaries based on the chosen approach, consequently impacting emissions.

The fundamental principle guiding the selection of an organizational boundary is to encompass the majority of operations. Additionally, the organizational boundary affects the classification of emissions into direct and indirect categories, outlining the sources of emissions attributed to each category.

To identify Scope 3 activities, including purchased goods and services, sold goods and services, and relevant value chain partners, it is advisable for companies to map their value chain. This process serves internal purposes and provides valuable insights for inventory management. It is important to note that certain Scope 3 categories, such as leased assets or franchises, may not be applicable to every company. In such cases, companies have the option to report zero emissions or designate the category as "not applicable." Moreover, if companies engage in Scope 3 activities but face data limitations or constraints in estimating emissions, it is crucial for them to disclose and provide a justified explanation for any exclusions made from the report.

When deciding whether to exclude activities from the Scope 3 inventory, companies must adhere to the principles of relevance, completeness, accuracy, consistency, and transparency. It is of utmost importance to avoid excluding any activity that may compromise the relevance of the reported inventory. The Scope 3 inventory should accurately reflect the company's greenhouse gas (GHG) emissions and meet the decision-making requirements of both internal and external stakeholders. Furthermore, any activities expected to have a significant contribution to the company's total Scope 3 emissions should not be omitted.

While achieving 100 percent completeness in value chain mapping may not always be realistic, companies can establish policies to develop representative lists of purchased products, sold products, and suppliers, thereby ensuring a comprehensive approach rather than an exhaustive one.

What is the difference between the equity share, financial, and operational control approach?

Organizational boundaries play a crucial role in determining the entities and assets included in an organization's greenhouse gas (GHG) emissions inventory. These boundaries define the scope of GHG emissions, with scope 1 and scope 2 encompassing different entities such as subsidiaries, joint ventures, partnerships, and assets like facilities and vehicles.

On the other hand, operational boundaries define the specific sources of emissions, such as natural gas boilers or purchased electricity, that are included in an organization's scope 1 and 2 inventory. These boundaries are essential to accurately account for GHG emissions. To effectively set organizational boundaries, organizations must choose an approach for consolidating GHG emissions and consistently apply that approach.

The GHG Protocol provides guidance on three consolidation approaches: equity share, financial-, and operational control:

Equity Share:

When accounting for GHG emissions from operations and assets, an organization takes into consideration its equity share in the operation. This share reflects the economic interest the organization holds, indicating the extent of rights to the risks and rewards arising from the operation.

Financial Control:

The organization exercises financial control over an operation when it can direct the operation's financial and operating policies to gain economic benefits from its activities. Even if the organization has less than a 50 percent equity, it may still exert financial control. An organization considers 100 percent of the GHG emissions over which it holds financial control. However, it does not account for GHG emissions from operations in which it has equity but lacks financial control.

Operational Control:

An organization assumes responsibility for all greenhouse gas (GHG) emissions under its operational control, covering the entire spectrum of emissions. GHG emissions from operations in which the organization has equity but lacks operational control are not considered. An organization accounts for 100 percent of emissions originating from operations in which it, or one of its subsidiaries, exercises operational control.

Typically, when an organization operates a facility, it holds complete authority to establish and enforce its operational policies, signifying operational control.

How do I set a Scope 3 base year?

To effectively track performance and set reduction targets for Scope 3 GHG emissions, companies need to follow specific guidelines when it comes to setting the base year.

Here's a step-by-step process they should adhere to:

1. Choose a Scope 3 base year: Companies should carefully select a base year for tracking their performance and justify the reasons for their choice.
2. Establish a base year emissions recalculation policy: It is crucial to develop a policy that outlines the basis for any recalculations of base year emissions.
3. Recalculate base year emissions when necessary: Significant changes in a company's structure or inventory methodology may require recalculating base year emissions.

To ensure a comprehensive and consistent comparison of emissions over time, it is recommended that companies establish a single base year for both Scope 1, Scope 2, and Scope 3 emissions. However, if a base year has already been established for Scope 1 and Scope 2, companies may select a more recent year for the Scope 3 base year.

