This article originally appeared in BSR Insight.
Earlier this month, the Greenhouse Gas Protocol launched its Value Chain (Scope 3) Standard, establishing a common way for companies to define and measure their total greenhouse gas impacts, risks, and opportunities -- including those that are beyond the company's direct operating control but that may represent the most significant impacts on the price and stability of the company's supplies, customer demand, reputation, and costs.
One of the most important sustainability standards of the decade, it is not a new concept: The idea of Scope 3 (as distinguished from "Scope 1" activities that a company owns or controls, and "Scope 2" electricity purchases) has been around since it was defined in the GHG Protocol's Corporate Standard in 2001.
In place of a brief subsection, however, the document now runs more than 150 pages, complete with a suite of technical resources, from guidance on supplier engagement to a list of third-party databases on value chain GHG information.
Daunting as this sounds, much remains the same. The definition of Scope 3 has not changed, and the new volume is organized in a similar way as the Corporate Standard, beginning with instructions on defining business goals, then an explanation of the core framework -- from accounting principles to boundary-setting to data collection, followed by guidance on optional activities such as providing assurance to reports and tracking emissions over time.
But there are also significant new developments, including some that seasoned practitioners have been expecting and others that may be surprising. What follows are my picks for the most important new features of the updated framework.
Fifteen Authoritative -- and Useful -- Categories
If Scope 3 has a soul, it is contained in its categories. These 15 categories -- everything from capital goods to investments -- characterize the greenhouse gas footprints of companies' value chains, and they set the stage for how, in practice, companies will reduce them.
Previously, the GHG Protocol called these categories an "indicative list." Now, each category is carefully described, with the minimum boundary explained, and rigorous calculation options that have been refined with input from hundreds of professionals across sectors. Each Scope 3 category is classified as either upstream or downstream. (For comparison, here are the old and new depictions.)
One way to keep track of these categories is to think of them in terms of the activities companies will focus on to manage them:
- Collaborative energy management: Seven categories represent areas where the path to GHG reduction most likely involves working with partners to reduce energy use together. These opportunities occur in the purchasing of goods and services, upstream leasing, downstream leasing, franchises, the processing of sold products, capital goods, and investments.
- Logistics: Four categories address the movement of people and goods (business travel, employee commuting, and both upstream and downstream transportation/distribution).
- Products and byproducts: With three categories, design and engineering would be put to use to address waste generated in operations, end-of-use treatment of products, and product use.
- Upstream energy: The final category looks into the supply chain of Scope 1 and 2 energy sources that companies are already reporting on.
A Simpler Conversation
The most revolutionary feature is the introduction of a new standard that significantly simplifies companies' conversations with stakeholders. Now, investors, customers, and partners can ask whether a company does or does not conform to the Scope 3 standard, and, if not, when it will do so. This is a major advancement over the Corporate Standard, which had declared Scope 3 reporting optional and offered little instruction on how to do it. This development is poised to change the norms of GHG footprinting for a few reasons.
Next page: Setting a common bar for reporting.