BEGES, SBTi, CSRD... More and more standards are making scope 3 accounting mandatory. This scope, long neglected because it is so complex to measure, is gradually becoming a must-have for companies wishing to remain competitive in the years ahead.
According to the CDP, the value chain accounts for an average of 92% of a company's emissions. And all the institutions agree that scope 3 represents both an essential lever in the fight against climate change and a competitive challenge for companies. Indeed, accounting for Scope 3 today means :
- Prepare for regulations, by staying one step ahead of legal requirements and climate standards that are set to become increasingly stringent.
- Complete its reporting and achieve its reduction targets, by improving its sustainability indexes and joining the internationally recognized SBTi movement.
- Strengthen competitiveness and value chain resilience by better understanding the components of its carbon footprint. Strengthening vulnerable supply lines and reducing costs through energy efficiency plans are examples of actions that can be implemented.
- Enhance its brand image and employer brand, by reinforcing its leadership and commitment to sustainability.
And yet, despite these tangible benefits, CDP considers that only 5% of companies have drawn up a sufficiently transparent, solid and activatable plan for the transition from scope 1 to 3 .
How can we reach these 5% of companies? And above all, what are the obstacles preventing the remaining 95% from improving their competitiveness through scope 3?
What is scope 3?
A company's greenhouse gas emissions can be categorized into 3 scopes defined by the Greenhouse Gas Protocol (GHG Protocol). This framework for accounting and reporting greenhouse gas emissions enables companies to assess their emissions across their entire value chain.
Scope 1 will include all so-called direct greenhouse gas emissions (heating of premises, company equipment, emissions from company vehicles, etc.).
Scope 2 covers indirect emissions linked to energy consumption during production processes (purchase of electricity, heat or cooling).
Finally, Scope 3, the one we're interested in, covers all other emissions. It is itself divided into two sub-categories.
- Upstream scope 3, which covers all activities upstream of the production of the company's products or services: purchases of raw materials and services, upstream transport, business travel, employee commuting, waste generated by operations, etc.
- Downstream Scope 3, which includes all emissions linked to the distribution and use of the company's products and services: downstream transport, product use, waste generated by the end-of-life of products, franchises, etc.
This internationally recognized method of calculating emissions subdivides Scope 3 emissions into 15 distinct categories. The relevance of the different categories obviously depends on the company's sector of activity.
In many cases, the largest share of Scope 3 is accounted for by "Purchasing products and services", in other words the upstream value chain.
The various carbon accounting standards and regulations aim to encourage companies to include their purchases and other elements of their value chain in their carbon footprint, in order to gain a comprehensive view of the GHG emissions linked to their activity.
Identify the real obstacles to value chain accounting.
While it may seem obvious today that accounting for the emissions linked to a company's value chain is essential if it is to have a complete and actionable carbon footprint, putting this accounting into practice is another story.
Today, a company has two ways of collecting data on its value chain. Either through (1) the Life Cycle Assessment (LCA) of purchased products, or (2) the carbon footprint of its suppliers.
While both approaches have their advantages, they also have their respective limitations, which hinder the reliability of the scope 3 carbon footprint. The direct consequence of this is the difficulty of subsequently activating levers enabling substantial action to be taken on the value chain's GHG emissions.
In addition to the difficulties associated with these methodologies, there are the traditional obstacles to drawing up a carbon plan, well known to CSR project managers: multiplicity of players, data collection, organizational complexity, degree of market maturity...
That's why any company wishing to embark on scope 3 accounting must identify and understand these obstacles.
The limits of the product LCA approach
LCA is a highly precise method for assessing a product's environmental footprint. For a given product or service, the aim is to carry out an exhaustive assessment of its environmental impact throughout its lifecycle.
However, this method comes up against several obstacles when it comes to being included in the scope 3 of a carbon footprint:
- The limited availability of the data needed to calculate an LCA. Carrying out an LCA of a product means making an inventory of all the material and energy flows, as well as the activity and emission factors involved in its production. As a result, very few suppliers will be able to provide this data today.
- The high cost of a product LCA, averaging 10,000 euros. In practice, this means that LCAs are rarely updated, and so annual carbon footprint monitoring will not capture the real changes made by the supplier.
