The emergence of ESG has drawn significant attention to Scope 3 emissions, which encompass indirect greenhouse gas emissions stemming from a company’s activities but originating from sources beyond its ownership or control. Scope 3 emissions often represent the largest portion of a company’s carbon footprint and are crucial for understanding and addressing the full environmental impact of its operations. Many companies around the world are increasingly required to provide comprehensive information on their environmental performance including scope 3 emissions. This regulatory push compels companies to gather, report and disclose such data.
Difficulties of Gathering Scope 3 Data
Gathering emissions data from third-party suppliers, such as subcontractors or distributors, can be challenging as these organisations may not have a data collection process in place to gather this type of data. Even when the data is available, it may vary in quality and consistency.
In global supply chains, products and materials may pass through numerous intermediaries – this makes tracking the full emissions footprint challenging. Furthermore, such supply chains typically involve multiple handovers and routes, each with its own emissions and sources. Ensuring the accuracy and reliability of scope 3 data can be a challenge as external verification and assurance are often needed, which can add costs and complexity.
In light of these difficulties, organisations pursuing scope 3 data collection and reporting must carefully plan and engage with their supply chain partners and invest in robust data collection and management systems to address these challenges effectively.
How Scope 3 Data Gathering Will Impact Smaller Suppliers
At the heart of addressing ESG factors lies the data gathering and reporting of scope 3 emissions. While this is often seen as an endeavour for large companies, the impact on smaller suppliers is equally significant.
The demand for scope 3 data means that smaller suppliers are now being required to provide data about their emissions to their customers. The need for transparency has, in turn, prompted these smaller suppliers to implement better tracking of emissions and reporting mechanisms.
Smaller suppliers may also lack the resources and expertise for the data collection of emissions, which can lead to increased costs and investments in software, training or even consultancy services. However, this can be seen as an opportunity for suppliers who can demonstrate robust scope 3 emission data management and gain a competitive edge over other suppliers.
Large companies, which source goods and materials from smaller suppliers, are increasingly incorporating ESG criteria into their supplier selection and evaluation process. Now smaller suppliers must not only meet product quality and pricing requirements but also demonstrate their commitment to environmental sustainability. Large companies could also incorporate ESG data reporting obligations into supplier contracts, to encourage suppliers to adopt responsible and ethical business practices.
The Path Forward
Overcoming the scope 3 challenge requires a concentrated effort from companies of all sizes. Collaboration with supply chain partners, investments in technology and sustainability initiatives within organisations is essential. The adoption of reporting standards and frameworks can guide companies in gathering and disclosing data effectively. Additionally, a strategic, long-term view of sustainability and scope 3 emissions is crucial.
In conclusion, as the world navigates the pressing challenges of climate change and environmental degradation, the scope 3 challenge is an essential component of ESG transformation in global supply chains. While it presents considerable difficulties, it is a transformation that corporations cannot afford to ignore. Embracing this challenge is not only a responsibility but an opportunity to build a sustainable and prosperous future for business and the planet.
How Can We Help
At ZD our services can support your company in managing and reducing emissions across your value chain. We help you measure your baseline and accurately calculate your Scope 1, 2 and 3 emissions. By identifying and analysing indirect emissions, we provide actional insights to reduce your carbon footprint.
Mark Wirth
Partner
