Getting Scope 3 right: How to select the best carbon accounting software

Scope 3 carbon accounting is becoming increasingly essential due to growing reporting demands and scrutiny of corporate supply chain emissions. Since 90% of a company’s carbon footprint can come from upstream and downstream activities, companies have a huge opportunity to reach climate goals, improve efficiency, and reduce costs by tracking and managing their Scope 3 greenhouse gas (GHG) emissions. Unfortunately, Scope 3 is notoriously the most challenging category to measure.

The right accounting software is crucial for effectively managing a company’s Scope 3 carbon footprint. This article outlines the key features of Scope 3 carbon accounting software and provides 10 critical questions you should ask solution providers to find the best solution.

You can download the list of questions in Excel below.

What is Scope 3 carbon accounting?

Scope 3 carbon accounting is a process to assess GHG emissions from a company’s value chain—both upstream and downstream.

The Greenhouse Gas Protocol (GHGP) Corporate Value Chain Standard provides a global framework for measuring “carbon emissions,” encompassing carbon dioxide and other significant greenhouse gases (specifically, methane, perfluorocarbons, sulfur hexafluoride, hydrofluorocarbons, and nitrous oxide).

Understanding and implementing a carbon accounting system that includes Scope 3 is essential for companies to address their societal impacts and report on GHGP and other standards.

What is Scope 3 carbon accounting software, and why do you need it?

Scope 3 carbon accounting software solutions provide a comprehensive and automated way to track, analyze and report indirect emissions from the value chain, which are otherwise challenging to quantify and manage.

Scope 3 data can come from various primary sources within your value chain, such as suppliers, distributors, and product use. It can also come from secondary sources such as Life Cycle Assessment (LCA) datasets from international, industrial, and governmental organizations and academic studies.

There are several reasons why you might need Scope 3 carbon accounting software.

Ensure reliable and efficient emissions tracking

Scope 3 carbon accounting software enables companies to aggregate and analyze emissions data from multiple and sometimes disparate data sources across their value chain, including both primary and secondary data. Using a software platform, rather than a manual process, ensures that data collection and analysis methodology synchronizes across sources to track emissions consistently and efficiently.

Report against the growing climate-related disclosures

The landscape for mandatory and voluntary Scope 3 disclosures is rapidly changing, increasing the need for a carbon accounting system that will meet various reporting requirements today and in the future.

• Regulatory requirement: The European Sustainability Reporting Standards (ESRS), California Senate Bills 253 and 261, and more.
• Sustainability targets: Science-based targets, including Forest, Land and Agriculture (FLAG) targets.
• Other voluntary frameworks: CDP (formerly Carbon Disclosure Project), Global Reporting Initiative (GRI), Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB), International Sustainability Standards Board (ISSB) Standards, and more.
  

Enhance corporate transparency and credibility

The software provides a platform and the data necessary for transparent communication about environmental and financial impacts, enhancing trust and credibility with investors and other stakeholders. It also enables companies to share their environmental performance and initiatives with consumers, fostering a socially responsible corporate image.

Create strategies to reach climate targets

The ideal software can also empower companies to simulate various emission reduction strategies, helping develop effective climate action plans.

What are the key functions of Scope 3 carbon accounting software?

1. Streamline data collection and organization

The software should enable a seamless workflow for gathering and managing data from a wide variety of internal and external data sources, such as ERP systems and relevant supplier data.

2. Calculate carbon inventory

The software should be capable of easily calculating cradle-to-grave footprints. An important aspect is its ability to assess carbon emissions from multiple tiers of suppliers using LCAs and supplier data, when available. Given the challenges of collecting quality data from suppliers, it is important to build the foundation of your GHG inventory on granular LCA models to supplement and quality-check supplier data.

3. Provide detailed reporting analytics

The platform should enable you to assess emissions for individual product components and suppliers to identify hotspots. It should also allow customized reports to meet the needs of customers, suppliers, investors, as well as of the various company departments, such as sustainability, product, procurement, finance, marketing, and sales.

