Designing and Delivering Scope 3 Emissions Reductions
Corporations globally are increasingly looking to address the carbon emissions associated with their business. While most companies have thus far focused on reducing emissions within the boundaries of Scopes 1 and 2, the greatest opportunity for reductions lies in the realm of Scope 3 emissions, which average 5.5 times more emissions than both Scopes 1 and 2 combined. Since Scope 3 emissions are more difficult and tedious to pinpoint, companies have been more focused on measuring, reporting, and reducing Scope 1 and Scope 2 emissions. But as a growing number of firms are beginning to measure and make reduction commitments for their Scope 3 emissions, it is important they understand the pathways to delivering these reductions. This article aims to pinpoint some of the best practices recommended by Science Based Target initiative (SBTi) for companies to reduce their carbon footprint.
1. Measure
The first step to assessing a firm’s Scope 3 GHG emissions is to conduct a carbon inventory or audit to understand the value chain’s carbon impact to assess the baseline against which future reductions will be assessed. These measurements, however, can differ significantly in the specificity of data, from corporate-level data to product-level data. Input-output models can be used to estimate energy use and GHG emissions and are often derived by allocating national GHG emissions to groups of finished products based on economic flows between industry sectors. Standards like ISO 14064 and ASHRAE deployed to supply chain partners can help organizations get more granular information using primary data from supply chain partners.
2. Set Targets
Setting Scope 3 or supply chain carbon reduction targets help to ensure that the brand and its suppliers are working toward the same tarte. When setting a target, it is important that companies align with climate science. Many companies are choosing to follow the Science Based Target initiative (SBTi) to help them make GHG reductions that align to the Paris Agreement. Oftentimes, corporations may be reluctant to set targets before they are aware of all of the potential pathways and costs associated with achieving these reductions. While setting an ambitious target will likely help propel action sooner, some companies prefer to look at analyzing decarbonization cost curves to help map targets and prioritize activities.
3. Design and Deliver Reductions
Once companies have a target they are set to achieve in a given timeframe, the following levers may be used to help design and deliver projects, programs, business decisions or other actions to reduce emissions:
Business Model Innovation
Setting an internal price on carbon is one clear way to help incentivize and create new low carbon business models and as well as mitigate future costs from carbon regulations. Microsoft started pricing their carbon in 2012 to reach their carbon negative goal by 2030. Other opportunities can include designing longer product life cycles to reduce emissions or transitioning to product-service systems that engage customers in collaborative consumption. Lastly, logistical networks can be redesigned through more efficient placement of warehouses and distribution centers and by shifting towards electric transport to reduce travel emissions.
Supplier Engagement
A significant bulk of Scope 3 emissions come from the Scope 1 and 2 of supply chain partners. Engaging with suppliers to support energy and carbon audits can help identify emission hotspots within the value chain and encourage those suppliers to reduce emissions. Suppliers may also not be aware of options to switch to renewable energy including offsite power purchase agreements (PPAs) in their markets. Engaging with your suppliers in a collaborative manner, always maintaining clear communication and supporting educations is critical. Once a relationship has been established, setting expectations and goals, monitoring progress, and having incentives to drive reduction goals can help you achieve significant Scope 3 progress. HPE provides a robust example of a company that is successfully engaging its suppliers.
Procurement Policy and Choices
When procuring and sourcing materials, choose suppliers who already have practices in place to reduce their emissions to foster a transition to low-carbon sourcing.
Product and Service Design
When developing products prioritize the reduction goal by creating more efficient products with longer life cycles. Additionally, incorporate and prioritize a circular economy model in the design phase. IKEA is one example of a company who is prioritizing circular design by rethinking their design approach.
Customer Engagement
Engaging customers is a strategy to help with a product’s life cycle emission reduction and can be achieved through education, collaboration or compensation, or through brand regulation, customer motivation via marketing and choice architecture. Terracycle encourages customers to recycle hard-to-recycle products by partnering with many manufacturers of products.
Operational Policies
Develop low carbon protocols for internal practices via processes like minimizing product and packaging waste, like Kellogg Company’s Better Days commitment, and implementing energy efficiency improvements. To complement that, create operational incentive programs to encourage sustainable commuting and/or to reduce business related travel.
Investment Strategy
When pursuing future projects, invest in less carbon intensive projects and companies. Prioritize transitioning away from fossil fuels in investment ventures like Microsoft’s Climate Innovation Fund which promotes investing in various decarbonization efforts.
It is important to note that each of these best practice levers can be interconnected with others and collaboration between levers is encouraged. For instance, reduction in one company’s supply chain can also reduce scope 3 emissions for another company using the same facility. Similarly, reduction in one lever can result in reduction within another lever. Having an expert act as guide through these nuances is a recommended avenue of pursuit.
Apala Group has experts on board to help navigate companies through this with a specific focus on supplier engagement. Reach out here for any of your supplier engagement needs.