We're in Scope 3 gridlock - here's how we can get out

As Science-Based Targets, net zero and rules from regulators to disclose Scope 3 increasingly loom on the horizon, we have seen businesses racing to release ambitious targets to reduce Scope 3 emissions.

Despite this, we seem to be in gridlock on Scope 3 action to achieve those goals. For many companies, Scope 3 emissions - the emissions across a business' entire value chain, from production to consumption to landfill -  account for more than 70 per cent of their carbon footprint. To decarbonise our economy and make net zero a reality, tackling scope 3 will clearly be key. 

Scope 3 emissions are the emissions of an entire value chain, so they are by nature a collective challenge - or, all the value chain actors' liability. Given the urgency of addressing the climate crisis, why aren't more businesses joining hands now to tackle Scope 3 collectively? Surely, we need coordination and shared rules of the road to get us out of this traffic jam.  

There are three central challenges at play here causing Scope 3 action gridlock. Let's dive deeper into what these issues are, and how we can solve them to scale up Scope 3 decarbonisation.

Challenge One: Poor data availability and quality and a lack of common accounting standards

Poor data availability and quality and a lack of common accounting standards are major barriers to Scope 3 action at scale. As with all forms of climate reporting, we lack the data to know if the numbers reported by companies about their annual carbon emissions are accurate or comparable. 

Large corporations have complex supply chains and often can only get data from their immediate suppliers. Due to the dearth of direct data from suppliers, the majority of companies are currently using global or national average data points to report their emissions, which results in inaccurate accounting. Simply put: this means reporting that the wheat you used to make your cereal produced 200kg of CO2, according to the national average, when the wheat from that specific farm actually produced 400kg. You can see how the numbers quickly become inaccurate. 

It's not just a question of companies being lazy, though: the average 'emission factor' for wheat in the US may be easy to find but getting more granular, annually-updated data from a specific region or supplier requires major investments in supplier engagement, data collection and reporting across the entire value chain. This is a major source of Scope 3 gridlock: companies do not have access to data to compare suppliers accurately. If they want to switch to another, more sustainable supplier, they may not have accurate data to show that this reduces their footprint. Without accurate data, they can't show their investors they're making progress or justify switching to a more eco-friendly supplier. 

Reesearch backs this up: the climate data reported by companies is not comparable. Companies use different data sources, boundaries, and processes, and may or may not include entire categories of emissions, meaning that we're often comparing apples with oranges when assessing who is leading an industry from a climate perspective.

The solution to this is verified, supplier-specific data and a common, global set of standards with which to measure and report Scope 3 (and other) emissions. If your data is measured using the same methodology with clear boundaries and accuracy criteria as everyone else, you have  the reassurance that the numbers you're reporting are comparable. The added benefit is that you now know where you realistically stand in the carbon rankings and can compete on a level playing field. Knowing your investment in GHG reduction will ultimately 'count' could overcome the first-mover inertia.

 

Challenge Two: Lack of incentives and the 'free-rider' problem

With Scope 3 emissions, we face a classic 'tragedy of the commons' scenario - in other words, everyone is acting in their own interest in the short-term to the long-term detriment of all, instead of acting together now to ensure continued success for everyone in the future. Imagine you're the sustainability manager for Cereal Company 1. You're facing pressure from the government, investors, and consumers alike to decarbonise your business' supply chain. But investing in the farms within your own value chain could mean decarbonising producers who also supply your competitors. You don't want your efforts to be claimed by Cereal Company 2 - they could enhance their reputation and profits off the back of your decarbonisation investment. 

This is the so-called 'free-rider' problem. Without a data-driven, common way of tracking and allocating Scope 3 emissions, you can't prevent your competitors from claiming your own wins. We remain in gridlock because of poor Scope 3 accounting: there's little incentive to be a first mover. 

One solution to this is market-based accounting. If we set up a system where it's clear who is investing and who benefits from Scope 3 decarbonisation, we can enable companies to co-claim and prevent double-counting. Cereal Company 1 and 2 can both invest in a farming decarbonisation programme and the system will clearly split up the benefits and claims.

