Article Summary
In this article, you’ll learn how to reduce Scope 3 emissions using key strategies such as employee and value chain engagement, waste reduction and recycling, sustainable procurement practices, and adoption of carbon accounting software. We’ll set out the Scope 3 categories, provide several Scope 3 emissions examples, and discuss why this lesser-understood aspect of ESG and greenhouse gas emissions reporting is so important. We’ll also outline some steps you need to take to lay the groundwork for effective, meaningful Scope 3 reporting.
Scope 3 Emissions Examples and Definition
Organizations worldwide want to reduce their greenhouse gas emissions. These are divided into three scopes. Scope 1 and Scope 2 focus on emissions directly controlled by an organization, such as fuel for vehicles or the energy it purchases to produce its goods or services. However, Scope 3, which this article focuses on, encompasses emissions for which an organization is indirectly responsible—usually across its value (or supply) chain.
There are two Scope 3 emissions categories to consider:
Upstream emissions
Upstream emissions include aspects such as purchasing, using, and disposing of products from suppliers. It also covers emissions relating to business travel and employee commuting.
Downstream emissions
Downstream emissions result from customer use and disposal of an organization’s goods or services. So, if an organization manufactured tractors, the emissions resulting from the use and ultimate disposal of those tractors would be categorized as downstream emissions. For an oil, gas, or coal producer, scope 3 emissions examples would include the burning of their products by their customers.
All organizations should make concerted efforts to reduce Scope 3 emissions. However, those operating in manufacturing, construction, chemical production, and healthcare/pharma should pay particularly close attention, as these sectors tend to have some of the highest Scope 3 emissions.
Is Scope 3 Reporting Mandatory?
Right now, there’s no straightforward yes or no answer. Mandatory Scope 3 reporting depends on an organization’s location, size, and revenue. But, as these emissions can account for 80-95% of an organization’s carbon footprint [1], it’s vital to explore reduction strategies, even if reporting isn’t mandatory. Doing so can identify emissions hotspots, inform supply chain and procurement policy changes, and encourage innovations that deliver more sustainable products and services.
In addition, demand for full disclosure of greenhouse gas emissions is growing among consumers, investors, employees, and other stakeholders due to heightened awareness of climate change and increased pressure to support Net Zero and other carbon reduction initiatives.
Scope 3 reporting, even when not mandated, helps organizations demonstrate commitment to genuine change and shows stakeholders that their environmental and sustainability concerns are being addressed. Sometimes, an inability to report and act on Scope 3 emissions can result in difficulties obtaining financial investment, non-renewal of contracts, rejected tenders, and declining brand reputation.
Establish A Baseline Before Tackling Reduction
With mounting pressure to tackle Scope 3 emissions and reduce their carbon footprint, organizations can be tempted to rush ahead and start addressing the issue. While that urgency is admirable, it can be self-defeating—and make reporting much more difficult. Instead, it’s beneficial to take time to establish a baseline of current Scope 3 emissions. This way, organizations are better placed to:
- Set reduction targets in consultation with stakeholders and supply partners
Sometimes, it helps to think of this in terms of planning a journey:
- Plan your departure point
- Agree your destination
- Consult with friends or peers who have taken a similar trip
- Check your travel documents
- Map out your route
- Keep a journal, take plenty of photos, and share your experience on your socials!
Remember that tracking and benchmarking progress without a baseline is almost impossible. Keep in mind that allotting time for consultation at the start of the process makes it far easier to engage and motivate suppliers, stakeholders, investors, employees, and customers.
Six Strategies to Reduce Scope 3 Emissions
1. Adopt sustainable procurement practices with transparent suppliers
Since organizations are indirectly responsible for Scope 3 emissions, a significant focus must be given to adopting and implementing sustainable procurement practices. In practical terms, this means selecting—where possible—suppliers with lower greenhouse gas emissions.
A good starting point is to look at your own successful Scope 1 and Scope 2 policies and see if—and how effectively—your suppliers are implementing them. Questions worth considering at this stage are:
- Do they use renewable energy?
In some instances, organizations might also consider using more local suppliers to minimize delivery and transportation-related emissions.
2. Develop a value chain and supplier engagement strategy
Following consultations, setting achievable sustainability and carbon emission reduction goals with all your suppliers is crucial. This might focus entirely on removing Scope 3 emissions hotspots or introducing annual percentage reduction targets across all relevant partner operations.
Cooperation and collaboration are key, so think about how to empower your partners to help you reduce your Scope 3 emissions. Ideas might include:
- Education: Some value chain partners will require additional support and education to meet agreed targets. They might also need a clear explanation of why your sustainability policies have changed and why they should support you.
Sharing your organization’s experiences of cutting Scope 1 and Scope 2 greenhouse gas emissions could be of great value here—and demonstrate that you practice what you preach. Could they, for example:
- Replace petrol and diesel vehicles with EV or Hybrid options?
- Switch to a renewable energy supplier or generate some of their power via solar panels or wind turbines on their premises?
- Incentivization: Are there ways to incentivize your partners? Perhaps they’ll respond more urgently if you offer more competitive margins to suppliers that can demonstrate their carbon emission reductions.
- Tools and resources: Would partners achieve faster results if you provided them with tools and resources to help them? Some organizations have dedicated sections on their websites offering tools and resources to help partners on their sustainability and carbon reduction journeys.
