Scope 3 Emissions Guide

• Scope 3 emissions encompass all indirect emissions that occur in a company's value chain, both upstream and downstream.
• Measuring Scope 3 emissions has been notoriously challenging due to the extensive data collection and validation required across an entire value chain, often involving multiple suppliers and stakeholders. 
• Carbon accounting software and traceability solutions – such as BanQu – turn the daunting task of managing Scope 3 emissions into a golden opportunity for innovation and growth.

Think of scope 3 emissions as the invisible strings that tie your business to the wider world. These strings, while out of sight, hold tremendous power over your company’s environmental impact. Did you know that scope 3 emissions can constitute up to 70% of a company’s total carbon footprint? In fact, in the financial services sector, scope 3 emissions can constitute up to 99.84% of total emissions, while in the oil and gas industry, they can be around 80.5%. Despite their significant influence, they often remain the least understood and hardest to manage. 

As the climate crisis intensifies, the imperative to comprehend and mitigate these hidden emissions grows ever stronger. How can your business trace these invisible threads and transform this challenge into an opportunity for innovation and growth? In this blog, we’re pulling back the curtain to mastering scope 3 emissions and selecting the best carbon accounting software for your organization.

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What are Scope 3 Emissions?

Scope 3 emissions encompass all indirect emissions that occur in a company's value chain, both upstream and downstream. These emissions are not directly generated by the company itself but rather by activities and sources it indirectly impacts. Think of everything from the production of purchased goods and services to transportation and distribution, waste disposal, business travel, and even employee commuting. 

Often, these emissions originate as scope 1 or scope 2 emissions from your suppliers and are the largest share of a company’s carbon footprint – making them a critical focus for comprehensive environmental impact assessments.

Difference between Scope 1, 2, and 3 Emissions

“The GHG Protocol Corporate Standard classifies a company’s GHG emissions into three ‘scopes’. Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.” - Greenhouse Gas Protocol

Understanding the distinctions between scope 1, 2, and 3 emissions is fundamental for effective carbon accounting:

• Scope 1: Direct emissions from owned or controlled sources, such as emissions from company vehicles or on-site fuel combustion. 
• Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company. 
• Scope 3: As previously noted, these emissions encompass all other indirect emissions that occur in the company’s value chain, such as emissions from the production of purchased goods and services, waste generated in operations, and the end-of-life treatment of sold products.

Differentiating among these scopes is crucial as it helps identify and target specific areas for potential emission reductions.

Scope 3 Emissions Regulatory Requirements

In recent years, regulatory requirements for carbon emissions reporting have tightened globally, compelling companies to adopt a proactive approach to managing and disclosing their scope 3 emissions.

European Union

The Corporate Sustainability Reporting Directive (CSRD) mandates that large companies disclose their environmental impact, including comprehensive scope 3 emissions data. This regulation aims to increase corporate accountability and drive transparency across the supply chain.

North America

The Federal Supplier Climate Risks and Resilience Proposed Rule mandates that major federal contractors disclose their greenhouse gas emissions, including scope 3 emissions, and set science-based targets for their reduction. This rule aims to drive significant reductions in indirect emissions and bolster climate resilience across federal procurement networks.

Canadian Securities Administrators (CSA) is considering a comply-or-explain approach to scope 2 and 3 emissions reporting. Louis Morisset, CSA Chair, commented: “With global momentum building on sustainability-related disclosures in both the public and private sectors, these proposals reflect our vision and expectations for reporting issuers as we move towards a global baseline for such disclosures.”

International Standards

The International Sustainability Standards Board (ISSB) has introduced climate-related disclosure standards (IFRS S2) that mandate the reporting of absolute gross greenhouse gas emissions, including scope 3 emissions. 

Pankaj Bhatia, Director of Greenhouse Gas Protocol and member of the IFRS/ISSB International Reporting & Connectivity Council, remarked, “The ISSB’s requirement to disclose scope 3 emissions is a major step forward in measuring and managing emissions from companies’ value chain. This is the first time a major global standard-setting institution required reporting of scope 3 emissions, setting a precedent for other institutions and regulatory programs to follow.”

How to Measure & Report Scope 3 Emissions

Recent studies reveal that while 45% of companies believe they are prepared to report on scope 3 emissions, only 38% are actively measuring their scope 3 footprint. Measuring scope 3 emissions presents significant challenges due to the extensive data collection required across an entire value chain, often involving multiple suppliers and stakeholders. This complexity is compounded by varying data quality and the difficulty in obtaining accurate, consistent information from indirect sources.