4. Simplify the auditing process

The accounting system must have a streamlined workflow and reports for auditors to easily verify both company and product footprints, as well as the mitigation claims. The latter is particularly important to demonstrate progress over time without taking the risk of being accused of greenwashing.

5. Forecast impacts of interventions

Beyond showing historical data, a robust accounting system will also forecast the environmental and financial implications of interventions. After identifying hotspots, this kind of strategy modeling can help you to identify high-impact emission reduction interventions that are also cost-effective.

6. Provide expert support

Navigating carbon accounting, reporting, and auditing can be complex. Your accounting platform should include access to high-touch guidance and support from experts in the domain.

10 questions to ask solution providers for selecting the best Scope 3 carbon accounting software

1. How many supply chain tiers can you incorporate into carbon inventory calculations?

• Why it matters: Collecting sufficient quality data from your supply chain is challenging and time intensive. Our recent survey found that even in the most advanced industries, only 12% of direct suppliers typically provide data, with only 50% of the submitted supplier data meeting quality standards. To meet targets only a few years away, you will need to accurately and quickly develop a Scope 3 carbon inventory for direct (tier 1) and indirect suppliers (tier 2+).

• Best practice: Not solely depending on supplier data but utilizing a comprehensive LCA database for calculating emissions from direct suppliers (tier 1) and indirect suppliers (tier 2, 3, and beyond), supplemented with quality, primary supplier data if available. This approach will also enable targeted supplier engagement and continuous optimization of LCA models and databases.

2. How does your software collect, integrate, and manage data from various supplier sources?

• Why it matters: Supplier data often comes from various sources with different levels of quality. It is crucial to ensure that the software flexibly collects supplier data, verifies its quality, and then harmonizes data across sources.
  
  
• Best practice:
  
  • A platform that accepts all forms of data, including Environmental Product Declarations (EPDs), Bills of Materials (BOMs), and 3rd party LCAs, with a structured handoff process to ensure consistency in future modeling or reporting iterations.
  • A method for assessing the level of accuracy of supplier data and seamlessly integrating it with a reproducible data collection framework.
    

3. Does your software support process-based LCAs for a company’s full product portfolio?

• Why it matters: Conducting a process-based LCA for every product in the entire portfolio is the only approach to identify emission-intensive activities accurately across the value chain and model interventions. Process-based models enable companies to develop actionable strategies to achieve their Scope 3 targets, without solely depending on data provided by suppliers.

• Best practice:
  
  • Generating a corporate Scope 3 footprint that is the sum of the Scope 3 footprints for all products, to enable emissions drilldowns, target setting, and progress tracking linked to individual products, as well as a consistent strategy that translates from corporate to product-level carbon footprints and vice-versa.
  • Employing a database grounded in granular life cycle inventories and emission factors with hundreds of thousands of process models, rather than EIO-LCA data which provides limited granularity.
    
    

4. What percentage of your company is comprised of LCA experts?

• Why it matters: Custom LCA models are critical to generating a comprehensive and accurate Scope 3 footprint, but developing and updating these models requires LCA expertise. You will also want these LCA experts to have industry-specific knowledge to provide relevant guidance in data collection, analysis, and interpretation.
  
  
• Best practice: For a company entirely focused on carbon accounting, having a significant percentage (e.g., 20%-30%) of its employees experienced in LCA modeling indicates significant analytical strength.
  

5. Can your system perform scalable process-based LCAs within one reporting season?

• Why it matters: Running a comprehensive cradle-to-grave LCA for a single product and its processes can take months. Reaching Scope 3 targets, however, demands granular analyses of all products and annual reports that accurately represent your progress.
  
  
• Best practice: Software that rapidly develops customized process-based LCAs at scale within a few months, supported by LCA experts who understand how to fill gaps in primary data and generate quality results in time for reporting deadlines.
  