- Regular, consistent communication: Keep engaging with your suppliers. You’re both on the same carbon reduction journey and have the opportunity to support each other. Consider regular webinars that provide updates on how their efforts are helping your organization succeed. If you host a partner conference, why not give a Scope 3 presentation and allocate a breakout session to discuss progress?
3. Implement waste reduction and recycling policies
It’s important to focus on suppliers and ensure they’re playing their part. But remember that Scope 3 emissions also result from your customers’ use and disposal of your goods or services (these are the downstream emissions we discussed earlier). Here are a few ideas you could consider:
- Sourcing recycled materials to create new products will help cut greenhouse gas-related emissions that might otherwise result from purchasing virgin materials.
- Using reusable and/or recyclable product packaging for products where possible will cut the amount of waste that ends up in landfills. This reduces greenhouse gas emissions created when products and packaging break down and decay.
- Can you help your customers to help you? Have you noticed that many IT manufacturers, particularly phone, tablet, laptop, and PC suppliers, offer to buy back consumer goods? These deals are often positioned as a way for customers to save money on upgrades. But they actually play an important role in helping manufacturers cut waste and assisting customers with safe disposal. These initiatives also improve the chances that mined mineral resources are recycled for future use. How could your organization apply these principles to product disposal and incentivize customers to help you reduce your Scope 3 emissions?
4. Build a sustainable culture and reward employees who take the initiative
For many employees, taking an active role in Scope 3 emissions reductions may seem far removed from their daily work. They might feel it’s the responsibility of suppliers or simply a matter for the procurement team. Providing all employees with information on how they can support Scope 3 emissions reduction efforts will correct this misunderstanding. It will also help create a corporate culture focused on achieving a lower carbon footprint and long-term sustainability.
Organizations could bridge knowledge gaps through workshops, seminars, and training sessions. They could also consider providing resources via a dedicated Intranet. Armed with this information, all employees have the potential to champion Scope 3 reduction and propose new initiatives and innovations. Many organizations actively encourage this proactive approach by running annual sustainability awards or offering a monthly prize for the best Scope 3 reduction initiative.
5. Reimagine work-related travel and the daily commute
Work-related travel and commuting form some of the largest Source 3 emissions contributions for companies not involved with manufacturing, construction, chemical production, and healthcare/pharma. As such, although often overlooked, they need to be addressed as a priority. Potential solutions include:
- Moving to hybrid/remote working where possible
- Setting clear policies on virtual and in-person meetings
- Introducing EV/hybrid company cars
- Phasing out company cars
Organizations can also incentivize greener commutes by:
- Offering public transport subsidies
- Providing interest-free annual or season ticket loans
- Supporting carpooling initiatives
- Encouraging healthy alternatives, such as cycling and walking, where safe and practical to do so
6. Utilizing carbon accounting software
Scope 3 emissions data is usually scattered across multiple systems and organizations and, once gathered by the reporting organization, can become siloed on departmental-level spreadsheets and applications.
This is highly problematic. Establishing a baseline of current Scope 3 emissions and rolling out a reduction strategy requires access to data from across the entire value chain.
Manual attempts to centralize, analyze, and visualize this data are slow and prone to inaccuracies. They can also negatively impact the effectiveness of any carbon reduction strategies—making it far more challenging to report progress.
Carbon accounting software can provide a solution by centralizing data and automating many of the most time-consuming monitoring and analysis processes. These include:
- Centralizing Scope 3 data across the entire value chain
Conclusions
In this article, we’ve focused on how to reduce Scope 3 emissions. We discussed the importance of establishing a baseline and gaining detailed insight into your current Scope 3 emissions. This ensures that targets and timeframes can be set, progress can be measured, results can be reported, and stakeholder feedback can be gathered. We then investigated five strategies to reduce Scope 3 emissions and explored why using carbon accounting software might benefit some organizations.
Whichever approach your organization takes, you can be sure that the legal obligation, consumer pressure, and stakeholder influence to report transparently on Scope 3 emissions will only intensify. The EU, UK, Australia, and Canada look set to introduce mandatory Scope 3 emissions reporting. So, even in geographies where reporting is currently voluntary, it makes sense to begin assessing Scope 3 emissions and implementing reduction strategies.
For more information, why not talk to an ESG Specialist or download one of our brochures for more information:
[1] Scope 3 Emissions in the UK Reporting Landscape
Some sources quote three categories. The third being value chain emssions. I’ve left this one out as it seems to duplicate some of the upstream and downstream emissions and might be confusing for the purposes of this article.
Visual depiction of upstream and downstream emissions could be useful here.
We could add more detail here:
Here are a few examples of how the rules vary around the world:
United States
Scope 3 reporting has been removed from the US SEC’s final rules on climate-related disclosure. However, in California, Scope 3 reporting is mandatory for organizations with more than $1 billion in annual revenue.
European Union
Scope 3 reporting is voluntary at present, but large, listed companies need to begin reporting in 2025 under the Corporate Sustainability Reporting Directive (CSRD).
United Kingdom
Scope 3 reporting is voluntary right now, but the UK Government is considering adopting the International Sustainability Standards Board (ISSB) standard, which requires Scope 3 emissions disclosure.
Australia
Starting this year, Large companies will be required to report Scope 3 emissions based on the Australian Accounting Standards Board (AASB), which follows ISSB principles. Mid-sized companies will be required to report in 2025, and small companies in 2027.
There’s also an pportunity to include a diagram illustrating when a company needs to report Scope 3 and when it’s mandatory. Further detail could be added in the diagram for those interested in learning more at this stage.