As we have covered in some of our recent blogs – ‘Scope 3 GHG emissions explained’ and ‘4 key steps to starting your scope 3 emissions reporting journey’ – there is both a significant need as well as a significant challenge in understanding an organisation’s value chain (or scope 3) emissions.
One of the key challenges is understanding which of the GHG Protocol 15 scope 3 categories apply to your organisation, and of these which are going to be material to your overall scope 3 emissions footprint. In this blog, we are going to be focussing on one of the most common sources of scope 3 emissions, which is an organisation’s suppliers.
Supplier GHG emissions categories
Supplier emissions account for a large proportion of upstream emissions and often fall into Category 1: Purchased goods and services, but can be associated with any of the Categories 1 – 8.
For example, emissions from the transportation of purchased products from a tier-one supplier to a reporting company, in un-owned or controlled vehicles, are accounted for in Category 4: Upstream transportation and distribution. Similarly, emissions related to fuel and energy purchased from suppliers by the reporting company fall under Category 3: Fuel and energy-related activities.
We will focus predominantly on Category 1: Purchased goods and services, as this category, includes all upstream emissions from the production of products, both goods and services, purchased by the reporting company.
Purchased goods and services GHG emissions calculation - methods
There are multiple methods for calculating supplier emissions, and these are broadly split into two approaches - those that require information directly from the supplier and those that use secondary data.
The GHG Protocol defined supplier-specific and hybrid methods, both involve the collection of data directly from suppliers. The supplier-specific approach generally relies on product level consumption data, whereas the hybrid method uses supplier data to calculate scope 1 and 2 emissions, but allocates these emissions based on spend and product purchased, for example.
Secondary data can be used to plug gaps where information is not available from the suppliers themselves. Average-data and spend-based methods rely solely on secondary data, estimating emissions based on industry and material averages.
Benefits and challenges of the different approaches
Engaging with suppliers directly poses a number of challenges to the reporting organisation in terms of resource and cost. This is why it is crucial to understand which sources of scope 3 emissions are material, and therefore which represent opportunities for reduction. Even within an organisation’s supply chain, deploying different calculation approaches can provide accuracy in categories where emissions are greatest and reduce the resource required in others.
In addition to potentially creating more accurate data, capturing supplier information directly ensures that suppliers can become educated and engaged in the emissions calculation process. It also provides the reporting organisation with a means to assist the supplier organisation in their own environmental reporting and to collaborate on ways to reduce emissions related to their commercial relationship and beyond.
Average data methods are suited to ensuring the greatest possible coverage of supplier emissions, meaning that overall scope 3 emissions can be reported and short, medium and long term targets set. However, if primary supplier data is not also utilised then the reporting organisation has very few options for reducing scope 3 emissions. For example, supplier emissions that are calculated solely on spending associated with purchased goods and services can only be reduced by reducing this spend.
The calculation methods adopted can therefore either improve or constrain an organisation’s ability to meet Science-Based Targets or track the correct net-zero pathway.
How supply chain management software can help
In order to ensure a scalable, robust and auditable process for addressing scope 3 emissions, it is extremely likely that organisations will need the support of a software solution. An offline approach represents a serious resource commitment and significant potential for errors.
Utilising software for calculating and managing scope 3 emissions in the supply chain will enable reporting organisations to engage more effectively with larger numbers of suppliers and simplify the process of emissions reporting. Both buyers and suppliers are likely to be tackling this for the first time, and so will need a solution that is both scalable and that can evolve with their needs.
Greenstone has a suite of software solutions designed to assist organisations in their scope 3 emissions management. Our Enterprise Environment module, SupplierPortal and InvestorPortal solutions all utilise the maintained Greenstone GHG emission factor library of over 1 million emission factors to ensure accurate emissions calculation.
All of our solutions are also integrated to ensure that emissions data can be automatically shared between them. SupplierPortal, for example, contains customisable GHG emission calculation wizards which can be distributed to suppliers in a targeted manner, with resulting emissions data automatically included in the reporting organisation’s overall scope 1, 2 and 3 footprints for management, target setting and performance tracking.
All emissions data captured in the Greenstone ecosystem can be assigned to any scope 3 GHG categories at a data source level. Meaning that individual supplier emissions can be assigned to multiple categories for accurate reporting.
Within SupplierPortal, suppliers can also be categorised, for example, to differentiate between production-related products (e.g. materials, components, and parts) and non-production-related products (e.g. office furniture, office supplies, IT support). This ensures that suppliers can be engaged and assessed in a targeted manner in order to collect the most relevant emission-related data in the most appropriate way.
If you would like to discuss how Greenstone’s software could support your scope 3 needs, please talk to us.