We know it’s intimidating, but the time has come to dig deeper into the sources of your greenhouse gas (GHG) emissions, particularly from your supply chain. There are always numerous, variable forces at play, and we are shedding light here on four of the most compelling. We also provide you the “how’s” to spur your action.
While direct operations and energy consumption—Scope 1 and 2 emissions—often receive significant attention, Scope 3 can represent more than 90% of a company’s carbon footprint. Scope 3 indirect emissions can be categorized into two groups—emissions from upstream activities and those from downstream activities.
This article focuses on understanding your supply chain data from upstream activities, including purchased goods and services, capital goods, fuel and energy related activities, transportation and distribution, waste generated in operations, business travel, employee commuting, and leased assets. All of these play a pivotal role in understanding your company’s environmental footprint.
From investors, to customers, to suppliers and governments, the demand for transparency into your business is increasing, particularly when it comes to climate. Clear, consistent and regular insight into your sustainability performance has become a business imperative.
Until recently, environmental, social, and governance (ESG) disclosures have been primarily voluntary, with public and private companies around the world collecting their data and fitting it into a myriad of frameworks, including (but not limited to) CDP, TCFD, GRI, and SASB. But that is changing… Many governments are rolling out mandatory reporting, often starting with a company’s greenhouse gas (GHG) emissions. In the US, big emitters are already reporting under the EPA’s Greenhouse Gas Reporting Program (GHGRP) and the field will grow larger when the SEC proposed rules “to enhance and standardize climate-related disclosure for investors” go into effect later this year. Europe, China, and Australia (to name a few) will soon require companies doing business in their jurisdictions to prepare audited GHG emissions disclosures. (Note that the size and/or amount of revenue will trigger these requirements, which are different in each jurisdiction.)
A subset of GHG reporting, Scope 3 reporting involves calculating upstream and downstream emissions in a company’s value chain. And it’s hard! Collecting and analyzing data from your suppliers and end-users can be complex, expensive and unreliable. At the same time, 63% of the largest 500 US public companies are already voluntarily reporting Scope 3 GHG emissions, according to a recent report from Insightia, a Diligent brand. Read our blog for an overview of mandatory Scope 3 emissions reporting across major economies.
According to the Net Zero Stocktake report, the number of large publicly listed corporations with net zero targets increased from 417 to 929 over the past two years. But, net zero goals do not automatically translate into reduced emissions — companies need to develop credible pathways to reach the point where their GHG emissions (throughout their entire value chain) are greatly reduced AND any remaining emissions are offset by sequestering carbon or taking carbon out of the atmosphere. To get there, you need environmental data from your suppliers.
In our experience, it can be very difficult to access reliable supplier data at the granular level necessary to inform decisions. But, even without supplier data it is possible for you to create an accurate, corporate environmental footprint by using process-based Life Cycle Assessment (LCA) modeling. In fact, we believe that assessing your supply chain’s environmental footprint is sort of like astrology — unless you’re incorporating process LCA data. Here is some of our thinking:
Companies need a granular and science-based understanding of the key industrial processes that drive up emissions, so that they can have focused interventions. This is known as “process LCA”. In contrast, another tactic often used by companies to calculate supply chain emissions is “high level spend based LCA”. However, one quickly realizes how challenging it is to get reliable data from these analytics due to both a lack of granularity and input price fluctuations.
With detailed data (across as many data points as possible), you can more easily and quickly identify where changes in processes and inputs will make the largest impact on the environment and your finances. This will also allow you to identify and collaborate with the suppliers that are most integral to meeting your environmental goals.
Once identified, you can ask key suppliers to share specific, relevant data rather than carpeting your suppliers with lengthy and generic questionnaires. But take care with their data… many suppliers won’t have a good handle on their emissions, so it is best practice to require some form of verification before integrating supplier data into models. Even with robust verification processes, data received by suppliers can have errors, making year-on-year progress tracking difficult. Which leads us back to why robust process-based LCA models are so important.
Let’s face it, re-baselining is a pain. Unfortunately, it also is becoming the norm as the CDP requires it when new information leads to a variance in total emissions exceeding 5%. To avoid this scenario, start by developing high quality, process-based LCA models for your unique products and align the data with your corporate footprint. This will dramatically improve year-over-year data reliability and reduce the need for re-baselining. Companies most vulnerable to re-baselining rely on high-level estimates when setting targets and developing their annual footprint. In such cases, primary data collected tends to be far off the initial estimates.
About AITrack
AITrack provides you with in-depth product and company footprints, for carbon, water and 2,000 other topics. It can give you granular insight into the environmental impact of your operations, supply chain, product usage and end of life.
AITrack also simplifies CDP, TCFD, GRI, SASB and many other reporting frameworks. No need to reformat and recalculate when switching from footprinting to reporting — AITrack presents all results formatted accordingly, giving you a detailed, accurate picture.