Effectively, you're taking the accounting and verification tools behind carbon markets and embedding similar structures into supply chain reporting. This enables companies to make reasonable claims around their Scope 3 emissions even without full traceability, unlocking a whole load of other benefits and incentives up and down the supply chain.

Companies can demonstrate to both competitors and suppliers the true value of investing in the same decarbonisation programmes, while reassuring them that their reporting will be accurate.

 

Challenge Three: Lack of guidance on real-world best practice

Despite governments, investors and consumers turning up the pressure on companies to reduce their Scope 3 emissions, there is very little guidance for companies enabling value chain emissions reductions to determine whether they are credibly reporting on the positive impacts they are realising. This is the third source of Scope 3 gridlock: consensus-driven guidance based on real life implementation is hard to come by. No company wants (or knows how) to act first without best-practice guidance - and when they do, they may be too wary of public or competitor scrutiny to share the details.

This is where programmes fostering collective action and - crucially - standards-setting are key. Programs like the Value Change Initiative (VCI) help to solve this problem by offering collective, multi-stakeholder forums through which corporates, NGOs and experts can co-create high-integrity guidance that reflects the reality of what's happening within their value chains.

The VCI currently has two groups that have contributed to methods and standards-setting by and for industry over the last 12 months. The Systems Lab has brought together companies and experts to explore how to create digital GHG tracking and allocation systems to enable market-based accounting practices. 

In addition, a food and agriculture working group is refining GHG accounting guidance for Scope 3 reduction investments with a group of corporate practitioners and providing collective feedback on new GHG protocol guidance. By doing so, corporate members can plug critical gaps in the guidance, flagging where more detailed or sector-specific guidelines should be developed. 

These are just two examples of the ways in which industry can come together to hold themselves and others accountable - and provide realistic, viable methodologies to measure and report GHG emissions together.

 

We may be in gridlock, but there are ways out in sight

There are no credible net zero pledges or commitments without Scope 3 action. But scaling investment into accounting for and, ultimately, reducing Scope 3 emissions remains complex. The truth is that Scope 3 emissions are incredibly difficult to accurately measure without a common measurement framework. Facilitating collective action and standards-setting needs to be a priority for businesses and governments alike if we are to meet net zero in time.

 

Thomas Blackburn is head of business development and partnerships at impact verification organisation SustainCERT.

 

Thomas Blackburn Bio

Thomas is an experienced sustainability and carbon leader who has dedicated his career to helping businesses achieve science-based net zero targets.

With over six years of experience in Southeast Asia as a technical lead developing funds for low-carbon projects and six years in corporate climate accounting and strategy, he is an expert in greenhouse gas accounting, value-chain opportunities and results-based solutions. 

Now, as head of business development and partnerships at SustainCERT, Thomas works with companies and project developers to support them with net-zero strategy, including Science-based Targets, Scope 3 measurement, and offsetting. He is heavily involved in the Value Change Initiative, the world's leading multi-stakeholder initiative bringing together corporate players to take collective action on Scope 3 emissions, which was set up by SustainCERT and the Gold Standard in 2018.

Thomas is a recognised thought leader on the following topics: net zero corporate climate action, net zero value chains, the innovation and transformation of scope 3 impact verification, carbon markets, and GHG accounting.

About SustainCERT

SustainCERT is a carbon impact verification organisation developing digital verification solutions to bring credibility to climate action. The organisation is working to disrupt the verification industry to become accessible, transparent and scalable by launching the world's first software platform to enable the digital verification of impact claims across carbon markets and value chains.  

Founded as an independent standalone company in 2018 by the Gold Standard, SustainCERTs approach aligns with, and contributes to, leading international frameworks including the Sustainable Development Goals, the Greenhouse Gas Protocol.

SustainCERT is also the co-founder of the Value Change Initiative, a multi-stakeholder forum bringing together some of the world's largest companies, leading civil society actors and internationally recognised frameworks to collectively define best practice and drive down Scope 3 emissions at scale.

Find out more: https://www.sustain-cert.com/

This article is sponsored by SustainCERT