According to the GHG Protocol Standard Scope 3 standard, the selection of the base year for Scope 3 emissions does not have to be the first reporting year. Companies can wait until the Scope 3 inventory is sufficiently complete and reliable, typically in the second or third year of reporting. Once a base year is established, the company must report it accordingly.

When determining base year emissions, companies must adhere to the requirements and guidance outlined in the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

How to identify your relevant Scope 3 categories

Organizations must identify relevant Scope 3 categories that align with their operations. There are 15 categories, including purchased goods and services, capital goods, fuel, and energy-related activities, among others.

Collecting precise data for high-emitting categories is crucial. However, smaller categories that hold significance to customers or employees may also benefit from a more detailed approach. Additionally, categories aligning with the company's business goals deserve special attention.

Companies develop a Scope 3 inventory to identify and understand risks and opportunities associated with value chain emissions, determine GHG reduction opportunities, set reduction targets, track performance, and engage value chain partners in GHG management.

Collecting high-quality data for prioritized activities enables companies to allocate resources effectively. During the screening process, prioritize accurate data where easily obtainable while considering the use of relatively less accurate data for activities with negligible emissions or challenging data acquisition.

To initiate the screening, assess each of the 15 categories to identify major contributors to Scope 3 GHG emissions. For the initial screening, utilize less specific calculation methods and employ more specific methods for the identified priority categories later on.

Are you looking to kickstart your Scope 3 journey with a "Scope 3-ready" workshop? Reach out to iimpcoll today to schedule a no-obligation conversation. Let's discuss how we can help you achieve your sustainability goals!

Which factors play a role when choosing the most relevant Scope 3 categories for my business?

The following factors play an important role in deciding your Scope 3 categories:

• Size: These factors play a substantial role in the overall Scope 3 emissions expected for the organization.
• Influence: There exist potential openings to actively pursue or influence reductions in emissions that the organization can initiate.
• Risk: They contribute to the company's exposure to various uncertainties, including risks associated with climate change (e.g., financial, regulatory, supply chain, product and technology, compliance/litigation, and reputational risks).
• Stakeholders: Key stakeholders, encompassing customers, suppliers, investors, or civil society, consider them of utmost importance.
• Outsourcing: They encompass externally sourced activities that were previously handled in-house or outsourced activities initiated by the reporting organization, usually performed in-house by other entities in the same industry.
• Sector guidance: Some categories are compulsory to report based on applicable guidance specific to the respective industry.
• Spending or revenue analysis: They represent areas that necessitate considerable expenditure or generate substantial revenue (occasionally associated with high greenhouse gas emissions).
• Other: They meet any additional criteria established by the organization or the industry sector.

Consider the following when selecting your relevant Scope 3 categories:

Understand Your Value Chain

Start by understanding your value chain - from raw materials to end-of-life. This analysis will assist you in pinpointing emission hotspots. If most of your emissions arise within your supply chain, consider focusing on categories like 'purchased goods and services' and 'upstream transportation and distribution'.

Evaluate your influence over your Scope 3 emissions

Take into account the extent of influence your company holds over its Scope 3 emissions. If there are specific areas within your business where you can directly govern or affect emissions, such as 'employee commuting' or 'business travel,' it may prove advantageous to concentrate efforts on these categories. However, exercise caution not to disregard high-polluting categories over less polluting ones solely for visual marketing impact.

Understand your stakeholder’s expectations

Consider stakeholder expectations when making decisions. If customers, investors, or other stakeholders show interest in your company's environmental performance, reporting on these areas can be advantageous. Understand the regulatory requirements It's crucial to be well-informed about regulatory requirements and industry standards pertaining to mandatory reporting. For instance, companies in the construction sector may have reporting obligations related to 'capital goods.'

