Range 3 emissions – challenges and possible solutions

Carbon accounting is a recognized framework that enables organizations to measure and reduce greenhouse gas (GHG) emissions. Emissions are divided into three categories: scope 1 (direct emissions), scope 2 (indirect emissions) and scope 3 (emissions associated with the value chain). While scope 1 and 2 emissions are relatively easy to monitor, scope 3 emissions are more complex and involve the entire value chain from suppliers to end users. The Greenhouse Gas Protocol provides guidance to businesses for 15 emission categories in scope 3, covering a variety of activities. If businesses address this issue, it can have a positive impact on their entire value chain. Scope 3 firms will have to report their emissions and face pressure to reduce their own emissions if a reporting firm sets scope 3 targets. An example is Aston Martin, which in its 2022 sustainability report has implemented procurement policies with the aim of achieving zero emission outputs in the supply chain by 2039, while the requirement was that suppliers meet the ISO14000:2015 standard. In 2022, 95 % of their suppliers reported that they had succeeded.

In 2023, the International Sustainability Standards Board adopted the first sustainability disclosure standards (IFRS 1 and 2) that cover emissions in all three scopes. These standards replace previous climate disclosure recommendations from the Working Group on Climate-Related Financial Disclosures. The new standards are becoming a global basis, with six countries already adopting them (Bangladesh, Brazil, Costa Rica, Nigeria, Kenya and Turkey), 16 countries planning to adopt them (including Australia, Canada, the United Kingdom, Japan and China) and three countries update their existing standards in accordance with these standards (including EU and US).

As the obligation to carbon accounting increases, so does the need for accurate data to calculate emissions. Current methods for calculating emissions in scope 3 are based on obtaining relevant data or using average emission factors in a given field to multiply a certain value or quantity of purchased goods and services. Challenges in this area have been identified in the Science-Based Targets Initiative documents, which offer businesses a framework for setting science-based emission reduction targets in line with the goals of the Paris Agreement. These papers address the issues of measuring emissions in scope 3, suggest potential solutions and show the role of environmental performance certificates (e.g. carbon credits) in addressing these emissions. They are also pre-empting the update of their Corporate Net Zero Standard, which is expected at the end of the year. The MASSIV+ initiative, which includes leading companies such as Microsoft, IKEA and Volvo Cars, is focused on overcoming the problems of missing information and inaccurate emission factors, aiming to revolutionize the way industry reports and validates its greenhouse gas emissions. Their vision is that if all firms calculated and published scope 1 and 2 emissions, this would enable a more accurate calculation of scope 3 emissions.

As regulations and guidelines continue to evolve, as well as emission reduction targets increase, there will be a need to more accurately calculate emissions at all scales with an emphasis on improving ESG performance. While there may not be a specific obligation for companies to comply with these standards, joining the value chain of another organization that must comply with them will require the ability to provide relevant emissions data. Developing the skills to measure, monitor and reduce emissions in scope 3 will therefore become an important subject for firms to ensure their competitiveness in the future, increase their ESG performance and adapt to the changing regulatory environment. (Co2AI)