Bamboo Rose Blog | Industry Insights

What is Scope 3?

Scope 3 emissions are the greenhouse gas emissions produced by activities outside of a business’ own operations. This includes supply chain emissions as well as those from the use of a product.

Included in this guide:

This guide has been designed for anybody trying to work with suppliers to measure and reduce Scope 3 supply chain emissions.

Comparing the Scope 3 standards
Collaborating with suppliers to reduce emissions
Calculating and reporting on Scope 3 emissions
Scope 3 emissions definition and categories
Collecting supply chain emissions data from suppliers

Scope 3 Emissions Definition

What are Scope 3 emissions?

Greenhouse gas emissions are categorised into three groups (or “Scopes”) by the Greenhouse Gas Protocol (GHGP). The GHGP standard has been adopted by several influential organisations such as the CDP (formerly Carbon Disclosure Project). As such, the terminology is being quickly adopted into sustainability and environmental social governance (ESG) business circles.

 

Category Emissions

Scope 1

  • Fuel combustion (i.e. company controlled boilers, furnaces and vehicles)
  • Fugitive emissions (i.e. leaks or other unintentional releases of gasses)

Scope 2

  • Purchased electricity, heat and stream

Scope 3

  • Purchased goods and services
  • Use of sold products
  • Transport and distribution – including “upstream” within your supply chain and “downstream” by your customers
  • Business travel
  • Employee commuting
  • Waste disposal
  • Investments
  • Leased assets and franchises

It is important to recognise that your Scope 3 emissions include your suppliers’ Scope 1, 2 and 3 emissions and are out of your organisation’s direct control. As such, it is important to understand all three groups of emissions when leading a Scope 3 emissions measurement or reduction initiative.

Within CPG, Scope 3 emissions typically account for 95% of the company’s overall footprint, of which the supply chain emissions account for around 80%. Therefore, tackling Scope 3 supply chain emissions by collaborating with suppliers is one of the main ways a business can reduce its negative environmental impact.

 

An example from Industry:

 

 

Nestlé’s total GHG emissions by scope illustrate the significance of Scope 3 emissions for consumer packaged goods (CPG) businesses.

Nestle-example

Source: Nestlé’s Net Zero Roadmap (February 2021)

Scope 1, 2 and 3 emissions diagram

Greenhouse gases (GHG) are the gases that are contributing to global warming and climate change. Parties to the United Nations Framework Convention on Climate Change (UNFCCC)  agreed to curb the emission of these gases as part of the Kyoto Protocol in 1997.

GHGP have produced one of the most widely used diagrams to illustrate the different emission and their scopes. Importantly it highlights that Scope 3 extends both “upstream” within the supply chain and “downstream” to the reporting organisation’s customers.

 

Source: GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard

Scope 3 Emissions Categories

Scope 3 emissions are categorised by the GHG Protocol into 15 Scope 3 categories:

UPSTREAM

  • Category 1 – Purchased goods and services
  • Category 2 – Capital goods
  • Category 3 – Fuel- and energy-related activities (not included in Scope 1 or Scope 2)
  • Category 4 – Upstream transportation and distribution
  • Category 5 – Waste generated in operations
  • Category 6 – Business travel
  • Category 7 – Employee community
  • Category 8 – Upstream leased assets

DOWNSTREAM

  • Category 9 –  Downstream transportation and distribution
  • Category 10 – Processing of sold products
  • Category 11 – Use of sold products
  • Category 12 -End-of-life treatment of sold products
  • Category 13 – Downstream leased assets
  • Category 14 – Franchises
  • Category 15 – Investments

 

An example from Industry:

 

 

BASF’s Scope 3 Inventory illustrates that Category 1 Purchased Goods and Services emissions produced by your suppliers manufacturing your product commonly are the largest source of Scope 3 emissions.

BASF-example


Source: BASF GHG Inventory Report (February 2020)

What are Scope 3 supply chain emissions?

Your Scope 3 supply chain emissions are typically the combination of your Category 1 Purchased Goods and Services, and Category 4 Upstream Transport and Distribution. These upstream emissions are sometimes called “cradle-to-gate” and differ in profile by industry.

WRAP-cradle-image

Source: Courtauld 2030 Scope 3 GHG Measurement and Reporting Protocols for Food and Drink

Scope 3 supply chain emissions can be the most difficult to measure and reduce due to the complexity and scale of the modern supply chain. For example, the typical consumer packaged goods (CPG) supply chain has between 100 and 10,000 companies within its supply chain. In theory, accurately measuring your Scope 3 emissions would mean collecting data from all of these businesses on an annual basis.

Why are Scope 3 emissions important?

Tackling climate change

significant cut in greenhouse gas emissions is required by CPG companies if they are to:

 

 

The supply chain is critical to achieving this cut as most of the environmental impact associated with the consumer sector is embedded in the supply chain: 

80-pc-fact

Source: McKinsey Starting at the source

Therefore, businesses can have a significantly greater impact in reducing their greenhouse gas emissions by focusing on supplier collaboration.

Sustainability and financial performance

Recent research has shown that becoming more sustainable has a significant impact on a business’s financial performance. Of all of the factors that impact the commercial performance of a business, sustainable practices account for 19%.

sust-perf-chart

 

The research also looked at the different sustainable practices that businesses were adopting and how they in turn impacted firm performance. Supplier collaboration was found to have the most influence on business performance.

