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Scope 4 Emissions: Should Companies Care?

So you’re familiar with scope 1, 2, and 3 emissions, but do you know about scope 4 emissions? And are they relevant to your business?

If you’re involved in the corporate ESG space, you’ve no doubt heard of scope 1, 2, and 3 emissions. Perhaps you’re already reporting on them. And in case you’re unclear on what these terms mean, here’s a reminder.

A term which you may not be so familiar with however, is scope 4 emissions. You’d be forgiven for not knowing – scope 4 carbon emissions is not an official scope as defined by the GHG Protocol.

It has however, gained popularity lately as a measure for companies to measure the impact of their products on reducing emissions outside of their value chain.

What are scope 4 emissions?

Scope 4 emissions are also known as ‘avoided emissions’ and can be defined as reductions that occur outside of a product’s life cycle or value chain, but as a result of the use of that product.

In other words, emissions avoided via more environmentally friendly products or services replacing less environmentally friendly alternatives.

An image displaying the definition of scope 1,2,3, and 4 emissions

There are two main types of avoided emissions:

  • 1. The product replaces a more emission-intensive product. For example, a more fuel-efficient vehicle can replace an older gas-guzzler, leading to lower direct emissions.
  • 2. The product enables emissions reductions elsewhere. For example, a manufacturer could create a product or deliver a service that enables their customers or value chain partners to use less energy (and generate less emissions) in their own processes.

Existing outside an organization’s value chain means that scope 4 emissions are completely separate from a company’s scope 1, 2 and 3 emissions, and are not captured as part of those scopes.

Organizations can therefore use avoided emissions to demonstrate effects that would not otherwise be relevant or communicable via the more regular scopes 1,2, and 3, although avoided emissions cannot be used to reduce or offset them.

The term has thus become increasingly popular and calls have strengthened of late to properly define the category, as companies seek ways to demonstrate the environmental friendliness of their products instead of quantifying and focusing purely on the negative impacts of their regular scope 1, 2, and 3 emissions.

Why should companies care about scope 4 emissions?

Despite not being formally recognized as an official ‘scope category’, it may be to a company’s advantage if it is able to demonstrate real results in the ‘Scope 4 Avoided Emissions’ category.

“Reporting on avoided emissions can give a company a competitive advantage if it is able to show that its goods or services are the most environmentally friendly”, says Alan McGill, partner for sustainability and climate change at PwC. (1)

In a world which is becoming increasingly sensitive to damaging environmental impacts and climate change, public perception and consumer sentiment should not be underestimated in this regard.

Companies that have developed new environmentally friendly products and services are naturally keen to communicate their impacts, and demonstrate ways to measure these in a structured and scientific way.

Another consideration is that scope 4 emissions can guide investors in terms of capital allocation and making business decisions.

Having access to standardized measurements for avoided emissions enables investors and stakeholders to compare the impact of various potential investments, and to allow the allocation of capital to the most impactful projects, products, and services when it comes to efficiency and environmental friendliness.

How are scope 4 emissions measured?

Unlike scopes 1, 2, and 3 emissions reporting which follow clear standards created by the GHG Protocol, there are no officially recognised and agreed-upon standards for the measurement and reporting of avoided emissions.

This makes it susceptible to manipulation, or errors of omission by companies seeking to project a false positive image of themselves, otherwise known as greenwashing.

However, until such time that formal standards and measures are agreed upon, the World Resources Institute (WRI) – the organization that set up the GHG Protocol – provides recommendations for companies to make credible claims about the climate impacts of their products, namely: (2)

Don’t compare apples and oranges – when choosing a product to compare against, select one that the assessed product is most likely to replace in the marketplace, given expected customer behavior.

Do account for every stage of the product’s life cycle – comparative estimates of any two products should account for every stage of their life cycle emissions—from extraction of raw materials, production, processing and shipping, through to product use and end-of-life treatment.

Do consider changes in consumer behavior – take knock-on effects of modified and more efficient products into account when looking at total avoided emissions.

Don’t confuse market size with impact – bear in mind that emissions are only avoided if the low-emission product is used in place of the reference product, not supplementary to it.

Don’t cherry pick – when choosing products to assess, don’t limit analyses to products that are known or expected to reduce emissions; analyses that aggregate results at the portfolio-level should represent the company’s full product portfolio, rather than a subset of products known or expected to have a positive impact.

Issues around reporting scope 4 GHG emissions

As highlighted earlier, many of the issues around reporting scope 4 emissions are derived from the lack of standardization and ensuing measurement difficulties, making it difficult for external parties to independently verify the truth and relevance of such claims.

Although misrepresentations may not always be intentional – a company that explicitly refers to its avoided emissions may subsequently discover that their decision actually led to more overall emissions for example – it is this lack of standardization and verification which makes avoided emissions susceptible to claims of greenwashing.

Until more scientific and verifiable measurements are introduced to this scope category, we can thus expect to see claims around avoided emissions being treated with a healthy dose of scepticism, and for companies to continue to focus on the officially standardized scope 1, 2, and 3 emissions.


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