When measuring a company’s environmental impact, it’s important to take a holistic view of emissions sources. That’s because an organization’s greenhouse gas (GHG) emissions don’t only derive from its own assets, but also from its broader influence up and down the value chain. How can we account for this variety of emissions sources in environmental reporting? That’s where the emissions scopes come in.
The “scope” of the issue
It’s become standard practice for companies to report on their environmental, social, and governance (ESG) performance in much the same way as they report on financial results. To create a globally recognized environmental reporting benchmark, the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) developed the Greenhouse Gas Protocol. It’s a set of guidelines that divide emissions into three scopes, covering both “direct” and “indirect” sources. Pinpointing the exact source of emissions in this way empowers companies to target their environmental efforts more effectively to meet their climate goals.
Scope 1 emissions: measuring the impact of owned assets
Scope 1 refers to direct emissions resulting from the assets that belong to the reporting company. This scope mainly relates to fuel combustion – whether in factories, turbines, or vehicles – as well as so-called “fugitive emissions”.
Scope 2 emissions: the environmental cost of purchased energy
Most companies need to buy energy to run their facilities, and scope 2 measures the “indirect” emissions caused by the generation of purchased electricity, steam, heating, and cooling. This energy may be used to operate any company-owned property or assets, such as offices, server farms, and storage facilities. However, scope 2 does not cover the energy cost of facilities owned by third-party companies, as this would come under Scope 3 – Scopes 1 and 2 only relate to company-owned assets.
Scope 3 emissions: taking a broader view of value-chain impacts
The third scope is often more complex to measure because it relates to a much broader range of emission sources, but in general, these can be grouped under “third-party” emissions. A large section of scope 3 relates to emissions caused by the activities of other companies from which the reporting company buys goods and services. This includes the upstream and downstream environmental impacts of the reporting company’s activities, such as raw material sourcing, logistics, and distribution. But also includes corporate travel, employee commuting, leased assets such as storage facilities, and even the environmental impact of any investments the company holds.
Scope 3 also relates to the emissions caused further along the product lifecycle, such as those caused by the use, disposal, or recycling of the products a company produces. A carmaker’s scope 3 emissions, for example, would include the greenhouse gases released by people driving their vehicles, filling them with gas, and scrapping them when they have reached the end of their product lifecycle.
As you can see, scope 3 covers a much broader range of emissions sources, so it's no surprise that, on average, 60% of a company’s GHG impact falls within scope 3. Although it may be time-consuming to measure all these different sources of emissions accurately, it is essential to report on scope 3 emissions to get a fuller picture of a company’s environmental impact.
Why is scope 3 so important?
Being able to measure scope 3 emissions allows organizations to identify emissions hotspots in the value chain. This enables them to take concrete steps to reduce their environmental impact by working with value-chain partners to address these issues. For instance, procurement teams can identify which suppliers are making satisfactory progress on sustainability and which have more work to do. Clarifying scope 3 emissions can also help reduce the downstream environmental impacts of a company’s activities by encouraging the development of more energy- and resource-efficient products. Finally, scope 3 reporting facilitates a dialogue with employees on, for example, reducing business- and commuting-related travel emissions.
Working toward net-zero
Mapping out emissions in this way is an essential step on the road to de-fossilizing the supply chain and ensuring better environmental accountability. It also makes good business sense because it means companies can be better prepared for a climate-neutral future and plan for possible disruptions to their business.
As part of our firm commitment to sustainable development, at Stahl we’re using our unique position in the value chain to continue reducing direct, indirect, upstream, and downstream emissions. To manage this range of activities effectively, we have created an environmental, social, and governance (ESG) 2030 roadmap. This establishes key performance indicators (KPIs) linked to the UN’s Sustainable Development Goals (SDGs). We monitor our progress with the Stahl ESG Scorecard and communicate our progress in our ESG report, and we are held accountable for reaching our ESG goals by a third-party auditor. Together, we are helping to create a more sustainable future for the chemicals industry.
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