Sustainability

Scope 3 emissions: what can procurement do?

Sustainability has become a pressing priority for all organizations. Recent research conducted by the financial data firm Sentineo Inc. has found “scope 3” to be mentioned at least once in 689 transcripts of quarterly earnings in 2021. That’s 15 times the amount of mentions in 2019. While tracking greenhouse gases like CO2 emissions has been a standard sustainability KPI for some time, scope 3 emissions are a more obscure measure which extends far beyond the company’s own emissions. While scope 3 emissions are an increasingly important—yet hard to capture—source of environmental harm, companies can lean on procurement to bring visibility to these indirect emissions.

The Greenhouse gas (GHG) protocol is the world’s most widely used greenhouse gas accounting standard. Since 2001, governments, NGOs, and corporations have used their principles in accounting for GHG emissions. According to their report, Corporate Value Chain Accounting Reporting Standard, GHG emissions can be classified into 3 “scopes.”

Scope 1 emissions are those which come directly from owned and controlled company sources (like production facilities and transportation vehicles).

Scope 2 emissions are from facilities which provide energy that is bought and consumed by the company, also known as indirect emissions. While scope 1 and 2 are generally straightforward to measure and are a clearly defined requirement for GHG reporting, scope 3 emissions are more flexible in their reporting.

Scope 3 emissions originate outside of the company, such as from other companies in the supply chain or end-users. For instance, if you were measuring the emissions of a manufacturing plant producing cars, scope 1 would be the energy used in production and transport, scope 2 would be emissions from purchased electricity, heating or cooling, and scope 3 could be everything from supplier emissions to the emissions produced during destruction of the car twenty years from now.

While scope 1 and scope 2 are clear-cut sources of emissions, scope 3 represents the most significant source of GHG emissions. With that being said, it is also the area where procurement has the greatest chance to influence GHG reductions and achieve business objectives. Here are some of the business goals the GHG protocol identifies and how they relate to procurement (see page 12 of this report):

  • Partner with suppliers, customers, and other companies in the value chain to achieve GHG reductions—procurement is in the best position to positively influence suppliers relationships and align GHG goals.
  • Expand GHG accountability, transparency, and management in the supply chain—spend analytics is one such way to achieve visibility and transparency on goods and services and can be led by procurement initiatives.
  • Enable greater transparency on companies’ efforts to engage suppliers—through effective relationship management and open communication, procurement can incentivize suppliers to engage in sustainability goals through partnership, not just quotas.
  • Reduce energy use, costs, and risks in the supply chain and avoid future costs related to energy and emissions—targeting category hotspots that are high risk areas for scope 3 emissions is procurement led capability supported by spend data.
  • Reduce costs through improved supply chain efficiency and reduction of material, resource, and energy use—consolidation and efficiency of supply chains is an important procurement contribution.

With scope 3 emissions becoming the focus of many companies’ sustainability goals, procurement has a real chance to bring visibility and transparency to GHG emissions throughout the supply chain and beyond. This includes tracking GHG emissions of purchased goods and services as well working closely with suppliers in the value chain. Check out this blog where you can learn more about the first steps to take on your sustainable procurement journey.

 

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