Achieving net zero goals has long been a critical agenda item for CEOs and boards. However, while Scope 1 and 2 emissions have been a standard sustainability KPI for some time, Scope 3 emissions remain the missing piece in the net zero puzzle.
Scope 3 emissions are indirect greenhouse gas (GHG) emissions from an organization’s value chain. They are calculated from emissions originating outside of the company but among their supply chain, such as purchased goods and services, waste disposal, capital goods, and logistics. It’s not enough to just think about reducing emissions from an organization’s four walls anymore – it’s time to start thinking about a global shift towards a low-carbon economy.
Understanding, managing, and reducing Scope 3 emissions is essential to any net zero strategy. Procurement teams are uniquely positioned to bring visibility on emissions across the entire supply chain and help establish critical data flows that are vital for reporting and transparency. Here’s why procurement has a crucial role to play in turning net zero dreams into a reality.
It’s not as easy as 1, 2, 3…
Scope 3 emissions are the largest source of GHG emissions, accounting for 75 percent of an organization’s total emissions. To complicate things further, Scope 3 emissions for one organization are the Scope 1 and 2 emissions of another organization. This makes the route to net zero far from clear.
With organizations’ reputations and market value at stake, turning efforts to cutting emissions is critical. A third of the UK’s biggest companies have made bold claims to achieve net zero plans by 2050, including AstraZeneca, Sainsbury’s, and BT Group, which is also mounting the pressure on other firms to prioritize sustainability.
While tackling Scope 3 emissions is a critical part of the fight against climate change, it’s also a business priority as organizations navigate a complex web of legal and regulatory requirements for reporting and disclosing Scope 3 emissions. Upcoming regulations such as the FCA’s Sustainability Disclosure Requirements in the finance industry – which will make reporting on Scope 3 emissions compulsory for the first time – are forcing firms to turn their sustainability claims into action. Soon, every organization will have to report on Scope 3 emissions, and it will continue to be a key agenda item for board meetings.
Procurement plays a pivotal role
Cutting Scope 3 emissions might seem like an insurmountable task. This is because these emissions are out of an organization’s direct control, so monitoring and reducing them is challenging.
Procurement is ideally placed to ‘own’ Scope 3 emissions and showcase its value and strategy. As the gatekeeper to an organization’s suppliers, procurement already helps organizations share, gather, and validate supplier and spend data across tier 1 and sometimes tier 2 and 3 suppliers. This same approach can be applied to emissions data. So how can procurement optimize its unique position to drive Scope 3 reduction initiatives?
Collecting reliable Scope 3 emission data and establish a baseline
Data and net-zero ambitions go hand in hand, so reducing Scope 3 emissions starts transparently with capturing emissions data. This collection and validation effort requires data
from suppliers (if they have it) and from third-party sources. This data modelling exercise will take into account categories, spend and emission factors to estimate and ultimately validate emissions data. This will be a big role for procurement and potentially category managers.
This will help to establish a baseline of emissions, which is necessary for reporting purposes to demonstrate how you are reducing emissions. When this data is collected at scale, it can help establish environmental risk scores, communicate policies, improve accuracy of progress towards published sustainability targets.
Identify opportunities for reduction
When this emission data is readily accessible across the entire source-to-pay process, procurement will be in a better position to identify any suppliers that do not align with their sustainability goals and uncover opportunities to reduce emissions. This will require a structured collaborative effort with suppliers. The baseline estimates help firms to focus on high-emitting categories and products. They can then create actionable plans to reduce emissions in the most important areas and collaborate with suppliers to track and report progress accurately.
Once a plan is completed, however and perhaps you now have a lower carbon product, you need to track purchasing against that in order to close the loop and show how this is reducing Scope 3 emissions.
Ending Scope 3 greenwashing
Procurement teams play a crucial role in making meaningful progress in combating climate change, but the race to net zero will only get off the starting line with accurate and actionable data. Armed with emissions data from the entire supply chain, procurement teams can design and implement emission reduction strategies that are transparent, actionable, timely, and sustainable for their business. Organizations that are seen to tackle Scope 3 emissions will reap the rewards beyond regulatory compliance, helping to support the environment, enhance company reputation, and create a loyal customer and employee base.