It is becoming increasingly important for businesses to take responsibility for their carbon footprint and to mitigate this impact, in particular their Scope 3 emissions. According to the GHG Protocol, Scope 3 greenhouse gas (GHG) emissions account for more than 70% of a business’s carbon footprint. In this landscape, with mandatory reporting on the horizon for big businesses in Australia, it’s more important than ever for SMEs to start tackling their carbon footprint. Mandatory climate disclosures won’t just affect big businesses, there will also be increasing pressure on their suppliers to report and disclose their emissions. For SMEs, measuring Scope 3 emissions is crucial to demonstrate their commitment to sustainability and staying ahead of the curve.
However, Scope 3 emissions are notoriously difficult to track. According to a survey by the SME Climate Hub, small and medium sized businesses (SMEs) report that although they are committed to improving their environmental impact, they have not started managing their GHG emissions due to various obstacles, with the most pressing being a lack of resources. Most believe that they don’t have the personnel, time or knowledge to tackle the process. Nevertheless, without accounting for emissions from your supply chain, businesses are blind to a significant portion of their footprint and can’t truly engage in meaningful climate action.
We work with businesses to help them build their positive social and environmental impact through the B Corp processes and standards. B Corps envision a better economic system where businesses can benefit people, communities, and the planet. A big part of this is getting transparency around GHG emissions.
We understand that many businesses feel overwhelmed by the complexities of tracking their emissions, particularly Scope 3 emissions. Conducting a comprehensive carbon footprint assessment can be a highly technical and data-intensive process that may be beyond the capabilities of many SMEs. The good news is, it’s a lot easier to start this journey than you think. With the right tools and information you can start measuring your emissions, and there there are a host of carbon accounting platforms and carbon accounting experts out there to help you if you need additional support. Learning about scope 3 emissions and understanding the data needed to measure your footprint are the first steps in this journey. By doing this, any business can take proactive steps towards understanding and managing their Scope 3 emissions and contributing to a more sustainable future.
We’ve created this explainer to help you understand Scope 3 emissions and take the first steps towards measuring and managing your environmental impact.
Understanding Scope 3 Emissions
The GHG Protocol (a globally recognised standard for the measurement and management of GHG emissions) outlines the three scopes of GHG emissions:
Scope 1: All direct emissions from owned or controlled sources. These include emissions from the combustion of fuel in assets that a company owns, such as office buildings, factories and fleets.
Scope 2: Indirect emissions from the generation of purchased energy. These include the generation of energy purchased from a utility provider for office buildings, warehouses or distribution facilities.
Scope 3: All indirect emissions (not included in Scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions. Scope 3 emissions will come from a range of business activities, including:
Business travel
Employee commuting
Transportation of products purchased by the company
Distribution of products sold by the company
Waste disposal
Fuel and energy-related activities
Processing of sold products
Use of sold products
Waste disposal and treatment of sold products
Operation of franchises
Operation of investments
Operation of leased assets, and the operation of leased assets owned by the company*
Goods and services purchased or acquired*
Capital goods purchased or acquired e.g. buildings, machinery, equipment*
* Within the reporting period.
Upstream emissions come from the production of goods and services that your business purchases or uses. These emissions are encompassed in Scope 2 and Scope 3.
Downstream emissions occur after the production of your goods or services. For instance, the downstream emissions of a retail company would include the emissions generated from the transportation of their products to customers.
Source: GHG Protocol
One reason SMEs find it challenging to measure their Scope 3 emissions is that these emissions lie outside their operational boundaries. This means that gathering data about your Scope 3 emissions requires collaboration with your suppliers and distributors. This may be difficult to achieve without strong relationships and communication channels in place.
It should be noted that measuring Scope 3 emissions is going to be harder for product-based companies than for service-based companies. Companies with more complex supply chains, particularly wholesale-retail companies or manufacturing companies that are dealing with everything from raw materials to the final product, will find it the most challenging to get a grasp of their Scope 3 emissions. Conversely, service companies are more likely to be dealing with a handful of suppliers for office supplies, technological solutions and financial services.
Identifying Your Scope 3 Activities
A big challenge for businesses is actually identifying what their Scope 3 activities are.
We have provided an example below of some of the activities that a retail company would need to consider:
Employee commuting: Figure out how far employees travelled, how much fuel they used on their commute and how often they came into the office during your reporting period. You may need to collect data such as fuel receipts and public transport miles.
