Indirect emissions remain the toughest for most businesses to measure and capture, so how can companies better account for their indirect impacts on the climate?
With the COP26 climate conference starting next week, businesses have even greater impetus to reach net zero. But one category of CO2 emissions is proving the hardest to tackle.
Scope three – a group of emissions that businesses are indirectly responsible for through the actions of suppliers, distributors and use of its products by consumers – tend to account for the largest proportion of an organisation’s carbon footprint. In the case of Budweiser Brewing Group, as much as 90% of its greenhouse gas emissions come under this category.
But while companies are getting better at reporting and reducing their scope one and two emissions – which include those created through its energy use and heating – reducing scope three remains more of a challenge.
Oxford University business and sustainability researcher Aoife Brophy says: “The fundamental reason why scope three is so difficult is because it goes beyond emissions that are in the direct control of a business. Whether that’s emissions of your suppliers in the supply chain or emissions that are associated with the use of your products and services, those are things that companies are now being expected to account for.”
At Budweiser, for example, its scope three emissions will include the CO2 emissions of its barley farmers, the shipping and production of packaging materials, the distribution of its products, the energy used to cool its beers in bars and retail stores and the energy required to recycle its cans and bottles.
Scope three represents a near endless list that can include everything from the climate impact of a company’s investments, to the emissions from its employees’ commutes. It also highlights the interconnected nature of the climate crisis.
Brophy adds: “Scope three emissions enable us to look at the connections between different industries; the scope three emissions of one company will be another company’s scope one and two. So it unlocks opportunities to take a more systemic approach to combating climate change.”
Scope one emissions
Scope one accounts for the direct greenhouse gas emissions produced by an organisation, such as those created by burning fuel, driving combustion engine vehicles or released through industrial operations.
Scope two covers indirect emissions, often associated with electricity or heating that has been purchased from an energy supplier.
Scope three refers to all the greenhouse gas emissions created up and down the value chain of an organisation. For many businesses, this is where the majority of their emissions will be found. Upstream activities include emissions created during transportation and distribution, commuting, waste and any emissions from the production of goods and services purchased by the company, such as packaging. Downstream activities cover the emissions created through the use of its product and its end-of-life treatment, as well as those of any leased assets, franchises or investments.
Reducing pollution across the supply chain
With more than 3,000 suppliers in the UK, Budweiser is faced with the challenge of persuading as many as possible to align with its own net zero targets in order to reduce its scope three emissions.
It’s head of procurement and sustainability Mauricio Coindreau says: “There are challenges throughout the whole value chain, that’s why Budweiser Brewing Group ties sustainability with procurement. We know that 90% of our emissions come from our supply chain, which makes it important to have those conversations with our suppliers.”
Although partnering with suppliers in order to help them reduce their carbon footprints will always come first, Coindreau states that Budweiser is not adverse to introducing penalties or restrictions on suppliers if they don’t reach certain sustainability goals.
French energy company Schneider Electric was rated first in Corporate Knights 2021 ranking of the most sustainable businesses in the world – moving up 28 places on the previous year’s positioning. Beyond its own efforts, which have involved cutting 250,000 metric tons of CO2 by switching to renewable energy sources, the company is also asking all its most emitting suppliers to cut emissions by 50%.
Schneider Electric’s chief strategy and sustainability officer Olivier Blum says: “Our big focus right now is on our suppliers because it represents an opportunity to cut six million tonnes of CO2 emissions – 20 times more than we can cut alone.”
In order to achieve this, Schneider Electric has reached out to these suppliers to explain its sustainability goals and invite them on to a training scheme. So far, 95% of its suppliers have signed up to the programme.
Blum explains: “Most of our suppliers are small to mid-sized companies and many of them want to reduce their CO2 emissions but they don’t know where to start. We have designed the programme to give them access to the same type of knowledge and technologies that bigger companies have access to.”
By helping its suppliers and customers become more sustainable, Schneider Electric is addressing its carbon footprint in the holistic way that sustainability professors like Brophy advise.
The product problem
However, reducing the CO2 emissions of businesses’ supply chains doesn’t completely address the scope three challenge. As mentioned before, the emissions associated with the use of your product or service must also be accounted for.
This presented a problem for French software company Dassault Systèmes. A lot of the company’s 3D engineering systems are used on-premise, meaning that any associated emissions technically come under the accounting of its customers. This has meant that a collaborative approach to reducing the environmental impact of its products is necessary.
Chief sustainability officer Alice Steenland explains: “The beauty of this [scope three] mechanism is that it forces you to engage upstream and downstream. It forces us to collaborate with our customers to find ways to collectively fix the problem, because we can’t reach our goals without them.”
Taking the concept one step further, the company is also introducing a new lifecycle analysis tool as part of its design software to help companies analyse the carbon footprint of their products. This means that a product designer will be able to see the potential environmental impact of a product before it even hits the shelves.
Steenland says: “It’s a massive game changer because what you have today is software that measures the CO2 footprint after it’s been created. If you have a highly damaging product, going back to redesign it may take years. What we’re trying to offer is eco design from the beginning.”
New technologies, like those offered by Dassault Systèmes, will help companies to grapple with the challenge of eliminating their scope three emissions. But collaboration will be just as important. As Brophy says, one company’s direct emissions will be another’s scope three; so the more businesses that take action now, the easier the challenge will become.