The Importance of Scope 3 Emissions - the “too hard basket” should be no excuse
As the world looks to be more environmentally friendly, businesses are increasingly taking notice of the need to reduce their carbon footprint and demonstrate a commitment to sustainability.
However, while many companies take steps to reduce their Scope 1 and Scope 2 emissions, which come from internal operations and energy use, many overlook a significant source of environmental damage: Scope 3 emissions.
Scope 3 emissions are indirect emissions that come from a company's value chain, including its suppliers, customers, and other stakeholders. In this post, we will explore the importance of Scope 3 emissions for businesses and tell you why they should be a key consideration in any sustainability strategy.
What Exactly Are Scope 3 Emissions?
As described above, Scope 3 emissions are a category of emissions that are generated by a company's value chain. This includes emissions from suppliers, customers, and the use (and disposal) of their products. Scope 3 emissions are often referred to as "indirect emissions" because they occur outside of a companies’ direct control. However, as we’ll explore in more detail lately, this does not mean companies can’t have an impact on any potential harm driven by these emissions.
Scope 3 emissions can account for over two thirds of a company's overall emissions, making them extremely important for businesses to consider as they work to reduce their carbon footprint.
Why Scope 3 Emissions are Dangerous Business
Businesses that fail to address their Scope 3 emissions may face a number of risks, including reputational damage, regulatory non-compliance, and value chain disruption.
For example, if a company's customers and investors become concerned about the organisation’s environmental impact, it may suffer reputational damage, and decreased sales. As consumers become more invested in environmentally friendly offerings, and organisations look to decrease their environmental impact, not working towards noticeable targets may leave your company playing catch up.
In addition to reputational risks, businesses that fail to address Scope 3 emissions may also be at risk of regulatory non-compliance. As governments continue to try to limit global warming to 1.5 degrees, businesses will continue to face new regulations that will require them to reduce emissions. Failing to comply with these regulations can result in penalties and legal liabilities, both of which are increasing as 2050 comes closer.
Finally, failure to address emissions can result in value chain disruption, as suppliers or customers may choose - or need - to stop doing business with companies that do not meet their environmental standards.
Companies also rely on access to natural resources such as water, land, and minerals. All of which can and will be damaged by climate change if Scope 3 emissions are not reduced significantly.
But What are the Benefits?
While the dangers may be worrying, reducing Scope 3 emissions can create several economic benefits for businesses. One of the main benefits is cost savings; by reducing energy consumption and emissions throughout their value chain, companies can lower their operating costs and improve their profitability.
Reducing Scope 3 emissions can also create new economic opportunities for businesses. For example, by developing eco-friendly products and services, companies can tap into growing sustainability markets.
Additionally, reducing Scope 3 emissions will also help to improve brand value, which will increase its customer loyalty, as well as attract new customers. Companies that show that they are taking concrete action to address climate change will simply be more successful in the future.
Finally, by reducing emissions in their value chain, companies can also help to create more resilient value chains, which will be essential for mitigating future environmental risks.
Examples of Major Companies Reducing Scope 3 Emissions
You may think that reducing Scope 3 emissions may not be important as it is seldom talked about on the news (yet). However, the following large organisations know how important it is to be on the front foot when it comes to this form of emissions.
Apple
In late 2020, Apple announced that it will aim to be carbon neutral across its entire value chain by 2030, which includes Scope 3 emissions from its suppliers and customers. To achieve this goal, the company plans to reduce its carbon footprint by transitioning to renewable energy sources and working closely with suppliers to reduce emissions in their operations. Notice the collaborative and holistic approach to reducing environmental impact that is the hallmark of Scope 3 emissions.
Source: https://www.apple.com/newsroom/2022/10/apple-calls-on-global-supply-chain-to-decarbonize-by-2030
Coca-Cola
In 2021, Coca-Cola set a goal to reduce its greenhouse gas emissions across their entire value chain by 30% before 2030. To achieve this goal, the company plans to work with its suppliers to reduce emissions from their operations, promote sustainable agricultural practices, and reduce environmental damage from the use and disposal of its products. Many of these factors are common compared to other companies’ targets, highlighting the broad nature of Scope 3 emissions.
IKEA
IKEA has committed to becoming a climate-positive business by 2030, which includes a commitment to reduce Scope 3 emissions from its value chain. The company plans to achieve this by using renewable energy, improving energy efficiency in its operations, and using sustainable wood used in their products.
These companies are just a few examples of those that have made commitments to reduce Scope 3 emissions as part of their wider efforts to reduce their environmental impact. By making these commitments, they are demonstrating their leadership and commitment to sustainability, and helping to drive the transition to a low-carbon economy.
How Your Organisation Can Play Their Part
Identify and prioritise emissions
The first step is to identify and prioritise the sources of Scope 3 emissions. Businesses can use a variety of tools and frameworks, such as the Greenhouse Gas Protocol or the Science-Based Targets initiative, to help them identify the emissions sources that are most significant and relevant to their operations.
Engage with suppliers
Many Scope 3 emissions come from a company's value chain. To reduce these emissions, businesses can engage with their suppliers to promote sustainable practices, such as energy efficiency, waste reduction, and renewable energy use.
Promote sustainable product use
Another significant source of Scope 3 emissions comes from the use and disposal of a company's products. To reduce these emissions, businesses can promote sustainable product use, such as encouraging customers to recycle or providing education on how to use products in a more sustainable way.
Reduce business travel
Business travel is a significant source of Scope 3 emissions. To reduce these emissions, businesses can encourage video conferencing and remote working, and consider using low-carbon transportation options when travel is necessary.
Transition to renewable energy
Businesses can reduce their Scope 3 emissions by transitioning to renewable energy sources, and encouraging the suppliers and customers to do the same. In Australia, this includes using renewable sources such as solar, or even wind, and by increasing energy efficiency in day to day operations along the value chain.
Set targets and track progress
Finally, it is important for businesses to set targets for reducing their Scope 3 emissions and track their progress over time. This can help to keep the company accountable and identify areas where further improvements need to be made.
What Does This All Mean For You?
By now you’ll know how important Scope 3 emissions are for businesses looking to reduce their environmental impact. While these emissions can be challenging to reduce, they can have significant environmental and economic consequences.
By taking steps to engage with suppliers, promote sustainable product use, reduce business travel, transition to renewable energy, and set and work towards targets, businesses can reduce their Scope 3 emissions.
Businesses can no longer afford to bury their heads in the sand when it comes to emissions throughout their entire value chain. Consumers, investors, and the government are now more aware than ever of the broad scale effects of emissions and expect companies to do better. This means your company can ill-afford to maintain the status quo. If you haven’t already, your company needs to work towards change that matters.
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