Cutting Scope 3 Emissions Can Also Boost Your Profits

Much of my work is focused on how brands can achieve their thought leadership goals and reach their return on investment targets.

So, I am always interested in the business case behind major company decisions and how it affects the bottom line.

The business case for cutting Scope 3 emissions

That’s why a discussion in the new iResearch Services report, How Sustainable is the Technology Sector, Part Two, about the business case for as well as the environmental benefits of cutting Scope 3 greenhouse gas emissions captured my attention.

But before we delve into the report findings, let’s first consider what Scope 3 emissions actually are. The three-tier system, developed by the Greenhouse Gas Protocol, is intended to help companies measure progress towards net-zero carbon emissions and help limit global temperature rise to 2 degrees Celsius or less, as outlined in the Paris Agreement.

What are Scope 3 emissions?

Greenhouse gas emissions of businesses and organizations are placed into Scope 1, Scope 2 and Scope 3 categories.

Scope 1 emissions

Greenhouse gas emissions that a company makes directly, caused by running machinery, driving vehicles, or heating buildings, for instance.

Scope 2 emissions

Indirect emissions created by the production of the energy that an organization buys. For instance, using solar panels or sourcing renewable energy.

Scope 3 emissions

Other emissions for which a company is indirectly responsible across its value chain and during its life cycle. This includes energy produced by suppliers or from the use of its products.

70% of carbon footprint

The challenge for businesses is that Scope 3 emissions are often the hardest to measure and tackle, as they cover those produced by customers or suppliers, says the World Economic Forum. In addition, they often account for more than 70% of its carbon footprint, says professional services network, Deloitte. The Carbon Disclosure Project says a company’s supply chain can be responsible for 11.4-times the emission levels of its direct operations.

Effective measurement

Russ Shaw CBE, Founder of Tech London Advocates and Global Tech Advocates, says the only way for companies to effectively address climate change is to see waste everywhere and implement strategies to reduce it, including effective ESG measurement.

To track and measure Scope 3 emissions, businesses have to cover the whole value chain, including suppliers and end-users. Faced with such challenges, some companies don’t even bother tracking them, says the How Sustainable is the Technology Sector, Part Two.

Not tracked

“Large tech companies have made good progress in slashing carbon emissions in their own operations, by, for example, using more renewable energy. But the majority of emissions in the technology industry occur in large, multi-continent supply chains. Often, these “Scope 3” emissions aren’t even tracked.”

As Alex Nicholson, Senior Director of Social Media and Impact at Pega, explains in an interview with iResearch Services, “I think everyone has a good handle on Scope 1 and 2. Everyone can say they’re sustainable if they look at themselves through the filter of Scope 1 and 2. Scope 3 thinking is quite radical for business, however, and it’s quite disruptive to have to think about Scope 3 emissions. In addition to your own immediate suppliers, you have to think about your suppliers’ suppliers, and so on.”

At that point Scope 3 becomes overwhelming and disinteresting, she says. “Scope 3 is like a nesting doll that is very overwhelming to have to think about how to tackle, and no one has agreed on a unified way to approach it. I think a lot of the unanswered questions relative to an organization’s sustainability are going sit within Scope 3.”

Disclose and educate

Another crucial element is how companies define and measure Scope 3 emissions.

Emanuel Kolta, Senior Analyst, Network Sustainability and Innovation at GSMA Intelligence – a global organization for the mobile sector – says industry partnerships can play a crucial part in educating companies and helping to overcome disagreement about which items should be included in each metric.

“Without trade bodies and without these kinds of collaborations it’s going to be very hard to define it and make sure that everyone accepts these kinds of definitions,” reports How Sustainable is the Technology Sector?, Part Two. “I think disclosing data, disclosing emissions levels and educating the customer base are the most important aspects in becoming more sustainable as an industry from my perspective. Disclose, and educate!”

The solution, says Emanuel, is for companies to set sustainability targets for Scope 3 and to measure the results. “For sustainability transformation, you should start with setting up targets. Start measuring. I believe that you can’t really control something if you can’t measure it. So, let’s see where we are now, how much we are emitting, what energy are we using.”

Tangible business rewards

For those who measure, track and reduce Scope 3 emissions, there are tangible business rewards available. These include identifying energy efficiency, bringing down energy costs and improving the energy efficiency of products.

In our preceding companion report, How Sustainable is the Technology Sector?, Part One, more than one-third (38%) of the 550 executives in the technology industry interviewed believe that being more sustainable brings better returns, compared with 17% who see no value in being sustainable.

However, that needs to be balanced by 60% of technology business leaders who say that the prohibitive cost of sustainability measures is seen as the biggest barrier to progress.

Lead from the top

I’ve said in the press that it is important that businesses talk the talk, as well as walking the walk, when it comes to adopting a more environmentally-friendly business model and this needs to be led from the top – and I am in good company.

Mats W Lundberg, Head of Sustainability at Swedish multinational engineering company Sandvik Group, says a sustainable business strategy can only be successful when it is completely embedded in a company’s ethos. “The biggest factor for success in becoming more sustainable is that leaders take responsibility and are determined to drive changes.

“All the C-suite execs (CEO, COO, CIO, CFO) need to realise that a well-executed sustainability strategy will be crucial to being a successful and profitable company long term. They must also ensure this is well understood and supported by all relevant stakeholders.”

Plans for Scope 3 reporting in the US

More than 500 institutional investors in the United States who make up the Investor Agenda and represent $39 trillion in assets under management are pressing for the government to introduce mandatory climate disclosure for companies. This follows proposals under Release No. 33-11042 from the US Securities and Exchange Commission to require public companies to report on Scope 1, 2 and 3 progress in their financial statements or annual reports – although there have been protests about this due to the complexity of Scope 3.

Don’t miss real value

The Carbon Trust makes a good point in Making business sense of Scope 3, arguing that quantifying Scope 3 carbon emissions is only the first step for companies. The data should then be used to identify supply chain risks and assess product performance. “If businesses only intend to use the information to support their corporate reporting and the disclosure of their emissions – they miss the value and opportunity to use the data to inform critical decisions about the future direction of their business. While many businesses are making progress optimising their operations and reducing their emissions, if they remain reliant on an inefficient value chain, in the long run, they’ll fail. Developing value chain insights is an essential survival tool for businesses to avoid the risks and maximise the opportunities from a resource-constrained future.”

Learn more about this issue in our blog post, Sustainable business approaches that work