How to reduce Scope 3 emissions and build supply chain collaboration?

Meeting climate targets by 2030 is moving from a long-term target into a short-term plan, as this crucial decade for climate action nears the halfway point.

Companies need to reduce emissions across their operations in Scopes 1, 2 and 3. While companies often have visibility and control over their Scope 1 emissions (own operations and facilities) and Scope 2 emissions (energy use), addressing Scope 3 emissions is particularly challenging for many companies. They may not have full visibility, traceability, or control over these emissions in the value chain, leaving many companies wondering how to reduce Scope 3 emissions effectively. According to our 2023 research, businesses also cite a lack of clear guidance from international standards and a lack of understanding of verification service providers as barriers to action.

However, understanding the sources of Scope 3 emissions along the value chain and engaging suppliers in bringing down those emissions is crucial for companies to meet their climate targets and contribute to climate mitigation. Read on to understand what these emissions are, how to reduce Scope 3 emissions, and importantly, what is the role of supply chain collaboration in making that happen.

Scope 3 emissions refer to the indirect emissions from the value chain of a company. Depending on the sector, up to 90% of companies’ emissions take place in the value chain, making it crucial to understand how to reduce Scope 3 emissions to reach global climate targets.  The Greenhouse Gas Protocol, the biggest internationally acknowledged framework for accounting GHG emissions, divides Scope 3 emissions into upstream and downstream emissions. Upstream emissions include emissions from the goods and services the company purchases, while downstream emissions refer to the emissions of the use of sold goods and services, meaning that they take place after leaving the company’s ownership. Scope 3 emissions are further divided into 15 categories based on their source, allowing companies to organize and report on the diversity of Scope 3 activities within their value chain.

Scope 3 emissions include:

• Purchased goods and services, including materials and parts of products.
• Capital goods and leased assets, such as machinery or vehicles.
• Transportation and distribution (both upstream and downstream).
• Waste generated in operations.
• Processing and use of sold products.
• End-of-life treatment of sold products.
• Franchises.
• Investments.
• Business travel and employee commuting.

Before companies can make informed decisions about how to reduce Scope 3 emissions, they need to identify their sources and quantify the emissions. Best practice is to follow the guidelines and recommendations provided by GHG Protocol in the Scope 3 Standard and the Scope 3 Technical Guidance.

Once a company has measured its emissions, it’s possible to set science-based targets according to the Science-Based Targets initiative (SBTi) and make concrete reduction plans. Analyzing the results of the Scope 3 emissions quantification enables companies to identify hotspots, meaning the processes or stages in the value chain that are the biggest contributors to a company’s emissions. Prioritizing action in these areas can help gain the most significant emission reductions in the short-term.

Addressing Scope 3 emissions influences a range of company operations, and should be incorporated into strategic planning in areas such as procurement, supply chain management, and the selection of suppliers and materials. Companies may choose suppliers with lower emissions, as well as support existing suppliers to decarbonize.

Company strategies for interventions designed to generate emission reductions along the value chain are sometimes referred to as insetting. Value chain interventions, or projects and programs designed to reduce the emissions of a product or service, can be an effective avenue for corporate investment. How to reduce Scope 3 emissions through value chain interventions can depend on the sector, and include anything from process changes to new technology.

Examples of how to reduce Scope 3 emissions in the Food & Agriculture sector:

• Regenerative agricultural practices, such as crop rotation and reduced tillage, as long as these new practices don’t generate tangible extra emissions due to the production and use of more inputs.
• Integrated management of ruminant herds to limit enteric fermentation.
• Best practices in manure and fertilization management.
• Reducing dependency on inputs.

Examples of how to reduce Scope 3 emissions in other sectors:

• Energy efficiency measures, such as repairing leaks and improving insulation for heat-related processes.
• Switching to renewable energy sources, such as on-location solar panels or wind energy.
• Use of electric vehicles in transport, provided that electricity production is carbon-free.
• Replacing fossil fuels with alternative resources, while ensuring that the consequences of producing these alternative resources are not more harmful to the climate (e.g., causing deforestation to plant rapeseed for biofuels).

Once value chain interventions have been implemented, it’s important to monitor results and verify emission reductions. Third party verification is not only required for some reporting by regulations such as the EU Corporate Sustainability Reporting Directive and California Climate Corporate Data Accountability Act, but it also helps ensure environmental integrity and stakeholder trust.

As Scope 3 emissions are not directly under the control of companies, supply chain collaboration across partner organizations is needed. While this can be a challenge, it’s also an opportunity for companies. Increasing collaboration and creating trust with suppliers can enhance supply chain resilience and enable companies to co-claim the climate impacts of joint investments.

It’s a good idea to set joint climate targets with suppliers to clarify which actions each company is responsible for. Co-investing in value chain interventions can help secure funding for emission reductions. For example, making procurement agreements with suppliers who are willing to implement interventions can benefit all partners. For the investing company it provides a source of lower emission products from the supplier, while for the supplier it helps not only gain much-needed funding but also ensure that there is demand for their products once the emission reductions are implemented.

Additionally, supply chain collaboration is important for data sharing. Accurate measurement and reporting of Scope 3 emissions requires detailed data from suppliers. Collaboration can help improve data sharing and overall transparency, which results in companies more accurately accounting for and managing their Scope 3 emissions.

These actions inevitably require a number of safeguards to prevent freeriding and ensure credible Scope 3 claims. In this context, SustainCERT has developed Impact Units, which represent one ton of carbon reduced or removed by an intervention. This metric comes with a robust methodological framework that enables a fair equation between incentives to invest in interventions, and scientific credibility in achieving reduction targets. Impact Units enable companies to share the cost of interventions across the supply chain and be recognized for the impact generated. They can be incorporated into company inventory reports and transferred between value chain partners, enabling credible co-claiming of supply chain decarbonization.

SustainCERT’s Value Chain Impact Verification Solution will help you ensure the credibility of your Scope 3 emission reductions.