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Anthony Settipani FourKites headshotAnthony Settipani

Why Scope 3 is critical to reducing your business’ carbon footprint

If you’ve been following the conversation around sustainability within the supply chain industry (and likely even if you haven’t), you’ve probably heard phrases like “Scope 3 emissions” getting thrown around with increasing regularity. If you’re like most people, you’re probably also wondering what exactly they mean.

The three scopes of carbon emissions were first introduced by the Carbon Disclosure Project (CDP), in cooperation with the United Nations Global Compact, the World Resources Institute, and the World Wildlife Foundation, in 2015. Since then, they have become frequent topics of consideration for professionals operating both within and outside the supply chain industry. In essence, they each map to a different segment of an organization’s overall carbon footprint and offer businesses a clearer roadmap for achieving net carbon neutrality within a reasonable time frame.

In this post, I’ll walk you through what Scopes 1, 2 and 3 actually mean for your business, and what can be done to get on track to meet the rising expectations they represent.

What Are Scope 1 and 2 Emissions?

Within the framework of the science-based target standards, a company has the highest degree of direct control over Scopes 1 and 2. Scope 1 emissions encompass all emissions directly produced by a business over the course of normal operations, including owned vehicles and owned or controlled facilities and grounds. Scope 2 emissions originate from purchased power, including electricity, heating and cooling, steam, or any other power source.

Companies address these differently, depending on their size, industry and geography. Many common approaches include seeking LEED certification, investing in renewable energy and packaging materials, and educating consumers on how to use their products more effectively.

While the impacts of these two categories are important, they fail to account for the vast majority of most companies’ carbon footprint. To do that, you have to look at the supply chain.

What Are Scope 3 Emissions?

Scope 3 emissions take place within both the upstream and downstream value chain of a business. In other words, they are all of the emissions generated outside a business’ direct control – by the partners, suppliers, and consumers that make up their greater business ecosystem. This means that what would be considered Scope 3 emissions for one company are also the Scope 1 and 2 emissions for another organization.

Because of this, the supply chain plays a critical role in both measuring and reducing the true carbon footprint of any modern business. According to the CDP, supply chain emissions are, on average, more than 11 times higher than direct operational emissions. While it’s admirable to pursue reductions in a business’ internal operations, the brunt of most companies’ emissions comes from the supply chain.

The U.S. Environmental Protection Agency has identified fifteen categories of Scope 3 emissions, though not every category will be applicable to all businesses. As HP Canada’s Frances Edmunds mentioned in FourKites’ first Sustainability Summit, much of her company’s impact on the environment occurs outside of their own four walls. This means that end-to-end visibility is critical for any successful carbon reduction strategy.

What Are Some Examples of Scope 3 Emissions?

Since Scope 3 accounts for all indirect emissions (except for those included in Scope 2), many of the largest sources of Scope 3 emissions might be ones over which a business has little to no direct control. Here are a few examples of typical Scope 3 emissions:

  • Upstream Transportation & Distribution: Emissions from suppliers, original equipment manufacturers (OEMs), warehouses and other organizations situated before your own facilities in the supply chain.
  • Downstream Transportation & Distribution: Emissions associated with your carriers, logistics service providers (LSPs), distribution centers  and other transportation partners responsible for transporting products further down the supply chain.
  • Investments & Leased Assets: Emissions generated by any materials or assets that are used but not owned by your compay, such as contract capacity, leased production lines, etc.
  • Use of Sold Products: Emissions that occur during the consumption phase of your products, such as driving time in the case of an automobile manufacturer, or disposal/recycling of empty packaging in the case of a consumer packaged goods company.
  • Employee Commutes and Business Trips: The emissions associated with employee transportation to and from their place of work, as well as any transportation on behalf of your business.

According to the American Transportation Research Institute, refrigerated trailers spend the longest of all truck types in detention (over 36% of deliveries spend four-plus hours in detention), and must remain on during lengthy detention periods to ensure freshness of goods. The result? Wasted fuel and CO2 emissions. Supply chain visibility software allows companies to seamlessly track detention across their facilities, and implement solutions such as strategic appointment scheduling to help mitigate dwell.

How Can I Reduce My Scope 3 Emissions?

When you go to make any change in a vast, complex system like the supply chain, the first step is always to understand the moving parts and where opportunities for improvement reside. Because of this, investing in greater visibility for the supply chain is critical to reducing Scope 3 emissions for any business. Once you know where the inefficiencies are occurring, you can select tools that will help you mitigate the impact of those areas.

For example, tools like FourKites’ Network Visibility allow businesses to gain unprecedented visibility into their inbound freight, making it easier than ever to assess suppliers’ performance not only with regard to on-time delivery, but for dwell and carbon emissions as well. Such insights are, needless to say, an improvement both for a business’ bottom line as well as for the environment itself.

Scope 1, 2, and 3 emissions are increasingly becoming topics of conversation at all levels of the business. More than that, however, they’re becoming action items as well. To ensure that these changes take root, companies need to take a hands-on approach. They must not only encourage better supplier performance, but also monitor that sustainability performance in order to hold suppliers accountable. This means real-time, reliable data on the full supply chain and value network.

As consumers, regulators and investors alike cast an increasingly critical eye upon companies’ emissions and their strategies for reducing their carbon impact, the three scopes of carbon emissions are becoming table stakes for modern businesses as well. With more consumers than ever before paying attention to companies’ social and environmental impact, ignoring their impact on the world around us is no longer something businesses can afford to do.

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