The issue with implementing targets, commitments and driving change to Scope 3 emissions reduction is that they result from activities and assets not owned or directly controlled by an organisation itself. They have therefore lingered in a grey area of corporate responsibility. Now progressive organisations are taking accountability for their supply chain and addressing decarbonisation holistically.
The increased focus on sustainability by consumers, corporations and governments is plain for everyone to see. Investors in particular are now considering ESG factors, and the number of ESG mentions in investor calls, have risen by 800% since 2017 (The Wallstreet Journal, 2020).
Despite this, many believe there is a staggering level of inaction on Scope 3 emissions. An analysis of 160 global companies with significant greenhouse gas emissions, showed that only 10% of firms have actually set Scope 3 emissions targets (2020 Climate Action 100+ Progress Report, 2020).
In response, consumer and legislative pressure is building and demanding more action. Earlier this year, Dutch Courts ruled Shell is responsible for emissions from its Scope 3 emissions customers and suppliers, and has ordered it to make cuts. We expect the legislative and consumer momentum is set to continue and accelerate.
So how big really is the impact of Scope 3 emissions?
Scope 3 (Value Chain) typically make up greater than 80% of a business’s overall emissions impact, and according to the Carbon Disclosure Project’s analysis of 8,098 companies, supply chain emissions are 11.4x higher than operational emissions (CDP, 2021).
Apple’s own analysis of their carbon footprint shows practically all their emissions are Scope 3. In fact, 99% of emissions are attributed to the supply chain and the full product lifecycle.
https://www.apple.com/environment/pdf/Apple_Environmental_Progress_Report_2021.pdf
How can businesses take action?
The external nature of these emissions mean that they are naturally a far more complex element of environmental footprint to measure and control. But there are steps that all businesses can take in both the short and long term to begin taking custody and driving down their Scope 3 emissions.
1. Implement Scope 3 measurement and reporting
Businesses that implement scope reporting take an important first step in the challenge of driving down Scope 3 emissions. This allows them to gauge the size of the issue and understand how to begin tackling it.
Scope 1 and 2 reporting is already mandatory for many businesses. Looking ahead we anticipate Scope 3 will gather increased attention and we’re already seeing procurement regulation in the public sector focus more and more on supply chain decarbonisation.
Businesses have a chance to get ahead of rapidly developing legislation and use it to their corporate advantage. Reporting can allow businesses to identify the climate-maturity of key elements of the supply chain, optimise costs as well as identify risks and opportunities.
2. Set supply chain renewable energy targets and strategy
Setting a strategy and targets for renewable energy transition across the whole supply chain is one of the most essential means of transitioning to overall net zero emissions.
Many businesses have touted their net zero targets and renewable energy strategy, but rarely do these targets extend to Scope 3 and suppliers. Only a tiny number of suppliers have been found to actually set explicit goals on renewables, with just 4% reporting a renewable energy target according to CDP’s supply chain report (CDP, 2019).
One of the pioneers in this arena is BT, who have long since worked with their supply chain to transition to renewables and carbon reduction on a year on year basis. BT has seen both environmental and commercial benefits from its innovative approach to climate action.
Businesses should engage with their suppliers and encourage a holistic transition to renewable energy sources.
3. Actively engage with suppliers
Measuring Scope 3 emissions is only a first step, and businesses need to actively engage with their suppliers to begin taking action on these emissions. Through collaboration and open conversation, businesses can work together to ensure they are all pulling in the same direction and driving down emissions.
Companies also need to harness the creativity and innovation of their supply chains to solve this complex challenge. In one of our Proxima projects, we’re helping a global technology company to shift all of its vehicles in London to electric by 2025. To enable this, we’re seeking out innovative approaches from suppliers to support that aspiration.
However, this engagement remains the exception rather than the norm and the supply chain offers a huge amount of untapped potential for positive change.
4. Establish a carbon offsetting fund
Carbon offsetting is an efficient and effective method for businesses to quickly build carbon credits and drive down their overall environmental impact. Once businesses have gauged and measured their Scope 3 emissions, a carbon offset fund allows businesses to begin investing in projects and initiatives that counteract this.
These initiatives can cover areas such as reforestation and conservation, which offer businesses credits based on the carbon captured by new trees or the carbon not released through protecting old trees. Other popular carbon offset fund investments include renewable energy projects such as solar, wind and hydro sites, or community projects to introduce energy-efficient methods and technologies to the developing world.
In our work with one of the largest UK supermarkets, we’ve helped them identify at what point emissions reduction must be topped up with offsets. Our experience shows that careful consideration must be given to the role offsetting plays in any decarbonisation strategy to maximise environmental and commercial gains.
Action is required now
Inaction on Scope 3 is starting to be remedied around the world, creating new challenges and opportunities for supply chains. Scope 1 and Scope 2 emissions are being called out for the fractional impact they really have compared to Scope 3, and businesses are increasingly facing pressure to act.
To ignore the impact of Scope 3 emissions in the wider ESG debate is to ignore a rather large and toxic elephant in the room. The impact of these emissions requires all businesses to take custody of their supply chains and start acting now.