Challenges in deciding on your Scope 3 categories

Determining the Scope 3 categories to report on poses a significant challenge for organizations. This challenge stems from the wide range of categories, including everything from purchased goods and services to the end-of-life treatment of sold products. The diverse nature of these sources can make data collection and measurement complex, particularly for indirect emissions. Additionally, the lack of well-established guidelines and standards for reporting these emissions can introduce inconsistencies and inaccuracies. To achieve sustainable operations, organizations must take a proactive, strategic, and innovative approach to address these challenges. Implementing robust systems to accurately track, measure, and report Scope 3 emissions is crucial.

Choosing which Scope 3 categories to include in reports is a strategic decision that should align with your company's operations, sector, and stakeholder expectations. It is not a one-size-fits-all approach but rather a journey toward aligning business practices with environmental stewardship.

Step 5: How to gather (as detailed as possible) Scope 3 data

Data collection for each relevant category may involve:

• Surveying suppliers for their emissions data.
• Analyzing purchase records to determine quantities of goods or services procured.
• Utilizing industry averages if specific data is not available.

As we mentioned above, developing an understanding of your business goals in relation to Scope 3, encompassing all 15 categories defined by the GHG Protocol, is a crucial first step, followed by the prioritization of the categories based on their significance and the level of influence your company holds.

We have already done some data collection in previous steps. It is now time to take a closer look at the data in the relevant categories, more closely assess quality and set up a data improvement plan.

Leveraging supplier relationships, implementing appropriate reporting software, and occasionally relying on estimation techniques can effectively streamline the data collection process. There are a few items that are important to consider before embarking on the data collection journey:

Have you established robust Scope 3 data management strategies?

Establishing robust data management practices is key. This involves setting up a reliable system for data input, storage, and retrieval. Consider implementing software solutions designed for environmental data management to streamline the process.

Have you established close stakeholder collaborations?

Collaboration with stakeholders is another vital aspect. Reach out to your suppliers, partners, and customers to collect necessary data. Educate them about the importance of accurate data reporting and the role it plays in reducing environmental impact.

Do you understand the difference between primary vs. secondary vs proxy Scope 3 data?

Understanding the distinction between primary and secondary Scope 3 data plays a crucial role in calculating emissions for companies.

Primary data refers to specific information obtained from activities within a company's value chain, such as data provided by suppliers or other sources directly related to these activities. On the other hand, secondary data encompasses a broader range of industry-average information from various sources like published databases, government statistics, literature studies, industry associations, financial data, and other generic sources.

It is worth noting that companies may utilize specific data from one activity within the value chain to estimate emissions for another activity. This type of data, known as proxy data, falls under the category of secondary data since it is not specific to the activity being assessed for emissions. Such an approach allows companies to make informed decisions and obtain a comprehensive understanding of their emissions impact across the value chain.

Confused about the ESG software market? Explore iimpcoll’s free and independent ESG software selection tool to find the perfect fit!

Don't miss our latest whitepaper: The iimpcoll independent Guide to ESG Software

How specific are the different types of Scope 3 data?

This is the order of specificity of Scope 3 data (from the highest degree of specificity to the lowest):

• Product-level data: The cradle-to-gate greenhouse gas (GHG) emissions related to the product of interest.
• Activity-, process-, or production line-level data: The GHG emissions and/or activity data associated with the activities, processes, or production lines involved in manufacturing the product of interest.
• Facility-level data: The GHG emissions and/or activity data pertaining to the facilities or operations responsible for producing the product of interest.
• Business-unit-level data: The GHG emissions and/or activity data pertaining to the specific business units involved in producing the product of interest.
• Corporate-level data: The GHG emissions and/or activity data pertaining to the entire corporation.

Collecting primary data for Scope 3 emissions calculation

Collecting primary activity data is a crucial component in the quantification of Scope 3 emissions. Enhancing the accuracy of energy and emissions data for key Scope 3 categories and activities can be achieved by acquiring data from suppliers and value chain partners, such as materials and parts suppliers, contract manufacturers, third-party logistics providers, capital equipment suppliers, fuel suppliers, waste management companies, and other entities involved in the products and services offered by the reporting company.

