One of the aims of reporting sustainability performance metrics should be to manage and improve these performance metrics. The ability to set targets, identify value chain GHG risk and to reduce Scope 3 emissions should be the outcomes of a good Scope 3 reporting programme.
This is the last of a 4-part series by Greenbase that Fraser, one of our senior consultants, shared on the stages of Scope 3 reporting maturity. This stage of Scope 3 emissions management requires a strong reporting programme to be in place as described in Part 3 of this series. As the saying goes, if you can’t measure it, you can’t manage it. While there are exceptions to this, Scope 3 GHG emissions need to be accurately measured to be managed.
Target setting for Scope 3 emissions starts with scenario modelling. By the time you have achieved Scope 3 reporting mastery you should know the emissions reduction targets of your key suppliers. Using this information alongside your own internal forecasts for your value chain a ‘Do nothing Scope 3 emissions profile’ can be modelled as a baseline scenario.
This step ensures that your reduction targets are relevant. For example, if your entire value chain has made a net zero commitment by a given year, it doesn’t make sense that your own target is a 30% reduction in Scope 3 emissions by that same year. This target would be irrelevant. This step also allows reduction targets to be realistic for your organisation; how much further can you go than your existing procurement business-as-usual?
This kind of thinking is necessary as Scope 3 emissions reductions are the sum of the efforts of both the value chain and your organisation itself.
Assessing value chain risk profile
An organisation having a detailed understanding of the emissions and projected emissions of their value chain allows them to create a risk profile for elements in their value chain. An element in a value chain represents the highest level of risk if its emissions contribute significantly to the Scope 3 emissions profile and there is no plan to reduce those emissions.
This risk may manifest itself in two ways. It will mean that unless something changes that element of the value chain will continue to keep an organisation’s Scope 3 emissions high. There is also a significant direct financial risk where high carbon intensities mean the external element has to commit a significant amount of capital to decarbonising or purchase offsets. These costs are likely to be passed on to your organisation. If an element in your value chain cannot decarbonise or it becomes uneconomical to operate in the future, they may also cease operations. In all cases it is best to be aware of this risk before it materialises to take steps to minimise the shock to your organisation.
Reduction scenarios can be modelled based on identifying levers which an organisation can pull to reduce their Scope 3 emissions.
There are a few main mechanisms for an organisation to reduce its Scope 3 emissions:
- The existing value chain reduces their overall emissions intensity.
For example, your suppliers reduce their emissions.
- Changing the mix of an organisation’s partners within their value chain.
For example, your procurement moves to less carbon intensive supplied types of consumed goods or you change to a less carbon intensive supplier providing that same good.
- Lowering an organisation’s reliance on their value chain.
For example, you bring emissions from your value chain to within your Scope 1 & 2 emissions reporting boundary. This may be desirable as you can directly decarbonise this activity now that it’s under your control.
Yes, making changes to things like procurement represents its own risk and this risk can be balanced against Scope 3 related risks. Strong supply chains are diverse where the organisation procures key input goods from a range of individual suppliers. Moving procurement to just the lowest carbon intensive supplier(s) in a short amount of time would leave the organisation open to supply shocks.
To avoid introducing this risk, minor tweaks can be made in procurement where lower carbon intensive suppliers are incrementally preferred over their counterparts each year. This will protect against short term supply shocks and allow the broader industry to adjust whilst still allowing an organisation to progress towards reducing Scope 3 emissions.
As outlined in Part 3 of this series, this adjustment in procurement processes requires collaboration and buy in from the procurement team, the decarbonisation team as well as the executive team within an organisation. There also needs to be strong governance of the Scope 3 reporting process to ensure that these organisation changing decisions are made based on excellent Scope 3 reporting that an organisation can rely on.
Greenbase offer support with Scope 1, 2 and 3 GHG emissions reporting and associated services. To start a conversation about your reporting needs contact us or visit our services page for more information.