Despite these challenges, emerging technologies and innovative solutions have simplified and streamlined scope 3 data collection and reporting. Here are some best practices to help you get started on the right foot:

1. Supply Chain Mapping: Begin by mapping out your entire value chain to identify all potential sources of scope 3 emissions. This comprehensive overview is crucial for pinpointing where emissions occur and high-risk areas.
2. Supplier Engagement: Engage with suppliers and stakeholders to clearly communicate objectives and overcome challenges in gathering accurate data. Building strong relationships and ensuring transparent communication can significantly enhance data quality.
3. Quantification Methods: Utilize various quantification methods such as emission factors, lifecycle assessments, and specialized carbon accounting tools – including supply chain traceability software for data you can trust.
4. Data Validation & Reporting: Ensure accurate measurement by combining primary, real-time data (direct measurements) with secondary data (estimates and industry averages). Robust data management systems are essential for validating this data and compiling configurable reports to manage this information effectively.

Choosing the Best Carbon Accounting Software

“Looking to our future, some data, such as scope 3 carbon emissions, is notoriously hard to record, and we are excited for the opportunities that BanQu provides as we continue to work with our stakeholders to improve our climate footprint.” - Alain Poncelet, CEO of ECOM Trading

As the pressure mounts for businesses to manage and report their scope 3 emissions effectively, selecting the right carbon accounting software becomes crucial. The right software can transform this daunting task into a streamlined, manageable process. Here are the key features to look for:

End-to-End Traceability

Why It’s Important: Achieving complete visibility of your supply chain, including tiers four and five, ensures accurate scope 3 emissions data collection—including your direct and indirect suppliers. It also helps identify inefficiencies and areas for improvement.

How BanQu Helps: BanQu’s blockchain-based platform provides complete traceability from the source to the final product. This end-to-end visibility allows your company to capture detailed data at every stage of the supply chain, including indirect suppliers such as truck drivers bringing recyclables to collection sites. With BanQu, your business can track the lifecycle of your products, ensuring compliance with scope 3 regulations and verifying sustainability claims through immutable records.

Real-Time Tracking

Why It’s Important: Real-time tracking of emissions data allows for timely decision-making and immediate corrective actions, which is essential for managing dynamic and complex supply chains.

How BanQu Helps: BanQu offers real-time data capture and reporting, enabling companies to monitor their supply chains continuously. This real-time insight helps maintain supply chain efficiency and verify sustainability claims promptly. BanQu’s platform ensures that data is up-to-date and accurate, facilitating proactive management of scope 3 carbon emissions.

User-Friendly & Scalable

Why It’s Important: A user-friendly interface ensures that all stakeholders, regardless of technical expertise, can efficiently use the software. Scalability is crucial for growing companies that need to expand their reporting capabilities without changing platforms.

How BanQu Helps: BanQu’s platform is designed to be user-friendly and scalable, making it accessible to all users, from field workers to executives. Its scalability ensures that as a company grows, the platform can handle increased data volumes and more complex reporting requirements. BanQu’s intuitive design and robust functionality allow for seamless integration into existing workflows, facilitating broader adoption across the organization. Plus, the software is interoperable with any of your existing supply chain systems and is completely device-agnostic - with offline functionalities to work in remote locations with low connectivity.

Configurable Reporting Dashboard

Why It’s Important: A configurable reporting dashboard allows companies to tailor reports to meet specific regulatory requirements and internal reporting needs, enhancing the ability to communicate your scope 3 footprint effectively.

How BanQu Helps: BanQu provides customizable dashboards that enable users to generate personalized reports. These dashboards are equipped with various data visualization tools that help in presenting comprehensive and understandable reports to stakeholders. BanQu’s platform supports detailed scope 3 carbon accounting, allowing businesses to create reports that meet specific compliance and sustainability targets.

Scope 3 Emissions Conclusion

Managing scope 3 emissions is no easy feat, yet it's a critical component of any company's sustainability strategy - regardless of your industry. By fully grasping the breadth and impact of these emissions, adhering to rigorous reporting standards, and utilizing cutting-edge carbon accounting software, your business can make substantial strides in reducing its carbon footprint and advancing global climate goals. BanQu shines as a game-changer in this space, offering an all-encompassing suite of tools for precise and efficient scope 3 emissions management. With standout features like end-to-end, real-time traceability, intuitive scalability, and configurable reporting dashboards, BanQu turns the daunting task of managing scope 3 emissions into a golden opportunity for innovation and growth. Schedule a call today to start your scope 3 tracking journey.