A Different Way to Tackle Scope 3 Emissions

(Bloomberg) -- The greenhouse gases produced by customers and supply chains typically account for more than 70% of a company’s carbon footprint. This reality means companies cannot credibly pledge to address their environmental impact without tackling this massive source of emissions, known as Scope 3.

At the same time, problematic data issues attached to Scope 3 emissions have become legendary while some have argued companies have limited ability to influence their value chains anyway. The complexity of the topic, unsurprisingly, has proven to be a barrier for some companies trying to set net-zero targets.

But the Science Based Targets initiative, the world’s largest verifier of corporate climate goals, said we may be looking at the issue the wrong way.

In a paper published Tuesday, SBTi put forward a possible new approach aimed at enabling companies to “better assess and communicate their climate performance” in a way that goes beyond simply disclosing aggregate Scope 3 emissions.

Specifically, SBTi is exploring how to include new metrics that evaluate the alignment of a company’s procurement and revenue generation with global climate goals. Corporate Scope 3 targets “can serve as a powerful mechanism to integrate our global climate goals into the core of the economy” by focusing on how companies source goods and produce income, SBTi said.

The idea is to measure how “operational expenditure is directed towards and revenue is derived from entities, activities, commodities, products and services that have achieved a level of emissions performance compatible with reaching net-zero emissions,” SBTi said.

“Tackling supply chain emissions is conceptually more difficult than tackling direct emissions within a company,” said Holger Hoffmann-Riem, who works for the Swiss nonprofit Go for Impact and sits on SBTi’s Technical Advisory Group. “The main challenge is not to lower Scope 3 emissions, but rather to make sure that all suppliers reduce their own direct emissions as quickly as possible.”

To get on the path to achieving the goals of the Paris climate accord, SBTi said it’s assessing both emissions-based metrics that measure “impact” and non-emissions-based metrics that track “outcomes.”

But in a seemingly unlikely admission from a climate group with science in its name, the SBTi said climate science may not hold all the answers.

“While science can tell us the timeline and the shape of the emissions curve, it may not provide the requisite understanding of how companies should act to address their emissions,” SBTI said. “For many outcome metrics, such as the share of procurement spend going to suppliers with science-based targets, or the share of high-emitting commodities that are net-zero certified, the benchmarks for determining future performance levels may not be directly derived from climate science.” 

Currently, Scope 3 emissions, which are measured in tons of carbon dioxide equivalent, or tCO2e, represent an aggregate of 15 different categories of emissions sources from purchased goods and services to business travel. Exploring new metrics to capture that nuance might be impactful, said Gilles Dufrasne, policy lead on global carbon markets at Carbon Market Watch. 

“Saying that a car manufacturer must have a certain percentage of battery electric vehicle sales, or a steel manufacturer must have a defined amount of green steel would help us move away from the very coarse metric of tCO2e,” Dufrasne said. “The idea of complementing the greenhouse gas targets with other, sector-specific metrics is really interesting and promising.”

SBTi’s Scope 3 paper was released as part of a broader package of research that will inform an update of the group’s Corporate Net Zero Standard, its closely followed framework for corporate decarbonization. (In a separate report the group said it found various types of carbon credits to be “ineffective in delivering their intended mitigation outcomes.”)

Designing more appropriate metrics is just one of a series of options SBTi said it’s considering to enhance Scope 3 target setting. Other ideas include a “more nuanced approach” to defining the boundaries of targets to ensure companies prioritize action on “the most climate-relevant activities,” as well as a more thoughtful consideration of the extent of a company’s influence over emissions sources. 

The publication of the reports follows several tumultuous months at SBTi since its board in April appeared to sanction a wider use of carbon credits to offset Scope 3 emissions. That went against its long-held position and threatened to damage the group’s credibility.

For Doreen Stabinsky, professor of global environmental politics at College of the Atlantic, who is also a member of SBTi’s Technical Council, the Scope 3 paper is a welcome offering.

“It’s a refreshing, science-based approach, and 180 degrees different from the message the SBTi board was attempting to send in their April communique,” she said.“The answer to Scope 3 emissions is not ‘it’s so difficult, so let’s just use carbon credits,’” Stabinsky said. “It’s actually ‘let’s get much more clarity on the problems with decarbonization in different value chains and choose approaches that address them specifically.’”

Sustainable finance in brief

In Kansas, where a prolonged drought has killed crops and eroded the soil, Gail Fuller’s farm is like an oasis. Sheep, cows and chickens graze freely on crops and vegetation in a paradisiacal mess. But if Fuller’s farm were to be hit by a tornado or flood, or be seriously impacted by the drought, he would be alone in footing the bill. That’s because his farming practices aren’t protected by federal crop insurance, a nearly century-old US safety net that hasn’t adapted to the climate change era. Fuller is one of a growing number of farmers who are uninsured or under-insured because the industry doesn’t support switching from traditional to regenerative farming, an approach that has the potential to sequester enough carbon to halve agricultural emissions by 2030.

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