- The LCA of one product cannot be generalized to all a company's products. In fact, the results obtained cannot be applied to other products or services, requiring the exercise to be repeated for each product or service in the value chain.
- LCAs from one supplier to another are not comparable. Calculation methods and assumptions differ from one supplier to another. As a result, it is often necessary to carry out manual data processing a posteriori to make them homogeneous and comparable.
To sum up, LCA is highly relevant for assessing a product's environmental footprint, but not necessarily to date for carrying out a scope 3 carbon assessment, given the current maturity of the market.
The limits of the supplier's carbon footprint approach
The second approach is to use the supplier's carbon footprint (BC) to create an intensity indicator, also known as an emission factor (EF). This emission factor is obtained by dividing the supplier's carbon footprint by an element of activity, generally its sales, to attribute to it the share devoted to the product consumed.
Although this approach is better suited to a wide scope, the uncertainty rates it generates greatly reduce its accuracy and hence its reliability.
- The often moderate to low availability of suppliers' carbon footprints can make it difficult to collect sufficient data.
- The perimeter of the supplier's carbon footprint is often far removed from the perimeter of the product, making the intensity indicator obtained imprecise, if not completely erroneous. It is difficult to measure a product's carbon footprint reliably by relying solely on the product's share of the supplier's total sales. For example, when purchasing office furniture, IT equipment, etc., it's better to use the emission factor of the Ademe database for these products, rather than the specific carbon footprint of the distributor you buy from, which will only be representative of the average mix of products they distribute.
- Supplier carbon footprints are not always of good quality. Scopes or activities are often missing and/or the uncertainty is too high, due to the use of monetary emission factors. In the absence of shared sectoral methodologies, the data collected from suppliers is therefore not sufficiently precise or comparable.
- The difficulty and financial cost of making supplier data comparable. Making supplier data comparable requires a thorough analysis of the scope and assumptions used. When the information is available (which is rarely the case), the homogenization effort is very significant, and requires the use of sector averages which are not always adapted to the specific characteristics of the supplier, and which also limit the interest of collecting supplier-specific data.
In conclusion, while this approach is more affordable, it is limited by a methodology that is not very homogeneous and often not very rigorous, and by a very high degree of uncertainty. Once again, the risk is of obtaining unreliable, non-actionable carbon balances.
The four general obstacles
In addition to the inherent limitations of the various calculation methods, there are four generic obstacles that make this exercise even more complex for many companies.
- The multiplicity of players
The first challenge lies in the fact that scope 3 emissions are beyond the direct control of companies. Integrating and involving suppliers, customers, business partners and of course the purchasing team as early as possible in the collection process is a real challenge. As the number of suppliers in a company can sometimes number in the thousands, the exercise represents a real challenge.
- Data collection, the terror of CSR teams
Collecting and processing data is one of the main challenges of scope 3 accounting, due to the quantity and diversity of stakeholders and the types and formats of data involved. Moreover, the quality of the data collected will vary according to the supplier's involvement, the person answering the questionnaire and the time he or she can (or cannot) devote to the task. It is therefore best to equip yourself with a tool capable of collecting and processing a large number of data items, while applying degrees of uncertainty to them to measure their quality.
- Large organizations face a new level of complexity
Company size can also be a major obstacle. Very large companies are often made up of different sites and/or subsidiaries spread across the globe, each with its own network of suppliers. This organization makes value chain data collection even more complex. It reduces the possibility of achieving economies of scale, and multiplies the number of data sources, their format... and therefore their potential quality.
- Market maturity, a frequently overlooked obstacle
In practice, it is virtually impossible to obtain up-to-date, accurate carbon data from suppliers. The maturity of different sectors in terms of carbon footprint calculation is still very disparate. At present, only a minority of your suppliers will have accurate, up-to-date carbon data for their products and services. It will probably be another 5 to 10 years before we see a significant improvement in the quantity and quality of data provided across the entire value chain.
Is it possible to (effectively) decarbonize your value chain?
Can you effectively decarbonize your business based on incomplete, imprecise and non-comparable supplier data? It's highly unlikely.
