How procurement can solve the Scope 3 emission challenge

All around the world, large enterprises are facing unprecedented calls to reduce carbon emissions. In recent years, the greenhouse gas (GHG) protocol has created clearer standards for corporate accounting — and introduced us to a whole set of new terms, such as Scope 1, Scope 2 and Scope 3 emissions.

According to the guidelines, emissions can be measured in “scopes,” which are a classification system used in standard reporting. Here’s what they mean:

• Scope 1 — emissions directly from owned and controlled company sources (like production facilities and transportation vehicles)
• Scope 2 — emissions from facilities that provide energy that is bought and consumed by the company
• Scope 3 — emissions that originate outside of the company, such as from other companies in the supply chain or end-users.

Scope 3 emissions are not exactly clear-cut. They encompass the whole picture of upstream and downstream emissions. But Scope 3 emissions are something procurement is fit to tackle. Procurement’s close relationships with suppliers, ability to gain visibility into spend data and decision-making power can contribute to the reduction of Scope 3 emissions.

According to Nick Mazing, director of research at the financial data firm Sentineo Inc., “Scope 3” was mentioned at least once in 689 transcripts of quarterly earnings calls in 2021, a 15-fold increase since 2019.

With corporate social responsibility (CSR) seeing the largest increase of any CPO priority between 2019 and 2021 (Deloitte 2021) and more than half of FTSE100 companies committing to carbon neutrality in 2021 (Ecoact 2021), it doesn’t need to be sold that sustainability in procurement is no longer a “nice to have” feature.

Some of the key reasons why companies are increasing their sustainability focus are reaching set targets, complying with customer and other stakeholder demands, improving supply chain transparency, and mitigating environmental impact, particularly emissions.

It’s procurement’s time to lead

Procurement is in a place to mitigate emissions since approximately 80% of company emissions come from Scope 3. Purchased goods and services, the backbone of procurement, is the key category that has the impact to change the emissions of the company drastically.

The good news is that as a procurement leader you can solve this challenge — and go further than an annual sustainability report. It’s one thing to collect some information from your suppliers, write three numbers down in an annual sustainability report, and look back at it in a year’s time. It’s a whole other thing to start utilizing the data for decision-making with ongoing updates, reducing emissions, and — well — solving the challenge.

There are three main ways to begin reducing Scope 3 emissions:

• Improving the primary data availability and quality (for example, collecting more data from your primary suppliers and verifying it)
• Using high-quality secondary data (using industry-averages per location for emission factors to help in getting the big picture)
• Focusing on emission hotspots in the supply chain (determining which suppliers or categories are the most important based on a spend analysis)

Because there are various companies and different needs, naturally there are also various ways to utilize the three strategies in the best way. In general, one can go two ways.

How to calculate Scope 3 emissions

Option A: Scorecards = primary data

Supplier scorecards, as the name suggests, are scorecards to assess your individual suppliers. You can either have suppliers assess themselves, take the lead in organizing reviews or involve an external company.

Questions for suppliers may include “do you report your emissions?” and “do you have emission reduction targets in place?”

The goal is to understand risks, critical for tactical sustainability sourcing. However, if you are not involving a third party (the industry leader being EcoVadis), you would need to send out tens of thousands of surveys, not to mention going through them. Therefore, it is very difficult to achieve high coverage. In addition, primary data today still relies largely on the overall company view and not going deeper to understand specific products or categories.

Option B: Category indicators = hotspot identification

Category indicators, on the other hand, refer to calculating the emissions for each category or materials. The most common way of doing this is by utilizing spend data, which is supported in the GHG protocol. Spend analytics on the background combined with different databases that contain emission factors (with Ecoinvent the leading database here) help you to determine which categories, materials, suppliers or regions you should even be focusing on.

Let’s say that according to your spend analysis, you buy a lot of bananas from Thailand. With this sort of a solution, you can compare emissions originating from bananas in Thailand vs bananas from Singapore. Then, you can compare how those emissions line up with a similar item, grapes. Or better yet, you can compare emissions across categories, and figure out that package materials in fact require more attention. Although widely used in leading companies, the challenge here is that supplier specificity can be lacking.

With each option having its use, there’s still one more option — option A+B: a combination of the options above. This can be considered the best practice based on what the leading companies are doing, and it is also where we (and many other companies) see the industry developing toward. Say, you determine that bananas from Thailand are, after all, an “emission hotspot” for you. This would trigger the need internally to start collaborating with the suppliers in that category, collecting that supplier specific information and seeing how you progress toward your targets. Which of your suppliers are doing well? Do some use renewable energy and are therefore less carbon-intense? This is all information we want to capture in the analytics tool.

The fact is that the same needs and challenges exist in all companies, across industries and countries. So just know, you are not the only one having difficulties measuring emissions. That being said, the leading companies seeing progress on this front are measuring Scope 3 emissions more often than on an annual basis, getting accurate and verified data, combining industry averages with supplier specific information, setting a baseline, and enhancing cross-functional collaboration.

If these things are not at least on your “needs to be thought about” list, it’s safe to say your peers are already ahead.

Investing in CO2 analytics

When planning for your investments in CO2 analytics, consider the following:

• Lay out what you need — Is it a baseline to get started, monthly analytics to be able to start reducing emissions, simply reporting to CDP or SBTI, or engaging your organization?
• Figure out your “why” — Is it because your stakeholders are requiring it, because you have set a target and want to do good for the world, because your peers are doing it, or your employees demand it? This helps you identify which solution to go for and how much your budget could be.
• Identify your stakeholders — Do you have a sustainability function, are all sustainable procurement-related topics handled in the procurement team, or is the leadership interested in these topics? Think about how many people would need to see the data and at what level; you don’t need (and probably don’t want) three separate systems to bring an overview.
• Map out your limitations — What data and resources do you have available? If you have a sophisticated procurement analytics solution in place, measuring your sustainability performance is a lot easier than by combining thousands of transaction rows in a spreadsheet. Do you have the capability to master this process yourself, or do you have the resources to acquire a solution that can help you? Whether it’s partnering with a consultancy to calculate your yearly emissions, a third party to bring you CO2 analytics, or hiring experts in-house, be prepared that this will require some investments.

Then all that’s left is starting your sustainable procurement journey! Good luck!

Despite that the term “sustainable procurement” is still taking shape, one thing is certain: Sustainability is not a passing trend but will be the standard of the future, and the time to act is now. We at Sievo can help you with emission analytics across the enterprise. See more at https://sievo.com/products/co2-analytics

About the author

Heta Pirttijärvi is the Carbon Analytics Product Manager at Sievo, and she strives to develop Sievo as the best CO2 analytics solution for data-driven enterprises. She holds a master’s degree from Finland’s Turku University in International Business and has delved in the world of market intelligence and product development since graduating. As a young professional in the spend analytics field, she is striving to change the world into a more sustainable one while pursuing a doctoral degree on the matter.