How to Make Scope-3 Carbon Accounting Less Scary

By Jennifer Anderson

When I talk with people about Scope-3 carbon accounting, I get reactions that generally range from “Are you nuts?” to “There’s no way we can get that data,” or “Maybe in a few years when we are a bit further along.” Yet, Scope 3 (also referred to as value-chain emissions) is important to an organization’s overall emissions picture and is of increasing interest to customers, investors and NGOs. Understanding your Scope-3 emissions can also be a catalyst for generating emissions reductions beyond your own walls.

When you start to dig into that long list of 15 categories of hard-to-get value chain data, it can be overwhelming. Truth be told, conducting a full Scope-3 inventory is a significant task. It’s important to understand what you are doing, why you are doing it and how you will go about it.

I have the good fortune to know Don Bain, a Scope-3 accounting expert. Among other things, Bain works for the GHG Management Institute and is the main man behind the soon to be released Scope 3 Corporate Value Chain course material. Trained as an engineer at Stanford and as a supply chain partner at Ernst & Young, he understands the importance, and challenges, of data and measurement – especially when it comes to managing what is possibly society’s biggest challenge ever: climate change from GHG emissions.

I asked Bain for his suggestions on making Scope 3 a bit less scary for sustainability managers.

Jennifer Anderson: Don, there is a lot of terminology and industry speak that comes up when you get into Scope 3. This leads to confusion and anxiety. How do you like to explain Scope 3 and its relevance to business?

Don Bain: I tend to view it as looking at “everyone else’s emissions” from two important perspectives. Scope 3 looks at:

  1. How much of others’ emissions your organization is “responsible” for (that is, emissions generated outside your company’s boundary in the course of making and delivering your product or service).
  2. How much of those emissions you might be able to influence.

For business people, this should be interesting for a couple of reasons. First, we are almost always communicating with our important suppliers. By asking for emissions data, we communicate what is important to us. Often it’s not so much about the numbers, but it’s about conveying that measuring and managing emissions are important to me, as your customer.

Second, if you believe that we will be in a carbon-constrained world and subject to carbon costs, this is the best way to begin to assess your exposure. We’ve gotten very good at optimizing for cost in the supply chain. Someday we will include carbon in that optimization. That will drive a lot of new thinking and ideas.

JA: Scope 3 is gaining ground, but it is still a fairly new concept. How has Scope-3 accounting, and our understanding of measuring it, evolved over the last few years?

DB: When the original GHG Protocol Corporate Accounting Standard came out, it was very prescriptive for Scope 1 and 2, but hardly addressed Scope 3, treating it as a catchall. This was appropriate at the time, but not useful for managing emissions outside the company. In 2011, the GHG Protocol Corporate Value Chain Standard was released. It gives us a way of grouping Scope-3 activities into categories so we can understand where the big opportunities are and where we might make improvements.

JA: What is your advice for organizations that are looking at Scope 3 for the first time?

DB: I think the most important thing is to understand what you want the Scope-3 results for and what you are prepared to do with them. It’s okay to not know the answers going in, but you’ll quickly find that doing Scope 3 is a lot of work and it makes sense to allocate the time and resources to the areas that fit your goals.

Creating a Scope-3 Inventory is a data project. I recommend having someone on your team who understands how to manage large data projects. You will save headaches in future years if you do a good job setting up the data management processes in the beginning – and remember you need several years to make changes and track Scope 3 to see improvements.

Lastly, I recommend using the Pareto Principle.

Figure out your big Scope 3 categories – the most intensive value chain activities and the largest Scope-3 contributions from suppliers and other partners – and use that to organize your efforts. One way to do this is to look at the Scope-3 reports of others in your industry, especially big enterprises. You also may be able to get a high level sense from CDP reports.

You may be tempted to start with only a few categories. That’s okay, but if you want to report in accordance with the Corporate Value Chain Standard, you must address all 15 categories.

JA: Does your advice vary by industry or by the size of the organization?

DB: Industry type and size are very important. Industry type informs which Scope-3 categories are more intensive. For example, Category 11 (Use of Sold Products) will be large for an oil refiner, but not so much for an insurance company. Size will determine how many resources you can bring to bear and will somewhat set stakeholder expectations. Because of the time involved, a full inventory implies real costs to suppliers and others in your organization. You should be clear on the goals and value for your company before incurring costs and imposing costs on others.

JA: Would you recommend enlisting the help of an expert or outside vendor with your inventory?

DB: Certainly. If you commit to doing Scope 3 on an ongoing basis, you can save yourself a ton of grief by using fast start kits from consultants. But be sure to participate fully upfront. You should not treat your inventory design as a black box.

Carbon accounting software can be helpful for Scope 1 and 2, but Scope 3 remains a challenge. Remember, for Scope 1 and 2, you are managing activity data originating inside the company. Scope 3 is activity data outside the company for the most part, and it is a very different kind of data problem with very different people involved.

JA: What other resources can organizations take advantage of?

DB: I suggest going to conferences and workshops for an informal exchange of information. People are very willing to share their Scope-3 reports and information person-to-person. Besides you’ll likely never find Scope-3 information in the detail required by the standard in a CSR report, on a company website, or in a CDP report. There’s great irony here: The Scope-3 standard requires a publicly-available inventory report, but it is almost impossible to find.

I also recommend the free online forum available at the Greenhouse Gas Management Institute. A question posted to the forum will go out to hundreds of GHG practitioners around the world and you will get responses.

JA: Agreed! I utilize the forum myself a lot and love it. Are there any other tips (or tricks!) you would impart?

DB: Consistent with my theme of having clear inventory goals and actions, I think it is important to understand when to use activity data from supply chain partners or suppliers, versus lifecycle or proxy data. Some people seem to develop a fixation on one or the other. A combination is almost always the right answer. There are a lot of things for which lifecycle data is perfectly adequate, and so much is available by buying or accessing the right databases. Depending on your industry, there are certain categories where activity-based data makes more sense.

Remember, if your goal is to make Scope-3 reductions, using lifecycle data will not enable you to see year-over-year reductions, because lifecycle data will not change. You will need actual activity data so that you can capture the reductions.

Image credit: Pixabay

Jennifer Anderson is the CEO of Sustrana LLC, a sustainability management solutions company based outside of Philadelphia, PA. Sustrana helps organizations realize business performance improvement through the implementation of sustainability best practices. Sustrana services are offered online and through consulting engagements. Sustrana is a certified B Corp and a certified WBE.