• Meter readings provide valuable insights into energy usage.
• Purchase records help track emissions associated with procured goods and services.
• Utility bills serve as a means to measure the environmental impact of consumed utilities, such as electricity and water.
• Engineering models offer detailed calculations based on physical parameters, aiding in emission estimation.
• Direct monitoring entails real-time data collection from emission sources.
• Mass balance and stoichiometry techniques provide useful tools for mass and energy balances, assisting in emissions calculation.
• Customized approaches designed specifically for a company's value chain ensure targeted and accurate measurement of emissions throughout the supply chain.

By utilizing a combination of these methods, companies can gather reliable data on Scope 3 emissions and make informed decisions to decrease their environmental footprint.

Collecting secondary data for Scope 3 emissions calculations

When choosing secondary databases, it is imperative to prioritize internationally recognized sources, those provided by national governments, or those that have undergone rigorous peer review.

Additionally, it is crucial to consider the coverage of secondary data sources across various stages of the value chain. Thoroughly understanding the boundaries covered by the data is essential to mitigate the risk of double-counting errors.

Using proxy data for Scope 3

If sufficiently high-quality data is unavailable, companies have the option to utilize proxy data, which serves as a substitute for the specific activity. Proxy data can be scaled up, extrapolated, or tailored to accurately represent the given activity. For instance, if a large company has access to 85 out of 100 manufacturing facilities, it can extrapolate this information to bridge the gap.

By categorizing the activity data based on similar characteristics, such as facility type or location, the company can calculate an intensity ratio for the group of facilities where data is accessible (e.g., emissions quantity per unit of production output). Subsequently, this calculated figure can be applied to estimate the emissions of the unknown facilities in that particular group.

How can I use Environmentally-extended input-output (EEIO) data?

Environmentally-extended input-output (EEIO) data is a crucial tool in estimating energy use and greenhouse gas (GHG) emissions across sectors and products in an economy. These models play a pivotal role in calculating cradle-to-gate GHG emissions in various industries or product categories. By capturing a comprehensive view of the entire economy, EEIO data ensures that no emissions sources are excluded from the analysis.

The term "cradle-to-gate" refers to the carbon footprint associated with a product's entire life cycle, from its production to its arrival at the retail store. Many businesses opt to assess the cradle-to-gate impact as they have developed products that can be conveniently recycled or composted, thus mitigating the need for landfill disposal.

The concept of “cradle-to-grave” assessment takes into account the environmental impacts of a product at every stage of its life cycle. This includes the extraction and processing of natural resources, as well as the different phases of manufacturing, transportation, product use, and disposal. Emphasizing the full life-cycle of a product allows for a comprehensive understanding of its environmental footprint.

One significant advantage of EEIO data is its simplicity in method and application, which leads to time and cost savings compared to process-based approaches. However, it's important to acknowledge the limitations associated with EEIO data. The use of broad sector averages may overlook specific nuances in nonhomogeneous sectors. Additionally, EEIO models assume a linear relationship between monetary and environmental flows, resulting in indicative results and the inability to differentiate between products of different monetary values within a single sector.

Furthermore, although EEIO data provides comprehensive coverage, it may lack specificity and accuracy when compared to process-based approaches. This limitation also hinders the ability to effectively measure and demonstrate the results of reduction efforts. Additionally, it's worth noting that EEIO databases are generally limited to specific geographic regions, such as Sweden, and may not be universally available.

How can I use process-based data for Scope 3 calculations?

Process-based data refers to the data derived from an assessment of all the known energy and environmental inputs of a specific process. By calculating the direct emissions associated with the outputs of the process, valuable insights can be gained. This approach is particularly advantageous for analyzing unique processes and conducting individual product-level analyses.

There are several advantages to using process-based data:

• It provides a high level of specificity and focus.
• Detailed analysis enables the possibility of gaining unique insights into specific processes.
• The concept is straightforward and easy to understand.

