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May 23, 2022

Collaborations Are Key in Tackling Scope 3 Emissions

Natalia Scherbakoff, Global Technology & Innovation Director, Engineered Materials

In 1973, economist Steven N.S. Cheung published a paper about trade and external benefits titled "The Fable of the Bees." What interested me is the case study that the paper was based on. A bee farm happened to be adjacent to an apple farm, and they were two independent businesses with two owners. In order to optimize their respective productions, they had to communicate and collaborate rather than work independently so that they could reach a balance and optimize their returns. More bees to help pollinate meant more apples for the apple farm, and more apple trees available meant more food for the bees to produce more apple-blossom honey for the bee farm.

After 49 years, collaboration is more critical than ever when I reflect on the challenges that the industry is facing toward a sustainability journey and, most specifically, greenhouse emissions.

diagram

Scope 1, 2 and 3 Emissions

In order to act on greenhouse emissions, they need to be measured with a harmonized approach. Therefore, greenhouse emissions are categorized into three groups or "scopes," as noted by the EPA and Guidehouse Insights.

  • Scope 1 refers to direct greenhouse emissions entirely under the company's control.
  • Scope 2 emissions are "indirect GHG emissions associated with the purchase of electricity, steam, heat or cooling," and this is mostly under the company's influence. There are also ready markets and technologies available for green energy.
  • Scope 3 emissions are "all indirect upstream and downstream emissions that occur in the value chain of the reporting company." In other words, many of the Scope 3 emissions are from the company's suppliers, customers, business activities and operation partners. Examples of Scope 3 emissions include emissions generated from the purchasing and delivery of goods, business travel and commuting, consuming phase, product disposal and so on.

Scope 3 Emissions are A Hot Topic

Traditionally, Scopes 1 and 2 are climate change-related emissions that people care about, whereas Scope 3 is a somewhat more recent issue. However, Scope 3 has suddenly become a hot topic because it accounted for a large percentage of the overall emissions. To visualize it with a real-life example, MSCI found that "the Scope 3 emissions of the integrated oil and gas industry ... are more than six times the level of its Scope 1 and 2 emissions."

Tackling Scope 3 emissions is challenging, and reporting them is not easy. Scope 3 is structurally more complex to report, and the methodology is still yet to be matured. To begin with, the data collection process is difficult, as is avoiding double-counting, and the actual calculations are far from simple as well. While it is not feasible to take every single Scope 3 element along the value chain into account, exploring practical, measurable and meaningful tracking and reporting is what companies should aim for. The good news is many sizeable companies understand the importance and have started working on it. The ripple effects are going to be significant.

How do organizations begin the journey toward tracking and reporting Scope 3 emissions? Given the complexity of the reporting processes, Scope 3 reporting can be a big undertaking for organizations. The first thing they have to do is to establish advanced supply chain transparency. Sources such as the Greenhouse Gas Protocol and the EPA can provide guidance and information on this. In addition, the WWF identified four general barriers that organizations will have to overcome to successfully track and report Scope 3 emissions—a lack of transparency, a lack of personnel resources, a lack of relevance and benefits and a lack of possibility to influence and lack of cooperation.

Scope 3 Emissions Are All about Collaborations

Maybe unknowingly from the beginning, collaborations between the apple and bee farms are the key to allowing both farms to achieve their goals. The apple and bee farms were individually run, and they had no control over each other. They were two independent companies, and they could only influence each other through shared values and benefits.

Scope 3 emissions are similar. Although we don't have full control over all of our upstream and downstream business partners, we have to work with them in order to tackle Scope 3 emissions. In the past, collaborations were more straightforward; as long as we agreed on the prices, payment terms and product specifications, it was basically done. Now, if you have a Scope 3 target, you also have to cultivate a sustainability culture with your value chain partners or partner with those that share the same values. Besides, to align and agree on a new way to work and operational model so as to achieve the targets, capital investment and development of infrastructure may incur as well.

As mentioned in my previous article, high engagement is the key to success in sustainability. Again, collaboration is more critical than ever.

 

Natalia Scherbakoff is a member of Forbes Technology Council. Get more insights from Scherbakoff’s thought leadership by reading her posts published on Forbes.com.

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