New research by Vlerick Business School, Candriam’s partner, finds that while it’s not easy evaluating Scope 3 emissions, doing so can benefit companies as well as the environment.
Calculating value chain emissions—commonly referred to as Scope 3—can be a daunting task for any company because by design, Scope 3 emissions lie outside the direct management of a company’s leadership, which makes them harder to track.1
It is therefore essential that companies have tools which help to shed light on how they can better address their Scope 3 emissions. Candriam understands the importance of robust research—it is one of the key pillars of Candriam’s Institute for Sustainable Development—and how it can contribute to improved knowledge and implementation of ESG, leading to more sustainable economies.
With this core tenet in mind, the research by the Belgian-based Vlerick Business School, a top European institution with a considerable focus on ESG, took a deep dive into what companies are reporting on Scope 3 emissions, focusing on a number of industry sectors including chemicals, retail, consumer, energy, apparel, industrials, technology, transportation, utilities, pharma, financial services and local government. Due to the lack of stakeholder pressure for environmental accountability in high-emitting developing countries—Russia, China, India and Indonesia—only OECD countries are represented in the report.
Over the last five years, the research noted, interest in reporting Scope 3 emissions has been increasing, most notably, since the onset of the Covid pandemic which highlighted the need for more sustainable business approaches.
The research outlined that if a company is willing to look at their entire value chain and put in the hard work to calculate Scope 3 emissions, the upside is that they will be able to:
- pinpoint resource and energy risks in their supply chain
- engage more rigorously with value chain partners
- rethink their business operations
- streamline their emissions reporting methodology
- identify third parties whose climate ambitions match their own.
In order to facilitate Scope 3 reporting, companies can use the framework that has been identified by the Greenhouse Gas Protocol, which provides standards, guidance, tools and training for business and government to measure and manage climate-warming emissions.
Scope 3 emissions are divided into 15 categories covering: Upstream Scope 3 emissions and Downstream Scope 3 emissions
Recommendations for companies looking to improve their Scope 3 accounting
There are a number of ways to make the reporting of Scope 3 emissions less arduous including:
- Encouraging suppliers, partners, and new clients to commit to greenhouse gas (GHG) emissions reporting.
- Including justifications for the exclusion of Scope 3 categories, as well as a timeline for developing processes and expertise to include relevant categories.
- Reporting of downstream emissions needs to improve in order to obtain a full picture of a company’s Scope 3 profile.
- Evaluating regulation risk on exported emissions. This means that reaching out to international suppliers, partners, and clients may soon be a necessity for a company that needs to report a Scope 3 profile.
Managing global supply chains is a complex process at the best of times and monitoring Scope 3 emissions will add another layer of oversight. However, the potential benefits to corporates as a result of this process will, in the long run, outweigh short-term headaches.
Scope 1 consists of GHG emissions generated during the course of the company’s main business operations (such as the emissions associated with a vehicle’s assembly line).
Scope 2 emissions are the GHG emissions incurred by a firm through the purchase of the electricity required for its operation. Finally,
Scope 3 emissions account for indirect emissions generated by suppliers, partners, and customers along a company’s value chain.