By Emma Cox and Casey Herman
When it comes to reducing a company’s Scope 3 greenhouse gas emissions, supply chain managers face a daunting task. Scope 3 emissions are both large (making up 65–95% of most companies’ carbon impact) and indirect—a consequence of a company’s activities outside its direct control. This can make estimating and tracking them, let alone reporting them, seem devilishly complicated. For example:
The good news is that while perfect data might be difficult to come by (especially beyond Tier 1 suppliers) useful, actionable data is not. In many cases, an incremental approach to data collection can ease the burden. We’ve typically found that as much as 80% of an organisation's supply chain emissions come from as few as one-fifth of its purchases. At one public-sector agency, just 20 suppliers were responsible for 94% of the agency’s Scope 3 emissions. This means that in principle the agency could, within about ten years, cut its Scope 3 supply chain emissions in half by focusing on just those 20 suppliers.
In situations where companies can’t get direct information from suppliers, the Greenhouse Gas Protocol allows them to use industry averages, proxies and other sources to calculate their Scope 3 emissions. Any number of third-party data suppliers, as well as the International Energy Agency and various government agencies, can help.
Nonetheless, calculating Scope 3 emissions using incremental and third-party approaches presents challenges. Here are four of the most common that we’ve helped organisations address:
Despite all the complexity surrounding Scope 3 emissions, one thing remains simple: the end goal of measuring and tracking them is to shape business decisions that mitigate the effects of climate change. For business leaders, the resulting agenda for corporate action should be equally clear: leverage your data to focus efforts where they will have the greatest impact, establish a baseline of performance, prioritise efforts with suppliers and craft meaningful performance incentives for them. Do these things, and you’re making a positive contribution.
One beneficiary is the broader ecosystem. After all, your Scope 1 and 2 emissions are another organisation’s Scope 3. And until all companies measure, track and report their emissions, the availability, accuracy and transparency of data will continue to be one of the biggest challenges to reducing carbon emissions. Another beneficiary? Your bottom line. The work companies do to tackle Scope 3 emissions can help strengthen relationships with suppliers and improve collaboration—actions that can lead to cost savings, new revenue-generating opportunities or both.
Finally, soon you may not have a choice. Scope 3 reporting has thus far been mostly voluntary, but the pressure to make it mandatory is growing. The International Sustainability Standards Board (ISSB), the US Electronic Subcontracting Reporting System (eSRS) and the US Securities and Exchange Commission have all drafted recommendations requiring some disclosure of Scope 3 emissions—with the ISSB also requiring qualitative information to explain how reported emissions were calculated. What’s more, a recent PwC survey of 325 investors (representing $14 trillion in assets under management) found that more than one-third of them identified reducing Scope 3 emissions as a priority.
Forward-looking organisations will read the writing on the wall and start developing the capabilities and expertise they’ll need to measure—and manage—their Scope 3 emissions. By adopting an incremental approach to data collection, organisations can begin making meaningful progress now—before it’s too late.
This article was originally published in collaboration with The Climate Group as part of our Executive Series sponsorship of Climate Week NYC 2022.
PwC’s Global Climate Leader Emma Cox hosted a conversation with Elisabeth Brinton, Microsoft’s Corporate Vice President, Sustainability.
Emma Cox is global climate leader at PwC. She has worked on a wide range of climate-related projects in both the public and private sectors. A partner with PwC UK, she is based in London.
Casey Herman leads PwC’s ESG practice in the United States. Based in Chicago, he is a partner with PwC US.