However, it's important to note that process-based data also has certain disadvantages:

• The collection of data can be time-consuming, costly, and labor-intensive.
• Comparability may be limited as the system boundary and the data are selected by the practitioner.
• Data requirements may make large-scale, multi-product analysis impractical.

How to combine EEIO data with process-based data

Combining the power of EEIO (Environmentally Extended Input Output) and process-based data can be a highly effective strategy for companies aiming to optimize the benefits of both approaches.

By utilizing a top-down EEIO approach alongside a bottom-up, process-based approach, companies can gain valuable insights into their emissions profile throughout the entire lifecycle of their products.

This integrated approach allows for accurate calculation of upstream emissions associated with purchased goods using an EEIO approach while also enabling a more comprehensive assessment of downstream emissions resulting from product use and end-of-life through a process-based approach.

Step 6: Allocate emissions

When companies utilize primary data sourced from suppliers or other partners in the value chain to compute Scope 3 emissions, a need for emission allocation may arise. This need also arises when companies provide primary data to customers who are accounting for their Scope 3 emissions.

Allocation refers to the process of dividing greenhouse gas (GHG) emissions from a single facility or system (e.g., activity, vehicle, production line, business unit, etc.) amongst its various outputs.

The allocation becomes necessary under the following circumstances:

• When a single facility or system generates multiple outputs.
• When emissions are only quantified for the entire facility or system as a whole.

In such cases, it becomes imperative to allocate emissions from the shared facility or system to the various outputs.

For instance, a production facility producing multiple products and co-products may collect activity data (used for calculating GHG emissions) for the entire plant. Consequently, the facility's energy consumption and emissions must be allocated to its diverse outputs.

Similarly, a company procuring components from a supplier that manufactures an extensive range of products for various customers requires the supplier's activity data or emissions data to be allocated among the different products. Consequently, customers can determine the emissions attributable to the specific products they purchase based on the fraction of total supplier production related to the customer's transactions.

When it comes to the need for allocation, primary data usage can be exempted under the following circumstances:

• The production process generates only one output, or
• Emissions from each output are quantified independently.

Secondary data usage for calculating Scope 3 emissions typically does not require allocation either. This is because the activity data and emission factors usually refer to a single product. For instance, emissions from third-party transportation can be calculated by multiplying the weight-distance traveled by an emission factor.

However, when using primary data to calculate Scope 3 emissions, companies should aim to minimize or avoid allocation if possible. Allocation introduces uncertainty and can lead to inaccuracies in estimating emissions, particularly when the activity or facility produces a wide range of products with differing greenhouse gas (GHG) contributions.

For example, a supplier might manufacture twenty different types of products but only supply one type to the reporting company. It would be inaccurate to allocate the supplier's Scope 1 and Scope 2 emissions based on the average emissions intensity of all twenty products, especially if the supplied product has a different emissions intensity. Therefore, allocation should only be used when more precise data is not available.

How do I choose the right Scope 3 emission factors?

Calculating emissions necessitates the utilization of two types of data: activity data and emission factors. "Activity data" comprises quantitative measurements of the level of activity that leads to GHG emissions, such as liters of fuel consumed or kilograms of material purchased.

An "emission factor" is a conversion factor that transforms activity data into GHG emissions data, such as kilograms of CO2eq emitted per liter of fuel consumed or kilograms of CO2eq emitted per kilogram of material produced.

It is mandatory for companies to disclose a comprehensive description of the activity data and emission factors used in their inventory calculations. This enables transparency and accountability in reporting their emissions.

What are Scope 3 material/product-specific emission factors?

Scope 3 accounting incorporates material/product-specific emission factors. Two types of emission factors can be employed to calculate emissions associated with a material or product.

• Life cycle emission factors cover emissions throughout the entire lifespan of a material or product, from the raw material acquisition or the generation of natural resources to its end-of-life stage.
• Cradle-to-gate (also known as "upstream") emission factors encompass all emissions during the life cycle of a material or product until the point of sale by the producer.

