Chantelle Levy reports on scope 3 greenhouse gas emissions from purchased goods and services and how to tackle the problem
Scope 3 emissions are indirect emissions in a company’s supply chain. The Greenhouse Gas (GHG) Protocol’s Corporate Value Chain (scope 3) Accounting and Reporting Standard groups scope 3 emissions into 15 categories, of which purchased goods and services are category 1 (S3C1). This category includes all upstream GHG emissions from the production of products purchased or acquired by a reporting company, including goods (tangible products) and services (intangible products).
The impact of S3C1
Typically, purchased goods and services represent a significant portion of an organisation’s overall GHG emissions. In terms of total scope 1, 2, 3 emissions in the following sectors, they account for 63.35% in the agricultural commodities sector, 43.97% in chemicals, 29.59% in construction and 67% in food, beverages and tobacco. The magnitude of emissions in this category highlights the need for accurate measurement and reporting of S3C1 emissions. Moreover, regulatory frameworks, along with the UK’s commitment to achieving net zero by 2050, emphasise the imperative for organisations to understand and report on all scope 3 categories.
The initial step for organisations regarding S3C1 is to understand, calculate and manage their emissions. It is then through implementing sustainable procurement practices and engaging with suppliers that organisations can obtain the most accurate representation of their data and take action to reduce emissions.
Data management
The GHG Protocol provides guidance on calculating S3C1 emissions. The most accurate forms of data collection are the ‘supplier-specific’ and ‘hybrid’ methodologies, which require the reporting company to collect product-level data from its suppliers. This necessitates obtaining environmental data from suppliers, and thus is contingent upon the suppliers’ reporting practices.
If product-level data is not available, ‘average-data’ or ‘spend-based’ methods, which involve using either the mass or the economic value of goods and services purchased, are used.
Therefore, it is crucial for organisations to establish a procurement system that organises purchased goods and services. This system will enhance transparency and streamline operations, enabling organisations to have purchase/product records for all goods and services.
Sustainable procurement
To reduce S3C1 emissions, organisations must incorporate sustainability considerations into their procurement processes through supplier selection, where preference is given to suppliers with commitments to reducing GHG emissions. Organisations should also consider factors such as supplier location, transportation methods and packaging.
By implementing a procedure governing the sustainability standard of new suppliers, and in the evaluation of existing suppliers, organisations can reduce their S3C1 emissions.
Supplier engagement
Collaboration is needed to encourage suppliers to understand, calculate and report their emissions, and support efforts to reduce emissions.
In 2022, only 10% of companies were comprehensively reporting on their carbon emissions, according to management consultancy Boston Consulting Group. As a result, encouraging suppliers to report emissions is likely to be the initial obstacle for organisations to overcome. If successful in doing so, organisations will be able to switch from generic spend-based data collection to more accurate supplier-specific methods and ensuring suppliers become better educated in the emissions calculation process.
Engagement empowers the reporting company to support suppliers in adopting greener practices and developing emission reduction goals. The proactive stance towards supplier engagement is gaining momentum, as demonstrated by Tesco’s implementation of a sustainability-linked supply chain finance programme. Additionally, the Science Based Targets initiative has released guidance for developing and achieving scope 3 supplier engagement targets.
As a sustainability consultant, the influence of S3C1 emissions highlights the importance of working with clients to help them understand, measure and reduce these emissions. We ensure our clients are equipped with scope 3 data management and reporting platforms, procurement systems and responsible procurement strategy documentation to enable them to manage and reduce their S3C1 emissions.
Chantelle Levy AIEMA is futures and sustainability consultant at CGI, and a member of IEMA Futures
