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A shift in philosophy
Four years ago, I took a class in sustainable development as a part of my graduate studies. Our professor, a retired environmental lawyer and avid bird watcher, was infamous in Houston for his ability to take on large corporations in court while maintaining cordial friendships with those he sued. After retirement, he shifted into the role of activist, pulling on his friendships to influence corporate ESG (environmental, social, and governance) practices in America’s energy capital. Among his many passionate and often controversial takes (his first lecture of the semester was entirely dedicated to his unbridled hatred for the American lawn), one thing he said has stayed with me over the years:
“In the last 5 years, I have seen more change take place in corporate America’s attitude toward environmental issues than in the 40+ years I spent fighting these same companies as an environmental lawyer.”
The semester’s curriculum was an introduction to these changes; concepts like Scope 3 emissions, the Three Pillars of Sustainability (environmental, economic, and social), the circular economy, and life cycle assessments were all relatively new, and they reflected a shifting focus in the environmental space from consumer responsibility and direct emissions to corporate responsibility and holistic environmental and societal impact.
What are Scope 3 emissions?
Of these sustainability concepts, Scope 3 emissions may be the most daunting. Scope 3 emissions are indirect greenhouse gas emissions connected to a process, project, or corporation via its relationship to other processes, projects, and corporations, both upstream and downstream in the supply chain. This classification, first defined by the Greenhouse Gas Protocol, reshaped the perspective of what was considered firms’ environmental responsibility. Not only are companies responsible for their own direct emissions and energy use, but they are also responsible for their business relationships, resource sourcing, investments, and waste management. Consequently, reporting Scope 3 emissions cultivates an environment of peer pressure for all corporations to improve ESG performance.
For some companies and industries, reporting Scope 3 emissions can be a tough pill to swallow. For oil and gas companies, for example, their Scope 3 emissions include car emissions produced by consumers purchasing their fuel. Even renewable energy and EV companies may find they have significant Scope 3 emissions associated with mining rare metals and end-of-life disposal. However, studies and experience demonstrate that there are some surprising advantages for companies that measure and report their Scope 3 emissions.
Establish a more accurate and easier to improve baseline
Across all industries, Scope 3 emissions, on average, account for 75% of a company’s carbon footprint, though that share can reach over 90% for a company depending on the sector, according to the Carbon Disclosure Project. As responsible participants in the global economy, all companies should report Scope 3 emissions.
More practically, however, an argument for Scope 3 emissions analysis is that this provides an alternate lens with which to evaluate baseline corporate sustainability performance. Not reporting Scope 3 emissions limits the scope of analysis, and by definition fails to consider other ways a company can improve. Being open and honest with inevitably high Scope 3 emissions provides more room for improvement and growth. It also allows companies to quantify and report emissions reductions that would not be reportable without including Scope 3.
I encountered this missed opportunity on a recent project helping a client apply for a competitive grant awarded to projects reducing GHG emissions. The project involved waste stream valorization, and one of the benefits was a significant reduction of waste production that would otherwise have to be shipped offsite, but because the grant only applied to Scope 1 and 2 emissions, the avoided Scope 3 emissions associated with reduced waste disposal could not be counted in the client’s application.
More opportunities for cost-effective GHG emissions reductions
While taking the time to measure your Scope 3 emissions can be daunting, having this data can be invaluable for a company. Knowing the source and quantity of all emissions, including Scope 3, helps a company identify the largest emitting culprits, sometimes uncovering hidden sources. If future Scope 3 emissions can be estimated for project design options, this information can even be used as a decision-making tool for carbon and cost optimization.
In a project designing a manufacturing facility, we evaluated several sustainability measures for the client, including roof-mounted solar panels and using more sustainable materials in construction. While the solar option proved too costly to implement, by performing a Life Cycle Assessment (LCA) of the construction materials, we discovered that using recycled-content structural materials reduced Scope 3 emissions by a similar magnitude to adding solar while remaining under budget.
With more sources of emissions to evaluate, there are more opportunities to identify low effort, low cost or even cost saving changes that can provide high levels of emissions reductions. In other words, understanding Scope 3 emissions can help companies make the biggest bang for their buck when it comes to implementing sustainability measures.
The more we learn and measure, the better we become at building a sustainable future
While concepts like Scope 3 emissions are becoming more established across industries, reporting standards and calculation tools continue to evolve as we grapple with the complex challenge of making entire supply chains sustainable. Despite the complexity, striving to improve our emissions measuring and reporting with transparency is a critical and beneficial endeavor for all companies. That said, there is no need to tackle it alone; as the definition of Scope 3 emissions demonstrates, sustainability is best achieved with collaboration.