Scope 3 emissions: four major challenges

Responsibility across the entire chain

Let’s take a look at a global consumer goods company. The organization faces a value chain with thousands of suppliers and inventory of tens of thousands of units. The company's estimates of scope 3 emissions reflect not only how each individual product is produced, but also how it is used, how long it is used, how it is cleaned and ultimately disposed of at the end of its lifespan. 

This example is no exception. 'The past decade has made many companies specialize and globalize. Every product has an infinite number of parts,' Gerrit Ledderhof explains. Roel Drost points at his cotton shirt. 'For a shirt, the supply chain is maybe seven or eight levels deep. From the cotton farmer to the spinner and from the button factory to the sewing factory - the emissions from one simple shirt are already extremely complex.'

'It's about taking responsibility. Across the width and depth of the chain. If an organization says, "these are not my emissions" and pulls off its hands, then progress towards a more sustainable world is going to be progressing in very small steps. In fact, you run the risk of improving only marginally and missing necessary innovations towards a more circular economy," says Roel Drost.

'Don't let perfect be the enemy of good'

Many organizations now use secondary and static data from databases to report on their supply chain emissions. This creates a good picture of where the 'hotspots' are, but does not make it possible to measure improvements because it is static data. Because of this, many organizations have now started collecting primary data from their supply chain.

This is a major task and it is usually impractical to do so for all suppliers. 'Don't let that stop you,' Ledderhof says. Because mapping primary data from all suppliers is also not strictly necessary. For this, follow the principle of 'materiality' and select the suppliers that make the largest contribution to emissions. 'In English, they often say, "Don't let perfect be the enemy of the good,"' Ledderhof recalls. 'That's my advice to clients.' 

'The golden 80:20 rule offers a solution here,' Drost explains. 'Eighty percent of the emissions in an organization's supply chain come from only one-fifth of the suppliers. In practice, for example in the case of a government agency, recently only twenty suppliers were found to be responsible for 94 percent of scope 3 emissions. By focusing only on those twenty suppliers as an organization, scope 3 emissions can be halved within ten years. That offers perspective.

Three-step rocket to positive impact

Despite all the complexity surrounding scope 3 emissions, one thing remains simple: the end goal of measuring and tracking them is to make business decisions that mitigate the effects of climate change, also when it comes to chain emissions. To managers and CEOs, the resulting action list should be equally clear: use the data to focus all efforts (time and resources) on those areas where they will have the most impact. Establish a performance baseline, set priorities and goals with suppliers, and invoke meaningful performance incentives for them.

The broader ecosystem then will be one of the winners. After all, one company's scope 1 and 2 emissions are another organization's scope 3 emissions. And until all companies measure, track and report their emissions, data availability, accuracy and transparency remain one of the biggest challenges to reducing carbon emissions.

Another winner of all efforts? The organizational result. Addressing scope 3 emissions is not something an organization does alone; it requires collaboration and transparency. 'Sharing information with suppliers in the chain is key to addressing this. And it can also deepen the relationship and improve cooperation,' Ledderhof says. To many organizations, sharing information and data feels sensitive, but according to Drost, in this case that is not actually necessary. "It's about trust. Trusting the data and trusting the assurance process.’’