However, when scope 3 accounts for the bulk of your GHG emissions, you can quickly feel like you've hit a brick wall when it comes to launching decarbonization actions. So how can you improve your data collection throughout your company's value chain?
It's important to adopt an iterative approach and to think in the medium and long term. By stepping up the pressure on your suppliers and supporting them in the implementation of carbon accounting, you'll be able to collect more and better data over the years.
Beyond that, you create a communicating effect by encouraging your suppliers to talk to their own suppliers. The result will be a virtuous circle of continuous improvement in the collection of activity data, year after year, leading to a high-quality carbon footprint.
How can we then act on Scope 3?
Rethink your business in depth
There are, of course, various ways of reducing the impact of scope 3 on our carbon footprint. The most effective is to rethink your production model. Indeed, "the cleanest energy is the energy we don't consume", and this paradigm is obviously applicable to all the elements that make up your scope 3.
Reducing the waste of resources, rethinking the way we manufacture our products, changing our business model to make it more responsible: these are all solutions that enable us to take concrete action on scope 3 of our carbon footprint.
Decathlon, for example, has embarked on this project, favoring eco-design for certain product ranges and testing a new growth model via the "We play circular" project. They want to develop their sports equipment rental business, but also offer to buy back products for reconditioning and reintegration into the sales cycle. The aim is to move gradually from a purely consumption-based growth model to a circular growth model.
By taking a comprehensive view of their products' lifecycles, they are able to act on both their design (scope 3 upstream) and their end-of-life (scope 3 downstream), thereby significantly reducing the impact of scope 3 on their carbon footprint.
Mobilizing suppliers
Changing the model is necessarily a risky undertaking, and one that is neither feasible nor desirable for all industries. The alternative is to mobilize suppliers to take action on GHG emissions linked to scope 3.
The first initiative to take is to mobilize your existing suppliers. By informing them of your interest in environmental issues and your need for quality carbon accounting, you can already make them understand the need to report their environmental data.
According to SBTi, if two companies ask the same supplier to report environmental data, there is a 68% chance that the supplier will do so. The importance for the supplier of collecting this data can act as a sword of Damocles. By refusing to pass on this information, or by remaining evasive on the subject, they put themselves in a risky position in relation to potential competitors who have taken this approach seriously.
You can also support them in this accounting process by providing recommendations on the methodology to be followed, reporting models or tools adapted to the collection of carbon data.
When it comes to identifying new suppliers, you can take into account your future partners' involvement in environmental issues at an early stage. This is the best way to ensure that they will be able to provide you with high-quality carbon data.
The SNCF, for example, is gradually integrating carbon criteria into its calls for tenders by setting an internal carbon price of €100/t CO2. The carbon emissions of tender candidates will thus have a direct impact on the company's financial rating. It has also increased the weighting of CSR criteria, in particular climate criteria (decarbonization trajectory), in its selection criteria.
Traace's Supply Chain solution
At Traace, we are well aware of the challenges and limitations of scope 3 accounting. That's why we've created a modular supplier carbon management module that can be used by all our users.
The aim of this module is to assess the maturity of your suppliers, and therefore the probability that the volume of emissions linked to each supplier is under control or not. We enable you to carry out a risk analysis in order to free yourself from the quality of the emissions that your supplier is able to provide you with. This enables you to target the key suppliers you need to support and develop. This simplifies the data collection phase.
Discover our Supply Chain module 👉 Request a demo
See also our article on responsible purchasing to learn more about decarbonizing your company's scope 3.
Sources :
- "Stepping up - Strengthening Europe's corporate climate transition".CDP, 16/02/2023
- "Transparency to transformation: a chain reaction - CDP Global Supply Chain Report 2020"CDP, February 2021
- "Corporate Value Chain (Scope 3) Accounting and Reporting Standard".GHG Protocol, 16/04/2013
- "Webinar: SMEs, ETIs, major groups: how to decarbonize your value chain?"Magelan and Traace, 15/05/2023
- "Decarbonizing purchasing to make our ecological transition a success"SNCF
- "We play Circular, Decathlon