 

Sustainability-effect-on-business-performance

 

Our research supports McKinsey’s findings that businesses can have the greatest impact by focusing on reducing Scope 3 emissions as well as Scope 1 and 2 emissions. In doing so, a business can play their part in tackling climate change and maximise their company’s financial performance.

Key stats

When you combine the facts, collaborating with your suppliers to drive sustainable business growth becomes a “no-brainer”

19% of financial performance

can be accounted for by a business’s sustainable practices

Supplier collaboration

is the sustainable practice that has the biggest impact on performance

Over 80%

of a companies environmental impact comes from the supply chain

Only 25%

of companies engage with their suppliers despite supplier collaboration being the greatest lever

Ready to Collect Scope 3 Emissions Data?

Scope 3 emission initiatives

Once you have identified Scope 3 supply chain emissions as a materially important issue to your business and stakeholders, you should set a SMART goal around measuring and reducing those emissions. Measuring your progress against your Scope 3 goal will require collecting data from suppliers.

Whilst there are some core principles associated with Scope 3 data, there are many organisations with whom you may wish to align your company’s goals and Scope 3 data with.

Initiative Type Primary purpose How to use Learn more
United Nations Sustainable Development Goals (UN SDGs) Sustainable development themes International and industrial alignment. Align your sustainability strategy to a widely accepted theme United Nations Sustainable Development Goals Website
Task Force on Climate-related Financial Disclosures (TCFD) Sustainability reporting standard Consistency between companies when reporting sustainability performance with an emphasis on investments, assets and regulation. Align your sustainability reporting to a widely accepted standard TCFD website
Sustainability Accounting Standards Board (SASB) Sustainability reporting standard Consistency between companies when reporting sustainability performance with an emphasis on investments, assets and regulation. Align your sustainability reporting to a widely accepted standard SASB website
Global Reporting Initiative (GRI) Sustainability reporting standard Consistency between companies when reporting on sustainability performance with an emphasis on reporting practices. Align your sustainability reporting to a widely accepted standard GRI website
Science-Based Target Initiative (SBTi) Goals standard Transparency and robustness of corporate emission reduction goals. Validate and publish your goals SBTi website
GHG Protocol (GHGP) Scope 3 Accounting Standard Carbon accounting standard Consistency between companies when quantifying Scope 3 emissions. Calculate your emissions How to begin your journey calculating and reporting on Scope 3
WRAP Scope 3 GHG Measurement and Reporting Protocols for Food and Drink Industry-specific guidance Food and beverage industry-specific guidance on calculating emissions, primarily targeted at growing supplier knowledge. Share with suppliers Getting Started with WRAP’s Scope 3 Measurement and Reporting Protocol
CDP (formerly Carbon Disclosure Project) Disclosure platform Centrally collate environmental impact disclosures Publish and benchmark your performance CDP website

 

Our Supplier Relationship Management Solution and Six-step Process are compatible with all Scope 3 Supply Chain emissions standards and reporting mechanisms. Our six-step process is a methodology for driving any change within the supply chain. Therefore, the process could be used in conjunction with any Scope 3 emissions standard or reporting mechanism. Likewise, the SRM Solution simply improves the efficiency, effectiveness and impact of your supplier engagement and collaboration activities.

 

The Supplier Relationship Management platform brings together all of the tools you need to communicate with and support suppliers, maximising response rates and quality when collecting your Scope 3 data.

For example, if you’d set a SBTi goal that required you to collect Scope 3 data using GHGP calculations that are to be disclosed via the CDP platform; Our SRM solution would significantly reduce the overhead and timeline of doing this.

 

David Taylor
Director SRM

Collecting Scope 3 data from suppliers

In order to report on actual Scope 3 emissions data, you must engage your suppliers as part of a supply chain data collection exercise.

In fact, those participating in the CDP Climate Change disclosure cannot achieve greater than a D rating without collecting data from their suppliers. Furthermore, the CDP has introduced a new Supplier Engagement Rating (SER) to recognise those businesses excelling at supplier engagement. Between 2016 and 2021, the number of organisations engaging with suppliers as part of the CDP Climate Change disclosure had increased from 24% to 43%

 

Common Scope 3 data collection challenge

A common challenge is not fully understanding the maturity, knowledge and current activities of your suppliers. We call this supplier “readiness”. However, once you understand your suppliers’ capabilities, you will be in a much better position to set a realistic and achievable goal. The following principles give a starting point:

  • Suppliers are often burdened by different customer questionnaires so try to ask questions using information they are likely to be familiar with for example, from the Carbon Trust.
  • Before sending your survey, check that your supplier contacts are right. (We call this a Supplier Contact Accuracy campaign)
  • When you send your survey, explain what you are trying to achieve and why that matters to you your suppliers.
  • Use a scale to gauge suppliers’ current emissions activities (we use a 5 point scale). Explain that this is to understand suppliers’ current status and to know where they need support to improve.

Here is an example Scope 3 supplier readiness survey configured within our SRM Platform based upon guidance produced by the Carbon Trust

Segmenting supply base by carbon literacy

Your Scope 3 supplier readiness survey allows you to segment your supply base based on their current knowledge and activities. Understanding where suppliers are on their own sustainability journey enables you to target all future communications, information and requests so that they are most relevant and valuable. In turn, this maximises supplier engagement in your scope 3 emissions reduction strategy.

benefits-of-supplier-comms

 

 

Using software like ours makes it easy to use your suppliers’ Scope 3 knowledge to target supplier communications, training and creating tailored action plans.