6. Does your software adapt to changing reporting frameworks and standards?

• Why it matters: Reporting against changing frameworks and standards requires a methodology that keeps pace with the evolving landscape and allows for rapid adjustments. Recent SBTi FLAG guidance, for example, requires many companies with existing targets to rebaseline their emissions.
  
  
• Best practice: A methodology that can quickly adjust your existing life cycle inventory, or collect historical data, to ensure that your full Scope 3 carbon inventory complies with the latest requirements. This may involve historical recalculations using the software’s database and new custom-built models with your operations and supply chain data.
  
  

7. How does your software meet growing assurance and verification demands?

• Why it matters: With the implementation of new regulations, such as ESRS and California SB 253, the demand for Scope 3 assurance will increase in the coming years. Having a platform that seamlessly tracks data transactions and communicates methodologies with verifiers will save you critical hours of work.
  
  
• Best practice:
  
  • A portal that automatically time stamps data transactions between the users and the platform, showing verifiers all data handoffs.
  • Direct platform access for verifiers to view customized, interactive assurance reports detailing all inventory calculations, sources, and methodologies.

8. What are your system’s scenario planning and modeling capabilities?

• Why it matters: Understanding how various interventions impact your footprint allows you to identify the best path to meeting sustainability goals.
  
  
• Best practice: What-if scenario analyses to test uncertain environmental and financial impacts associated with proposed custom interventions, with results available as visualizations like marginal abatement cost curves (MACC) and cash flow analyses.
  

9. Can different internal and external stakeholders utilize the results of your analysis for their unique needs?

• Why it matters: Various departments within your company likely have different use cases for the software outputs, e.g., a supply chain manager may be interested in insights and scenario results different from your sustainability manager. You may also want to give external stakeholders, such as key suppliers, access to reporting insights for collaborative Scope 3 initiatives.
  
  
• Best practice:
  
  • Dashboards and visualizations, customized to your company, that allow all users to get the results and findings they need in their preferred format.
  • Supplier-specific access to their results and reports that offer comparative benchmarking metrics, helping to inform suppliers of their relative performance.

10. Does your software support future reporting needs beyond carbon, such as impacts on water and biodiversity?

• Why it matters: Science clearly shows human and business activities have pushed our planetary boundaries beyond the safe limit. Companies face increasing risks from water scarcity and pollution, deforestation, and biodiversity loss, in addition to climate change. Companies should adopt a systematic approach that extends beyond carbon to build long-term resilience and prepare for future reporting needs, such as science-based targets for nature.
  
  
• Best practice:
  
  • A robust methodology that combines comprehensive life cycle inventories with science-based valuation approaches to efficiently assess impacts across carbon, water, biodiversity, and other nature-related aspects.
  • A future-proof solution to create strategies that improve overall environmental impacts, preventing the optimization of one issue at the expense of others.

About Aligned Incentives

Aligned Incentives offers AITrack, a sophisticated environmental and carbon accounting software powered by AI, set apart by its ability to produce granular Scope 3 insights at scale.

• Expertise: Our LCA experts ensure accurate and industry-specific emissions modeling, with the support of a network of world renowned academic advisers.
• Data: Our core database covers supply chain activities extensively, with 350,000 modeled agricultural/industrial commodities and processes, enabling accurate and efficient development of inventories for carbon, as well as water and biodiversity.
• Accounting & reporting: By producing Scope 3 footprints based on process LCAs, companies can assess and report emissions across multiple supply chain tiers within a few months. AITrack can adapt to evolving reporting frameworks and regulations, ensuring compliance and transparency.
• Scenario & user interface: AITrack also provides dynamic visualization, scenario planning, and strategy modeling capabilities, tailored to diverse user needs.

This combination of features, paired with our LCA expertise, makes AITrack a powerful ally in achieving sustainability goals. Schedule a customized demo to learn more.