In general, cradle-to-gate emission factors should be applied to compute emissions related to goods or services, such as Category 1 (Purchased goods and services) and Category 2 (Capital goods).

Scope 3 energy emission factors

When it comes to converting energy activity data into emissions data, two types of emission factors play a crucial role:

• Life Cycle Emission Factors: These factors encompass all emissions and are not limited to fuel combustion alone. They take into account emissions occurring throughout the entire life cycle of the fuel, including extraction, processing, and transportation.
• Combustion Emission Factors: These factors are specific to emissions arising solely from fuel combustion.

To accurately measure and report Scope 3 emissions associated with fuels and energy consumed within a company's value chain (excluding category 3 activities not covered by Scope 1 or Scope 2), it is imperative to utilize life cycle emission factors. Conversely, combustion emission factors come into play when calculating Scope 1 emissions (fuels) and Scope 2 emissions (electricity).

How do I find GHG emission factor databases and the best carbon accounting software?

By considering these factors and following the prescribed guidelines, organizations can acquire a comprehensive understanding of emissions associated with their operations and make informed decisions to mitigate and manage their environmental impact.

Emission factors are vital in converting activity data (e.g., miles driven or tons of waste disposed) into carbon equivalents. Refer to recognized databases such as the EU Environment Agency’s Emission Factor Database, National and European Emission Factors for Electricity, the UK's DEFRA, or the US EPA's eGRID to find appropriate factors.

When it comes to quantifying Scope 3 emissions, the selection of emission factors is a critical step. These factors convert activity data into carbon emissions, allowing businesses to measure their environmental impact accurately. Selecting appropriate emission factors ensures that your calculations reflect the true scale and source of your emissions.

First, it's vital to understand your organization's unique value chain and the related activities that generate emissions. This could include business travel, employee commuting, or emissions from purchased goods and services. Understanding these sources will guide you towards the relevant emission factors.

Secondly, to obtain accurate figures, the emission factors used must be up-to-date, relevant to the region, and specific to the source of emissions. For instance, the emission factor for electricity consumption must match the region's energy mix, as the level of emissions varies significantly depending on whether the energy is generated from renewable sources or fossil fuels.

ESG and Carbon Accounting Software often have integrated guides to assist you in the selection of the correct emission factors. Such tools also provide calculation methodologies, ensuring consistency and accuracy in your reporting.

Step 7: Set a target and track emissions over time

The target level signifies the level of ambition associated with the reduction target. To determine the numerical value of the target, companies must thoroughly evaluate potential GHG reduction opportunities and estimate their impact on overall GHG emissions.

It is advisable for companies to set an ambitious target that significantly reduces emissions below the company's business-as-usual Scope 3 emissions trajectory. Setting a "stretch goal" is expected to stimulate greater innovation within the company and along the value chain, thereby enhancing credibility among stakeholders.

When aiming to track performance or establish a reduction target, companies should adhere to the following guidelines:

• Choose a base/reference year for Scope 3 and provide a well-founded rationale for the selected year (see Step 4).
• Establish a policy for recalculating emissions from the reference year, clearly defining the criteria for any recalculations.
• In the event of substantial changes in company structure or inventory methodology, reevaluate emissions from the reference year.

What are the different Scope 3 target types?

Organizations have the flexibility to establish different types of targets when it comes to reducing greenhouse gas (GHG) emissions. These include:

1. Absolute targets, which focus on reducing emissions in metric tons of CO2eq over time.
2. Intensity targets, which measure the decrease in GHG emissions gauged against business metrics such as production, output, sales, or revenue.

To ensure transparency, companies implementing intensity targets should also disclose the absolute emissions from the sources covered by these targets.

To enhance credibility and practicality, it is advisable for companies to adopt a combination of both absolute and intensity targets. For example, an organization can set an absolute target at the corporate level while implementing a mix of intensity targets at lower levels of the company. Alternatively, they can adopt an absolute target for overall Scope 3 emissions alongside a combination of intensity targets for individual Scope 3 categories.

