Scope 3 Emissions Reporting: What You Need to Know

The UN-backed ‘Race to Zero’ campaign was launched in June 2020. Most industry leaders know the goal is to halve global carbon emissions by 2030 and achieve net zero carbon emissions by 2050—21% of the world’s 2,000 largest public companies committed to achieving net zero emissions. To do so, companies need to look at scope 1, 2, and 3 carbon emissions.

Recent research shows that scope 3 emissions account for over 70% of a company’s carbon footprint, yet these are the most complex to address. Therefore, scope 3 emissions reporting has become a top priority for supply chain management and sustainability efforts. Read on to better understand scope 3 emissions, how they impact the supply chain, and strategies for reporting.

What is Scope 3?

Scope 3 emissions are not produced directly by a company or tied to a company’s assets. Instead, this scope of emissions includes those indirectly caused by a company up and down the value chain. In addition, scope 3 emissions encompass all emissions not within the Scope 1 or Scope 2 boundaries.

According to the GHG Protocol, there are 15 categories of Scope 3 emissions. However, not every category is relevant to a company:

1. Purchased Goods And Services
2. Capital Goods
3. Fuel- And Energy-Related Activities
4. Upstream Transportation And Distribution
5. Waste Generated In Operations
6. Business Travel
7. Employee Commuting
8. Upstream Leased Assets
9. Downstream Transportation And Distribution
10. Processing Of Sold Products
11. Use Of Sold Products
12. End Of Life Treatment Of Sold Products
13. Downstream Leased Assets
14. Franchises
15. Investments

An Introduction to Scope 3 Emissions Reporting

The GHG Protocol requires that companies report emissions from all relevant Scope 3 categories. The Scope 3 Standard offers advice for identifying which types apply to an organization based on size, influence, risk, stakeholders, outsourcing, sector guidance, and other criteria from the company that establishes the relevance of a category.

After identifying which categories require reporting, business leaders must estimate their Scope 3 emissions, where reporting standards come into play.

Benefits of Accurate Reporting

There are several key benefits to Scope 3 reporting for businesses. First, reporting on all relevant Scope 3 categories increases transparency by shedding light on the emissions from supply chain processes. In addition, reporting on Scope 3 increases accountability for business leaders as they strive to achieve Net Zero.

Accurate reporting sheds light on potential cost savings through decarbonization efforts while alerting them of climate change-related risk factors. 

Scope 3 Baselining Challenges

Despite the host of benefits related to Scope 3 reporting, companies still need help with calculating their Scope 3 baseline levels. To track progress related to decarbonization, there needs to be a comparison year to act as a baseline. This is especially important for establishing science-based targets.

The Science Based Targets Initiative conducted a large-scale stakeholder engagement survey to understand companies' challenges in baselining, setting, and meeting Scope 3 targets. There were a few key takeaways from the report specifically tied to baselining:

• 85% of respondents felt that accessing primary data was a barrier to baselining
• Lack of access to supplier-specific emission factors and detailed procurement data contributed to the challenge
• Today, only 6% of carbon emission factors are rooted in supplier-specific data

Tools for Reliable Reporting

While some companies provide a high-level estimate of their carbon emissions with a top-down approach, this is typically less effective in managing Scope 3 emissions because it doesn’t include a firm understanding of the supply chain. However, a bottom-up approach includes gathering information based on the supply chain and all related operations for a more detailed view of carbon emissions data.

Employing transparency and traceability solutions in the supply chain, such as a solid transportation management system, is an important tool for bottom-up Scope 3 reporting. The best traceability solutions pull data from multiple sources, including rigorous validation processes. When focusing on freight data management, conducting regular freight audits and opening the lines of communication between shippers and carriers leads to more reliable reporting.  

Trax Carbon Emissions Manager for Scope 3 Reporting

Trax developed its proprietary Carbon Emissions Manager for the transportation industry to make Scope 3 reporting more manageable.

By tracking actual carbon emissions from a company’s transportation network, it’s easier to find a baseline period for companies to set science-based targets for decarbonization efforts. At the same time, the Trax Carbon Emissions Manager allows supply chain leaders to track progress against their goals and optimize transportation costs by leveraging the Trax freight audit and payment suite for transportation spend management.

Supplier Decarbonization Strategies

Engaging suppliers through multiple strategic initiatives is a core component of decarbonization. For example, including decarbonization in the procurement process can include mandatory carbon reporting and carbon reduction requirements for proposals. Taking this a step further, supplier performance management contracts can be tied directly to carbon reduction with clauses that lead to penalties or contract termination.

Rewarding progress is also a great way to meet decarbonization goals. For instance, paying for performance and a premium on low-carbon prices can incentivize suppliers. Ultimately, data sharing and collaboration are the driving forces behind sustainability in supply chain operations.

Reach Net Zero with Trax

As companies strive to reach Net Zero in the coming years, finding a trusted logistics partner is crucial. Trax offers clients the tools, technology, and managerial services to jumpstart decarbonization initiatives.

The Trax product suite, including the Carbon Emissions Manager, allows company leaders to increase transparency and traceability at all supply chain stages.

Contact the Trax team today to build out a strategic decarbonization strategy.