You could also consider having your employees fill out an online carbon footprint calculator to get an estimate of the emissions generated by their commute. There are a range of free tools available. If you want to calculate the GHG emissions resulting from individual employee commutes consider using Carbon Positive’s free individual carbon footprint calculator.
Business travel: If your employees travel for work you will need to collect data about their transportation. Gather information such as the type of travel, the cost of their ticket, how far they travelled, if the emissions were offset by the airline (or other transport mode), if they hired any vehicles, took a taxi or got public transport during the trip.
Waste: Consider the kinds of waste your business produces through procurement of the product and in day-to-day business operations (e.g. paper and cardboard, plastic, organic, hazardous), how much waste you produce and how much is recycled. A retail company will need to consider the packaging materials, such as cardboard boxes, plastic foam and plastic bags that are used during transportation and when products are sent to customers.
Transportation: A retail company will need to consider the transportation of materials and products to their warehouses and stores and services related to transportation (e.g. inbound logistics). Transportation of products between the company’s own facilities is included, as long as they are not owned or controlled by the company e.g. using a third-party postal service.
It can be quite difficult for companies to gather specific data for this. If you decide to use an online calculator to calculate your carbon footprint, many will simply ask for a dollar figure. When you are unable to get specific detail about the activities causing GHG emissions, a dollar figure can serve as a proxy for estimating emissions, but it is not as accurate.
Alternatively, you may work with your transport supplier to measure travel distances, taking into account that different modes of transport will produce different levels of GHG emissions. For instance, rail transport will be much less intensive than air transport.
Distribution: A retail company will need to consider the distribution of its sold products to the end customer. As well as distribution services, such as storage, if these vehicles or facilities are not owned or controlled by the company. If the company ships products directly to customers these emissions are also included.
As with transportation, the simplest way to calculate this would be to gather receipts related to distribution services. However, by using this approach you reduce the accuracy of your calculations.
Purchased goods and services: Consider your purchases for office supplies, subscription services, mobile phones and computers, telecommunications and any other equipment. A retail company will consider any equipment purchased in the reporting period, such as the Point of Sale, store phones and tablets used in stores. Consider any staff uniforms or other goods bought within the reporting period. Gather receipts from these suppliers to calculate the cost of each within the reporting period.
Service Suppliers: Consider banking services, legal services, consulting services and marketing services. Gather invoices and receipts to calculate how much you spent with each in the reporting period.
Check out GHG Protocol’s Technical Guidance for Calculating Scope 3 Emissions for more information.
Working With Your Suppliers
As so much of your Scope 3 emissions come from your supply chain, collaborating with your suppliers is a crucial part of the process.
Working collaboratively with suppliers to understand your impact is particularly emphasised in the B Impact Assessment, for businesses seeking B Corp certification. It encourages businesses to comprehensively understand their entire impact by developing processes to involve suppliers in data-gathering and monitoring performance. This creates opportunities for businesses to identify areas to enhance sustainability practices and work together with their suppliers to develop mechanisms that reduce their negative impact.
In order to do this, businesses need to establish procedures to evaluate the impact of your significant suppliers including screening and regularly assessing your suppliers regarding topics important to your business.
The Next Step: Calculating Your Emissions
Now that you have identified your Scope 3 activities and gathered the relevant data, the next step is to calculate how much carbon these activities produce. Depending on the size of your company, your budget and the complexity of your supply chain, you may go about this in different ways.
Smaller service-oriented companies may be able to accurately calculate their emissions using a free online calculator. One carbon calculator that you might like to check out is the Business Carbon Calculator, which is powered by Normative and the SME Climate Hub.
For bigger companies with complex supply chains, you may want to consider engaging a consultant or using a carbon accounting platform. There are many platforms available, but one platform we work with that is particularly suited to service companies is Trace. Trace provides companies across a wide range of industries with a comprehensive analysis of their scope 1, 2 and 3 emissions. They also offer two options to measure product supply chain emissions based on spend data or granular activity data.
Which Option Suits My Needs?
Whichever option you choose, having the above data readily available will be an important first step in helping you to calculate your business’s carbon footprint swiftly and efficiently. We can help guide you as to the best approach for your business.
A good starting point for more information is the GHG Protocol which gives you comprehensive guidance around the scopes of emissions and access to a range of calculators that are sector and country-specific.
To find out more about how you can utilise the B Corp values, processes and standards to enhance your ESG impact, a major part of which is understanding your GHG emissions, we can help you get started on your journey. Get in touch with Social Change HQ.