How do I set a concrete Scope 3 target?

A robust business strategy necessitates the establishment of targets for various core business metrics, such as revenues and sales, accompanied by diligent performance tracking. This principle holds true for effective management of greenhouse gas (GHG) emissions, where setting a GHG reduction target is a pivotal component.

Companies are afforded the flexibility to set different types of Scope 3 reduction goals, including:

• A comprehensive target encompassing Scope 1, Scope 2, and Scope 3 emissions
• A singular target exclusively focused on Scope 3 emissions
• Specific targets for individual Scope 3 categories
• …or a combination of targets encompassing total Scope 1, 2, and 3 emissions as well as targets for individual Scope 3 categories.

Each type of target boundary carries its own set of advantages and disadvantages.

Irrespective of the chosen target boundary, it is important for companies to establish a consistent base year for all Scope 3 categories (see Step 4). This approach simplifies the tracking of Scope 3 emissions, eliminates the selective use of base years, and facilitates transparent communication of GHG emissions to stakeholders.

How do I set my Scope 3 target completion date?

Determining the target completion date is crucial in gauging whether the objective is intended to be achieved in the short or long term. In general, it is advised for companies to establish long-term targets, such as a 10-year timeframe. This approach enables the facilitation of long-term planning and the execution of substantial capital investments that yield significant greenhouse gas (GHG) benefits. However, setting shorter-term targets can provide more frequent measurements of progress.

Can I use carbon offsets or credits in my Scope 3 reporting?

A GHG target can be achieved solely through internal reductions at sources included within the target boundary or through the utilization of offsets derived from GHG reduction projects that effectively minimize emissions (or promote carbon sinks) from external sources outside the target boundary.

Companies should prioritize achieving reduction targets primarily through internal reductions within the target boundary. Should a company face limitations in meeting GHG targets via internal reductions, it may employ offsets obtained from sources external to the target boundary.

It is essential for companies to explicitly state whether offsets have been utilized and, if so, the extent to which the target reduction has been fulfilled using offsets. It is recommended that companies report internal emissions separately from offsets utilized to meet the target instead of providing a net figure. Furthermore, any procurement or sale of offsets must be reported separately.

When utilizing offsets, it is crucial to adhere to credible accounting standards to prevent any instances of double counting by multiple entities or within multiple GHG targets.

Step 8: Assure emissions

Assurance refers to the level of confidence in the completeness, accuracy, consistency, transparency, relevance, and absence of material misstatements in an inventory. It is mandatory if your organization falls under the CSRD.

Assuring Scope 3 inventory yields various benefits, including:

• Heightened confidence among senior management regarding reported information, thus enabling the establishment of reduction targets and related decisions.
• Strengthened internal accounting and reporting practices, encompassing data collection, calculation, internal reporting systems, and fostering knowledge transfer and learning.
• Streamlined efficiency in subsequent inventory update processes.
• Augmented stakeholder confidence in the accuracy of reported information.

In order to prepare for assurance, meticulous and thorough documentation of the inventory process via a data management plan is crucial. The assurance process involves three key parties:

1. The reporting company seeking assurance.
2. Stakeholders utilizing the inventory report.
3. The assurer(s).

What is the difference between first and third party Scope 3 assurance?

When the reporting company performs the assurance, it is referred to as first-party assurance. Conversely, when an independent party other than the reporting company conducts the assurance, it is known as third-party assurance.

It is imperative for companies to select assurers who are unbiased and possess no conflicts of interest.

Both first and third-party assurers should adhere to similar procedures and processes. When it comes to external stakeholders, third-party assurance enhances the credibility of the GHG inventory.

However, first-party assurance also instills confidence in the reliability of the inventory report and serves as a valuable learning experience for companies before seeking third-party assurance. By its nature, third-party assurance offers a higher level of objectivity and independence.

