Establishing An Effective Scope 3 Reporting Process

Marion Verles is CEO of SustainCERT, a global carbon impact verification organization making credible climate action the new norm.

Scope 3 emissions, as defined by the Greenhouse Gas Protocol Corporate Standard, are greenhouse gas emissions resulting from a company’s value chain. On average, they account for 75% of a business’s carbon footprint—but it can be 99% for some sectors.

Tackling scope 3 emissions is an important part of reaching net-zero climate targets. But, according to research from the Boston Consulting Group (BCG), two-thirds of companies are yet to engage with their suppliers on cutting carbon emissions. Not for much longer.

It’s already a requirement of the Science Based Target initiative’s (SBTi) Net Zero standard to set scope 3 targets—to which over 3,000 organizations globally have committed. The EU’s Corporate Sustainability Reporting Directive (CSRD) dictates that large companies operating in Europe will need to report on scope 3 by 2024. And, in the U.S., the Security and Exchange Commission’s proposed climate disclosure rule changes could require publicly traded companies to report scope 3 emissions in the coming years.

Some companies already collect and report on scope 3 emissions. For those who haven’t started, though, how can they establish scope 3 emissions reporting in time for upcoming regulatory changes—capturing data in a precise and scalable way? Let’s explore.

Consider a digital-first approach to data collection.

Many companies still manage their climate data in spreadsheets. The average global corporation has suppliers across multiple markets providing data—it’s not always feasible to manage this through Excel. Gathering emissions data can be a difficult and time-intensive process, with individual suppliers often holding data in many places.

To ease this process, I suggest companies digitalize their scope 3 accounting. As the CEO of a company that helps with this, I’ve seen firsthand how digital systems can make it easier to collect real-time, actionable information from several sources, store it securely, and leverage the latest technologies, like AI, to analyze it.

When digitizing, opt for a supplier with experience in your specific industry. Make sure the program aligns with (currently) credible methodologies (e.g., the Science-Based Targets initiative or the Greenhouse Gas Protocol).

Aim to collect supplier-specific data.

Many companies currently use industry or national averages to measure their emissions. This is understandable: It can be very difficult to find supplier or supply-region specific data.

But using averages can cause problems. Calculating emissions with averages cannot show us a company’s real footprint, so the result is often inaccurate. You also can’t measure your progress: If your dairy suppliers are using feed additives to reduce their methane emissions, the progress achieved over time won’t show in your scope 3 inventory if you are using outdated regional or national averages.

When you capture supplier-specific data from your own value chain, it’s more accurate, enabling you to understand how you can best reduce emissions in your supply chain. If supplier-specific data is not available, supply region-specific data is the next best thing. I suggest you try to find a scope 3 accounting provider who offers access to more granular region-specific data sets—but know that this is still a nascent field.

While accessing this data can be hard, more granular climate data sets are emerging. We’re also seeing more and more initiatives facilitating data-sharing across value chain players. The Partnership for Carbon Transparency, for instance, has created the Pathfinder Network to facilitate the peer-to-peer exchange of supply chain data via a standardized, interoperable data-sharing system.

Verify, verify, verify.

Without verification, scope 3 emissions reporting can pose a reputational risk to businesses. According to a recent Reuters Insights report, 43% of businesses already engage with scope 3 emissions, and 25% plan to do so in the next two years. It’s clear why: the International Sustainability Standards Board (ISSB), the SEC and the EU’s CSRD could all require scope 3 reporting in the near future.

To ensure the scope 3 data that businesses report is precise and reliable, independent verification is a must. Independent verifiers can confirm if data sets and calculation engines are producing outputs that can be trusted. With some regulators starting to ask for verification and scope 3 emissions scrutinized by shareholders and civil society, this is even more important.

Independent verification is also important when carbon performance unlocks financial or commercial rewards. For example, some food companies are starting to reward their suppliers based on their carbon performance by linking volumes or prices to it. In more and more companies, management and top executives’ performance bonuses are also linked to the carbon performance of the company.

When selecting an independent verifier, look for an organization with relevant experience and credentials in sustainability or environmental science, including a track record of unlocking recognition from international benchmarks, such as Science-Based Targets initiative or the Greenhouse Gas Protocol.

Check which methodologies (set by standards bodies) organizations are verifying against, their approach to data quality and their experience working with companies similar to yours. Avoid verifiers who lack transparency or fail to explain the methodologies they’re verifying against clearly. And make sure the verification process is repeatable for consistent results.

Start strengthening your scope 3 reporting approach.

On top of scope 3 regulation looming large, many shareholders and civil society are now calling on businesses to step up when it comes to climate action. Climate risk is now business risk.

Having a precise and reliable overview of emissions across the value chain is a key enabler for businesses to identify the changes they need to make to transition their business toward net zero. To make sure companies can trust the data they’re reporting—and don’t put their company’s reputation on the line—they need the right systems and expertise in place to capture precise, reliable data in a scalable way.

And to really tackle scope 3, we have to work together. No company can solve scope 3 alone: It is by nature a collective issue. Cross-industry data-sharing and learning initiatives will thus be essential to moving the needle on scope 3 in the coming years.

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