by Dave Newman, Senior Strategist
Ready or not, Scope 3 is here. And you’d be well advised to understand what it means for your business and prepare for its impact sooner rather than later.
Two new international greenhouse gas (GHG) emissions standards — known as Scope 3 — were launched October 4 at events in New York and London. They were released by the Greenhouse Gas Protocol, a global collaboration led by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD).
The Greenhouse Gas Protocol previously released GHG emission standards for owned manufacturing and operations (known as Scope 1) and for purchased energy (known as Scope 2). The two are considered the de facto standard for global GHG emissions reporting.
Scope 3 ups the ante considerably. It enables companies to fully measure and manage emissions across their value chains and product lines for the first time. Researchers at Carnegie Mellon University have estimated two-thirds of U.S. industries would overlook 75 percent of GHG emissions if they neglect reporting on Scope 3 emissions.
The new Corporate Value Chain Standard helps companies discover the biggest opportunities to reduce emissions within those parts of their supply chain (manufacturing, transportation) they don’t own. The new Product Life Cycle Standard enables firms to measure the GHG emissions of an individual product, including its use by the consumer, using a credible international approach.
Among the businesses affected by the introduction of Scope 3 are consumer products companies whose value chains can stretch around the world, as well as suppliers to these companies. Scope 3 will lead companies to look both upstream and downstream in their value chain for ways to reduce GHG emissions, lower fossil fuel consumption and cost and decrease risk exposure due to future spikes in fossil fuel prices.
Here’s where it gets interesting. All companies are either producers or suppliers. And in one role or another, there’s a good chance your business will be brought into Scope 3 reporting — maybe happily, maybe kicking and screaming.
As a producer, you may choose to embrace Scope 3 and turn it into a competitive advantage. Or you may ignore Scope 3 altogether — until you can’t. At some point, a large customer is likely to ask your business to report your scopes 1, 2 and 3 emissions. At that point, choosing to ignore any of the scopes will no longer be realistic.
Walmart is the most prominent company to lean on its suppliers to report emissions and other sustainability measurements. However, that expectation or demand is becoming increasingly prevalent among larger companies and promises to gain momentum as Scope 3 reporting catches on.
Adopting Scope 3 proactively or in response to customer demand will seem daunting to many small to medium sized businesses. It will mean tracking GHG emissions, for example, from:
- Employee commuting or from their choices of transportation and accommodations when traveling on business
- Product movement as goods are transported from factory to store or warehouse; this would include factors that influence emissions, such as carrier type (air, ship, ground) and volume and weight of shipments
- Materials, manufacturing, customer use and disposal of the company’s products
- Firms that outsource their supply chain management may have little visibility into the makeup and sustainability performance of their suppliers. Similarly, they may struggle with how to gauge emissions from customer use and disposal.
Assessing, managing and reporting GHG emissions and other environmental impacts are fundamental steps for companies interested in mitigating risk (see our free webinar on the subject) and creating competitive advantage. Our consultants have years of experience in sustainable design, manufacturing and transport for companies like Nike and for suppliers to major retailers like Walmart as they have managed Scopes 1 and 2. Clients like these sometimes need help to map their value chains and product lifecycle components to locate and gather the appropriate data, effectively engage suppliers to provide Scope 3 data and produce reports that are appropriate for customers asking for emissions data, or for other constituents interested in the client’s sustainability performance.
While Scope 3 may appear complex and confusing, the two new standards have been in development for more than three years with numerous stakeholder events, multiple drafts, comment periods and road testing by more than 60 companies. So the Greenhouse Gas Protocol has taken good care to address and remove obstacles to rapid adoption of the new standards.
The question is: are you ready to add Scope 3 to your list of sustainability advantages?