It is important to assess potential threats to independence, such as financial conflicts of interest, throughout the assurance process. Companies that receive first-party assurance should disclose how they avoided conflicts of interest during the process.

Step 9: Report emissions

A reliable greenhouse gas (GHG) emissions report provides information that adheres to the principles of relevance, accuracy, completeness, consistency, and transparency. It relies on the most reliable data accessible while being transparent about its limitations. There are required as well as optional items listed in the GHG protocol Scope 3 standard. Currently, the following items are required:

What is required in my Scope 3 report?

Companies are required to publicly report the information:

1. A comprehensive report on Scope 1 and Scope 2 emissions, aligned with the GHG Protocol Corporate Standard.
2. Distinct reporting of total Scope 3 emissions, categorized as per Scope 3 criteria.
3. Within each Scope 3 category, total emissions of greenhouse gases should be reported in metric tons of CO2eq, excluding biogenic CO2 emissions and irrespective of any GHG trades, such as offsets or allowances.
4. A comprehensive list of Scope 3 categories and activities included in the emissions inventory.
5. Justification and exclusion details of any Scope 3 categories or activities omitted from the inventory.
6. After establishing a base year, the following details should be disclosed: the chosen base year for Scope 3 emissions, rationale behind base year selection, policy for base year emissions recalculations, Scope 3 emissions by category in the base year (in compliance with the emissions recalculation policy), and any relevant context for significant emissions changes that necessitated recalculations.
7. For each Scope 3 category, separate reporting of biogenic CO2 emissions is mandatory.
8. For each Scope 3 category, elucidation of data types and sources, including activity data, emission factors, and GWP values utilized for emissions calculation, and an assessment of the data quality for reported emissions data.
9. For each Scope 3 category, presentation of methodologies, allocation methods, and assumptions applied to calculate Scope 3 emissions.
10. Disclosure of the percentage of emissions calculated using data procured from suppliers or other value chain partners within each Scope 3 category.

Regular Updates and Refinements

Given that emission factors, organizational activities, and data availability may change over time, it is imperative to regularly review and update your calculations to ensure accuracy.

Step 10: Take the Next Step: Empowering Your Business through Scope 3 Reporting

Scope 3 reporting is not just about meeting regulatory requirements or checking off boxes on a sustainability checklist. It has the potential to drive real change within your business and the wider community.

By taking the next step in mastering Scope 3 reporting, you can empower your business in the following ways:

• Identifying areas for improvement: Through detailed data collection and analysis, Scope 3 reporting can help identify inefficiencies and opportunities for reducing emissions within your value chain. This information can be used to implement targeted sustainability initiatives that not only benefit the environment but also drive cost savings.

• Strengthening stakeholder relationships: By engaging with stakeholders through data collection and reporting, you can build stronger relationships based on transparency and shared values. This can lead to more fruitful collaborations and partnerships in the future.

• Enhancing brand reputation: In today's socially conscious world, consumers are increasingly demanding transparency and accountability from businesses. By showcasing your commitment to Scope 3 reporting and sustainability efforts, you can enhance your brand reputation and attract environmentally conscious customers

• Supporting global climate action: As a business, you have the power to make a significant impact on global climate action through Scope 3 reporting. By accurately measuring and reporting emissions, you contribute to the overall reduction of greenhouse gas emissions and help mitigate the effects of climate change.

In summary, Scope 3 reporting goes beyond mere compliance. It is a catalyst for driving positive change and creating a sustainable future. By utilizing effective and transparent Scope 3 reporting, your business can play a pivotal role in building a greener world. Take the next step today and join the movement towards a more sustainable tomorrow. Together, we can make a difference by mastering Scope 3 emissions reporting and reducing our environmental impact. Let's make every effort count and leave a positive legacy for future generations.

Scope 3 References:

1. Greenhouse Gas Protocol Corporate Value Chain (Scope 3) Standard
2. United Nations Environment Programme. (2020). Scope 3 Emissions: Technical Guidance for Calculation and Reporting.
3. ESRS E1 Climate change