05 Feb How to report Scope 3 emissions efficiently
Businesses can spend months deciding how to start reporting their emissions. The path to success is not obvious at first. In the first reporting attempt, lots of effort is invested in low-value work which should be avoided: creating bespoke spreadsheets, poor project management and irrelevant data collection.
These reporting challenges, however, are very common. They have been tackled by others before you. With a small amount of knowledge, businesses can avoid corporate carbon footprinting challenges and focus on the opportunities: cost savings, product improvements, staff engagement and improving customer relationships. Here are some key principles to spend less time reporting and more time on creating these opportunities.
1. Start with why
Hazy goals are unhelpful in any business operation. Environmental reporting is no different. At the outset, you should articulate why your business wants to report Scope 3 emissions, and for whom. You have limited time, and you will need to make trade-offs. The process should focus on achieving your specific goals.
Typical drivers for estimating Scope 3 reporting are:
- Board and C-suite risk management
- Emissions reduction, net zero or carbon neutral goal
- Investor disclosure
- Contracting, RFP and key account sales
- Corporate responsibility
- Staff engagement
Investors expect businesses to disclose emissions within a leading global initiative such as the Carbon Disclosure Project (CDP), or using Sustainability Accounting Standard Board (SASB). Alternatively, companies could want to become carbon neutral, or set an emissions target with an initiative like the Science Based Targets Initiative (SBTI). All have extensive guidelines for firms to follow, which will shape your process.
2. Choose your scope
The next key decision, linked to your goals, is to set the scope. Greenhouse gas emissions are estimated in three ‘scopes’ – Scope 1, 2 and 3. The scopes cover:
- Emissions from fuel purchased by your company
- Emissions from the electricity you purchase
- Emissions indirectly caused by your business operations, including (but not limited to):
- Supply chain
- Customers using and disposing of your product
- Offices, fleet and assets
Your goals will inform the scope of the report. For example, most laws only require Scope 1 & 2. As a rule, however, businesses should try to measure Scope 3, as this normally 40-80% of a corporate carbon footprint. Scope 3 is the hardest to measure, but clearly has the most opportunities to create real value for the business.
3. Work to a recognised framework
Like accountancy, companies should work with an existing methodology estimating greenhouse gas emissions. This is a developing area of international standards, but the GHG Protocol Corporate Standard is the most widely used framework, chosen by over 85% of the Fortune 500.
The mathematics in carbon emissions estimation is usually very simple. The GHG Protocol Corporate Standard is also about good process, strong documentation and discipline, which is partly why it is the common standard.
4. Know what to expect, before you start
This might be counterintuitive, but a business should know their largest sources of carbon emissions, before starting to measure it. You should focus your limited time on the biggest impacts, not the smallest. The best ways to do this are:
- Read sustainability reports of the leading companies in your sector, to find their biggest emissions sources. The GRI has the biggest database of sustainability reports
- Run a first-pass ‘screen’ of the numbers using estimates and industry averages
You should accurately measure and tackle the biggest parts of your footprint. These emissions often link very closely to your core business activity. For example, consulting companies create most emissions from air travel to clients, but have a very small supply chain. Conversely, electronics manufacturers find their biggest impact are their suppliers, mostly plastics and metals.
It’s accepted that companies will invest most effort in measuring and tackling big emissions sources, and less on small impacts.
5. Collect the best available data you have
The most time-consuming part of your reporting will be data collection. The timeline will vary depending on the business, but expect a cycle of anywhere from 2 – 12 months. The best reporting processes understand that:
- Good is the enemy of the perfect and external datasets should be used when it’s appropriate – no business would collect data on everything
- Quality control is critical and historical data will help with accuracy
- Technology is your biggest asset and human time should not be spent on processes which are easy to automate
- Human error is real and emails, spreadsheets and people will not yield perfect results
- Uncertainty is inherent and it’s better to document it than try to remove it entirely
- Help your colleagues by clearly stating what data you need, the format and the correct mapping you would ideally expect
- Data quality will iterate every year and it is better to take action on the data than achieve complete accuracy
- Documentation is key to build confidence in your process, and improve next time
The best process will collect the most accurate data for the biggest impacts, and spend less time on smaller sources.
6. Report what’s needed
The way that your emissions are reported is as valuable as the data itself. This depends on the reporting goals and audience, of course. Regulations such as the EU NFRD or SECR in the UK will often state exactly what should be included. But other frameworks are more qualitative, and it can be unclear how to take action.
- Consider your audience knowledge. ESG-focused asset managers, for example, will know a lot more about data challenges than the general public. Some topics are not relevant to a general press release, but are useful for shareholders.
- State the actions to be taken. Companies should be doing something about their emissions, not just measuring them. All stakeholders want to see that something tangible will be done, even small first steps.
- Relative sizes and trends are more important than absolute values. All stakeholders: boards, CEOs, investors, want to compare companies side-by-side. Include breakdowns (%) of emission sources and trends, year on year, where possible. The precise estimated volume of greenhouse gas is less useful than relative sizes.
7. Take action: make fewer, bigger moves
Finally – it’s important to remember the goal is not just to report, but to reduce emissions. Your reporting which will show where you can have the most impact. Tackling emissions is hard, and will take sustained effort over time. However, there are opportunities too. These range from simple cost reductions to more strategic changes in material & supplier selection, or accessing new customer segments by developing to low-impact products. You do not have infinite time, however, and you need to prove the value of tackling emissions to the wider organisation. It’s better to drive a few initiatives in some focused areas, as opposed to tackling the entire footprint overnight. In this way, it will be easy for the wider business to see how value is created by reducing emissions. Successful companies take time to create this clear vision of where they can go. The foundation is always solid data, and should be the starting point.
econscia cloud helps companies to automate their Scope 3 emissions reporting. We enable companies to spend time on solutions, not compiling reports.