Scope 3 emissions are often the main components of a company’s GHG inventory. As indirect emissions that occur in the value chain of the company - both upstream and downstream- their measurement and disclosure can constitute a considerable challenge.
These and other findings are detailed in ABI Research’s latest sustainability assessment: the Large Industrial Solution Providers competitive ranking report.
The assessment analysed the sustainability activities of 10 of the world’s largest industrial manufacturing conglomerates. A key finding was the importance of Scope 3 activities, particularly the robustness of data collection and reporting tools, for achieving industrial firm sustainability objectives.
The Greenhouse Gas Protocol defines Scope 3 emissions as all value chain emissions resulting from activities and assets not owned or controlled by the reporting organisation. There are 15 Scope 3 categories, although some may not apply to all companies. According to the Carbon Disclosure Project (CDP), Scope 3 emissions typically account for over 75% of total emissions, with the share often being over 90% for companies in the industrial sector. For Schneider Electric, Siemens, ABB, and Bosch, who were classified as “sustainability leaders”, Scope 3 emissions are over 99% of total emissions.
“Large industrials face many challenges in measuring and reducing Scope 3 emissions, as the process encompasses a wide range of activities from suppliers, consumers, and distributors,” said Alex McQueen, sustainable technologies research analyst. “Measuring Scope 3 emissions requires dedicated resources, expertise, and specific data collection and management processes.”
Next to the fact that large industrial companies might find it challenging to obtain data from lower-tier suppliers that may not track their CO2 emissions, there is also no standardised methodology for Scope 3 emissions calculations and disclosures. This creates difficulty in assessing the activities of a broad set of suppliers, each using different data collection and reporting methods.
As regulation regarding the disclosure of environmental data becomes more prevalent, companies should prepare by establishing a robust framework for measuring and managing emissions data.
As a starting point, industrials with a high proportion of Scope 3 emissions should look to identify all relevant Scope 3 emission categories. After that, supplier engagement is vital, and industrial firms should seek support from third-party organisations, such as CDP Supply Chain and EcoVadis, in requesting and managing supplier emissions data. Companies may also tie requirements to provide environmental data into supplier contracts and set targets for reducing supply chain emissions.
“Investing in digital tools helps automate the collection, monitoring, and reporting of Environmental, Social, and Governance (ESG) data, and they can also improve value chain collaboration. Since Scope 3 emissions calculations require the tracking of vast amounts of data, leveraging digital solutions is crucial for effective emissions management and reporting,” McQueen concluded.