What You Need to Know About Scope 3 Emissions

Despite massive data collection challenges, some firms are working to track and report Scope 3 greenhouse gas emissions, which include all of the emissions produced in their value chain.

The nonprofit Environmental Investment Organization (EIO) lists 38 large companies that publicly report at least four of the Scope 3 categories. Sustainability leaders should continue to learn from these early pioneers as they evaluate the benefits and cost of Scope 3 reporting for their companies.

Thousands of firms around the world already use the well-accepted methodology for calculating Scope 1 and Scope 2 emissions, which include a company's direct emissions and its indirect emissions from energy that it buys. Supplier scorecards from such companies as Walmart and IBM, as well as third-party reporting groups such as the Carbon Disclosure Project, rely on calculations for Scope 1 and Scope 2 emissions.

Scope 1 and Scope 2 emissions, however, often represent only a small percentage, perhaps 10 to 15 percent, of a company's total greenhouse gas emissions. It is misleading to communicate to stakeholders that a company's environmental efforts focus only on Scope 1 and Scope 2. Computer maker Dell was slammed in a 2008 Wall Street Journal article that detailed Dell's attempt to base its carbon neutrality marketing claim on just Scope 1 and Scope 2 emissions. In fact, Scope 3 emissions at Dell were by far the dominant driver of its total emissions.

Officially called the "Corporate Value Chain (Scope 3) Accounting and Reporting Standard," the methodology for Scope 3 emissions was finalized last year after years of work. This standard is ambitious because Scope 3 activities are so diverse and involve a company's supply chain and customers' use of products. The Scope 3 standard is divided into 15 categories that include both upstream and downstream aspects of their operations.

Reactions to the new Scope 3 standard have been mixed. While sustainability practitioners all cheer the availability of a common methodology, the data collection challenge is massive and often cost prohibitive.

Many large companies are just now, after years of work, automating their data collection for their vast global facilities for Scope 1 and Scope 2 reporting and simply can't justify the cost of data collection for Scope 3 emissions calculations.

Given the newness of the standard and data collection cost, the EIO Global 800 Carbon Ranking List is impressive because it lists 38 large companies that report at least four of the 15 Scope 3 categories. The complete list tracks emissions for 800 large companies.

"EIO is definitely moving in the right direction by basing recognition on level of scope 3 disclosure", wrote Cynthia Cummis, Manager, GHG Protocol Supply Chain Initiative, World Resources Institute and one of the developers of the Scope 3 standard.

Global telecom equipment supplier Alcatel-Lucent reports 8 categories and would like to report more. "I was surprised that only one company EIO analyzed reported all 15 Scope 3 emissions categories. This shows that calculating Scope 3 emissions is going to be challenging for many companies. My approach at Alcatel-Lucent is to continue pushing on our systems and functions to gather more and more data. Once we are able to calculate a new category (we reported 8 categories last year), we'll go ahead and publish it," Rich Goode, Director of Sustainability, Alcatel-Lucent wrote in an email.

Sustainability leaders who are committed to reducing overall greenhouse gas emissions need to understand their Scope 3 emissions and can learn from these early pioneers who are publicly reporting such emissions.

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