The Need for Greener Business
Working towards more environmentally-friendly business operations is at the top of the agenda for many organisations. And it’s not hard to see why; Swiss RE predicts the rising average temperature is likely to reduce global wealth, costing the world more than $23 trillion in reduced annual global economic output as a result of climate change. Oceans are already experiencing large-scale changes and weather extremes, like droughts and flooding, will become more common. So it’s clear that all of us have to do more to support the planet and minimise our impact on it. Despite all that’s happening, there is hope for the future with ESG enabling businesses to better understand their environmental footprint and create solutions for a greener future.
The Race to Zero
As a result of the climate crisis, more and more businesses around the world are committing to monitoring and reducing their environmental impact and carbon emissions. Many asset owners, financial institutions and large corporates are tracking and monitoring their impact, with many setting out their agenda amidst COP26 last year and alongside the UN-backed global campaign, Race to Zero. The aim of the campaign is to halve global emissions by 2030, reducing them in line with the Paris Agreement. While legislation is different across the world when it comes to monitoring and reporting on ESG, the campaign unites everyone in a shared goal. And one of the biggest areas businesses can make a difference with their emissions is in their everyday operations and supply chain (otherwise known as Scope 3 emissions).
What is Scope 3?
Scope 3 can account for up to 80% of your businesses’ overall greenhouse gas emissions – they can include everything from your investments and the goods you purchase to waste disposal and transport. While the emissions are outside of your business and therefore might seem out of your control, it’s crucial to track and monitor them in order to reduce your impact. Monitoring Scope 1 (emissions associated with fuel combustion), Scope 2 (emissions associated with the purchase of electricity, steam, heating or cooling) and Scope 3 is a critical part of any journey to Net Zero. Better visibility can help you make more informed decisions, both from an ethical standpoint and in driving better and more responsible ways to do business.
Why Are Scope 3 Emissions Important?
Imagine you’re in the supermarket about to buy your evening meal. There are two options in front of you; the first is a ready meal with no label, the second is a bunch of fresh ingredients that clearly state who produced the food and where it has come from. Which one would you choose? Most likely the latter because you have more information to make a better decision for you and your family’s health, and that same rule applies across your business. By knowing the carbon footprint of your supply chain you are in a much better position to work towards your goals.
There are various ways Scope 3 can make an impact depending on the industry. If we use the food industry and take the production of potato chips as an example, it’s clear to see the pathway. Firstly, the production and transportation of purchased goods – potatoes, cooking oil, packing materials (to name a few) generates significant upstream emissions. The extraction, production and transportation of equipment (like a frying machine) are then added to the mix alongside downstream transportation and distribution of products from third parties. These Scope 3 emissions have an environmental cost and it’s similar across different industries.
Source: Scope 3 Standard
The financial sector, for example, is rapidly evolving to become more environmentally-friendly and an integral part of that is looking at the impact of investments, which would fall under Scope 3. More and more organisations are moving away from coal mining and/or coal-fired power plants, and more capital is being invested in greener activities to support companies innovating with the climate crisis at the forefront of their minds.
In addition, new regulations about sustainable finance are being introduced alongside a growing consumer appetite for understanding where their money is going (in investments like a pension). All of this means financial institutions are under pressure to communicate and disclose their ESG strategies with complete transparency. According to Gartner, 85% of investors considered ESG factors in their investments in 2020 and media mentions of ESG data grew by 303% in the same year. Understanding and managing on Scope 3 is now not just a ‘nice to have’, it’s critical for business.
How Do You Manage Scope 3 Emissions?
Scope 3 is notoriously difficult to track and monitor, but it’s a crucial part of getting a holistic view of your environmental impact and understanding the steps you can take to reduce it. Not only can reporting help you spot areas for improvement for the planet, it can also open up new opportunities and transform your business to a Net Zero future.
Our advisory team can guide you through the process, helping you gain better knowledge of Scopes 1, 2 and 3. Our ESG Advisory Roadmap will take you through step by step, starting with the basics and helping you build up knowledge before developing process and low-carbon strategies that are designed to improve your performance.
Alongside our expert team our technology platform, Sustainion, gathers the data you need to measure your impact. From collating key information around regulation and compliance to tailored frameworks that give you complete visibility over your supply chain, it’s a flexible solution that will support your growing business.
Our technology reports in real-time and can also give you a future view, helping you to plan your complete ESG journey.
Want to better understand your environmental impact and shape an ESG strategy? Looking to start managing your Scope 3 emissions? Contact our expert team to arrange a product demo today.
Published 7th June 2022 Sources:
https://www.carbontrust.com/resources/briefing-what-are-scope-3-emissions