Calculating Scope 3 emissions

Scope 3 emissions usually make up a significant proportion of an organisation’s greenhouse gas emissions. However, as they sit outside of the organisation and are hard to capture, they are often left out of the equation. Laura King outlines initial steps a business can take to start understanding these indirect emissions.

Understanding the full inventory of an organisation’s greenhouse gas (GHG) emissions is becoming increasingly important — and as the UK approaches its net zero deadlines, requirements for collecting data, reporting, and taking action are likely to become more, not less, stringent.

The Greenhouse Gas Protocol is one of the most widely-used global accounting standards for measuring and managing emissions. In it, it splits the emissions that organisations need to account for into three scopes.

  • Scope 1 emissions are from sources the company owns and is responsible for, such as those from owned boilers.

  • Scope 2 are indirect emissions produced through energy or electricity purchased.

  • Scope 3 includes everything else that the organisation is indirectly responsible for, such as upstream emissions from suppliers and downstream emissions from the use of sold products.

Currently, organisations largely focus on reporting Scope 1 and 2 emissions. After all, these are the emissions over which the most control is held, as well as the emissions for which data is most readily available.

These are also the two categories for which there are current legislative drivers. As for the most part, legal obligations under Streamlined Energy and Carbon Reporting (SECR) only require companies to report on Scopes 1 and 2. Although reporting on Scope 3 is encouraged, the only requirement is for large unquoted companies and large LLPs who have to report on fuel burned during business-related travel if the vehicle involved is rented or belongs to an employee.

However, it would be unrealistic to think that this will not change, and there are several reasons why.

Why is reporting on Scope 3 important?

Scope 3 emissions are widely held to account for the majority of an organisation’s total emissions. The exact proportion will vary depending on the business, but for some, Scope 3 emissions make up well over 90% of their total GHG footprint.

This is important for two reasons.

  1. Scope 3 emissions are a significant source of climate risk and opportunity — as such, understanding where these emissions lie will be essential for managing the shift to net zero, and will increasingly be looked at by investors and other stakeholders.

  2. As they account for such a large element of an organisation’s footprint, it is becoming best practice to include Scope 3 emissions into net zero targets.

Furthermore, reporting on Scope 3 acts as a significant lever on carbon reduction efforts up and down the value chain. One company’s Scope 3 emissions will be another’s Scope 1 and 2, and although this does result in double-counting and may seem counterintuitive, establishing Scope 3 emissions provides an additional incentive for all organisations along the value chain to understand their footprint — so accelerating the climate action that is urgently needed.

Why are Scope 3 emissions so difficult to calculate?

Despite Scope 3 emissions gaining more traction, there are some clear barriers to better reporting. In early 2021, the World Economic Forum published Net Zero Challenge: The Supply Chain Opportunity. In it, they outlined both the opportunity, and barriers, including:

  • a lack of high-quality data sharing with suppliers

  • relying on averages and insufficient clarity on the boundaries for reporting

  • conflicting procurement priorities, and procurement incentives not being aligned to climate goals

  • difficulty in monitoring the supply chain, especially beyond tier 1 suppliers

  • high costs for implementation and a lack of government investment and action.

How to screen Scope 3 emissions for biggest hitters

Although there are clear difficulties, a growing number of companies are starting on the Scope 3 reporting journey. For Scope 3 emissions, the Greenhouse Gas Protocol provides specific guidance, outlining 15 upstream and downstream emission sources, including, for instance:

  • goods and services bought by the organisation

  • upstream and downstream transport and distribution

  • waste generated in company operations

  • business travel in vehicles not owned by the company

  • end use of sold goods, as well as their treatment and disposal.

Every business will be different, and each will have its own context in terms of where emissions lie. Therefore, the first step in any analysis is to use the 15 categories to screen for where the organisation’s materially-relevant Scope 3 hotspots are.

This can be done using the “spend average” method whereby spend is identified in each of the Protocol’s categories and an estimate of emissions is calculated using an emissions conversion factor. The Scope 3 Evaluator, provided for free by the Greenhouse Gas Protocol, is one tool that can be used to provide this initial calculation.

Once the big hitters have been identified, organisations can develop a strategy to refine data quality, set targets and ultimately reduce emissions. Although for some this might mean tackling the largest emissions first, priority areas may also depend on other factors such as:

  • where there is accessible data

  • where the company has the most influence

  • areas which are best aligned to business goals

  • emissions that are the highest risk, or hold the most potential for reduction.

Screening is an incredibly useful first step. Undoubtedly, Scope 3 emissions can be a daunting area to get to grips with, and so taking a bird’s eye view can really help to see the bigger picture before deciding where to focus resources where they are most needed.

Refining Scope 3 data

The Greenhouse Gas Protocol provides information on the type of data that can be obtained to improve data quality. For example, where the physical quantity of something is known, the “average data” method can be used. This methodology estimates emissions based on mass or quantity which is then multiplied by industry average emission factors (ie average emission by unit of goods). An example might be the emissions generated from purchased goods with a known volume (some “average data” elements are also included in the Scope 3 evaluator tool).

A key part of refining the data will be collaboration with suppliers and customers. And, as with prioritising areas to work, there will be no one-size-fits-all solution. Some companies will already be on their own GHG reduction journey and have a good understanding of their data. Others may not have any data or have low impetus to change. Deciding how best to approach organisations in the value chain, and what support will be needed will be critical to the success of ongoing work.

As part of the process of refining data, it is also important to consider that overarching numbers are likely to change. To make sure this does not become a problem, there should be a clearly outlined methodology and clear links to the data used. This will create transparency and allow for the data to be audited.

Summary

Scope 3 emissions represent a large proportion of a company’s emissions.

Reducing Scope 3 emissions is likely to have a much larger impact on GHGs than simply focussing on Scope 1 and 2, and is also important for understanding risks and opportunities faced by the business as the world transitions to net zero.

The Greenhouse Gas Protocol outlines the 15 categories of Scope 3 emissions and provides a free tool which organisations can use to conduct an initial screen of their emissions.

Building the full picture of Scope 3 emissions takes time, but can be split up into two phases.

  1. Refining the data.

  2. Using the data to reduce emissions.

For more information on Scope 3 and what responsibilities small businesses have to report and reduce them, see our Q&A here.