Using procurement analytics to analyze and reduce Scope 3 carbon emissions

With regulators, investors and customers demanding cleaner business processes, companies understand the need to improve, but can find it daunting to start measuring all the ways they emit carbon. Organizations must understand Scope 1, 2 & 3 emissions, address ESG issues (environmental, social, governance) and get to grips with terms like “carbon-neutral” or “net-zero” and how they apply to their business operations and strategic objectives.

But business leaders should take comfort from the fact that their procurement teams already collect a lot of the data that can spur them into action and help solve the complex options for curbing greenhouse gases (GHG).

“For some organizations, the terms ‘carbon-neutral’ or ‘net-zero’ mean reducing all scopes of emissions, but for many, becoming carbon-neutral by 2035 means simply looking into Scopes 1 and 2,” explained Heta Pirttijärvi, Product Manager at spend analytics software provider Sievo, experts on spend analysis and CO2 analytics. “Therefore, when comparing your operations or targets to those of other companies, don’t get too discouraged. Many promises are made but what really matters in the end is ‘actions.’ If technology, CO2 analytics and measuring Scope 3 emissions gets you there, great, but the key thing is that actions are taken!”

Businesses need to consider this as they digitally transform and move away from siloed spreadsheet ways of working (like MS Excel and other tools) toward systems that give stakeholders the spend visibility and real-time data analytics they need to drive strategy decisions across the company.

Understanding the scope of Scope 1, 2 & 3 emissions

The Greenhouse Gas Protocol sets the basic model for measuring emissions and managing mitigation efforts. And as businesses begin to measure their emissions, they must become familiar with the terms and standards for doing so.

Carbon-neutral and net-zero can mean different things as organizations and companies discuss goals for reducing CO2 emissions. But, in general, they are intended to mean that the carbon output is balanced by carbon-mitigation actions. That’s the target. And each business or group will have a different formula for reaching their target.

The three emission types are:

• Scope 1 — the business’s own emissions from production and delivery. Think of the planes, trains and trucks that deliver materials to a company or to its customers.
• Scope 2 — a company’s use of purchased energy: electricity, steam, heating or cooling. For example, this could include considerations about whether a company still relies on coal-fired powerplants for electricity or whether it could save on heating or cooling costs with better processes or insulation.
• Scope 3 — emissions attributed to suppliers and their suppliers, the n-tier supply chain. The whole supply chain’s carbon output rolls up under this scope. Mitigating it relies on supplier management, which involves technology that keeps you in touch with suppliers.

Amid the ongoing threats and disruptions to supply chains, it’s important to know how all your suppliers around the world affect your Scope 3 status. Gaining insights and actionable data on Scope 3 emissions can be a fragmented process, but it is possible to do.

In a recent Sievo post published on Spend Matters, Pirttijärvi, who as well as working in product development is pursuing a doctorate in sustainable business practices, wrote that “Scope 3 emissions are something procurement is fit to tackle.” She observed that because procurement teams know a company’s suppliers and know their spend data, they are in a great position to help businesses develop and grow sustainability programs.

With that in mind, we talked to Pirttijärvi to understand more about analyzing and reducing Scope 3 carbon emissions using procurement analytics.

How does spend data translate into actionable information about an emissions policy? How do you reduce emissions with this information?

“Understanding Scope 3 emissions is one of the main focus areas of sustainability functions across the globe right now, and this is exactly where spend data comes in,” she explained.

“Ideally, we would obtain the exact emissions from every single supplier and each material we buy from them. As this is not feasible, spend data is relied on by the official GHG Protocol to understand emissions based on average emission factors per each material or category bought.

“By way of example: you buy 1kg of apples from Germany. An external database would tell you that the emissions for such a product are on average x kilograms, a bit more than for oranges and a bit less than your apples from the United States. When starting to reduce emissions, this analysis helps you identify which categories, regions, suppliers or business units you should be focusing on in the first place. Perhaps your minimal spend on apples isn’t relevant in the big picture but rather business travel is your emission hot spot.

“This type of analysis puts the focus on the right places when starting emission-reduction projects together with the suppliers. To allow for even more accurate data to enable you to reach set targets and policies, ideally you would combine the CO2 analytics with supplier-specific information directly from the suppliers.”

Given that large enterprises deal with a vast array of spend and a complicated, sprawling supply chain, they often have many business units and different computer systems, so we asked:

How can enterprises gain visibility across a complex landscape and use analytics to make sense of all of that data?

“Most large companies face a major challenge in combining data,” she said. “It’s not just procurement that’s struggling, the whole ERP/enterprise data landscape brings complexity.

“Through spend analysis software, many enterprises are starting to get their own data in good shape. Specialist vendors like Sievo have mastered wrangling data in this landscape, so procurement professionals don’t have to. Large enterprises get especially high value from combining their own data with external data and the infrastructure to make use of those data insights at a meaningful scale across business units.

“For instance, an enterprise business can enable Scope 3 emissions visibility across their entire procurement within several weeks with a tool like our CO2 analytics that links spend analytics with external emission-data providers like Ecoinvent or Exiobase.”

How can larger businesses get started or leverage the information that they already have?

“While calculating emissions in SMEs and larger enterprises ultimately works in the same way, there is another challenge for larger corporations in that they often have this existing information spread across different stakeholders. It’s great that the sustainability team has an Excel spreadsheet in which emissions are tracked, that the management team requests a consulting company to do the annual sustainability report, and that the procurement team calculates emissions for each key category they buy from, but the alignment also needs to be there for the actions to be lined up.

“Positive feedback we have heard from our CO2 analytics is that breaking down the silos between sustainability efforts, management and procurement teams to allow for one truth can save a lot of time and effort, and perhaps sweat and tears.”

What technology do procurement professionals initially find most useful when starting a Scope 3 program?

“Utilizing spend data is a key method in starting an emission-reduction program from procurement’s perspective but also from a wider Scope 3 angle. Therefore, the technology utilized by procurement is in the driving seat for getting started.

“Technologies that enable using spend data to understand emissions as well as platforms that allow for supplier collaboration are especially useful. Ideally, combining these two types of service give an accurate view. Going forward, tools like CO2 project tracking as well as predictive analytics will also come into play, but when discussing the initial first steps in the Scope 3 programs, these are not as relevant as getting a clear overall picture of the emissions.

“Overall, regardless of the specific technology used, factors such as accuracy, transparency and collaboration are crucial. After all, the Scope 3 emission reduction initiatives only make sense if the data behind them is reliable. Here factors like unlimited users to access the technology selected as well as audit trails to see the changes made are widely seen as important.

“An important ask we often come across is to have the analytics and technology verified so that the data can be used for different reporting purposes. After all, a lot of the pressure — especially in Europe — is driven by increasing regulations and expectations from stakeholders and investors to report the emissions.”

Are these initial steps for CO2 mitigation helpful for when legislation is passed to also measure other emissions? And what other GHG will be a concern for businesses in the near future?

“Definitely, businesses across the globe are taking the first steps in CO2 mitigation, which is also taken into account in future legislation.

“For instance, when the new Corporate Sustainability Reporting Directive (CSRD) rolls out in Europe (initially in October 2022) and reporting of emissions becomes mandatory for a large share of organizations, our reporting capability is compliant with the GHG protocol, which is already widely in use. After the standards are aligned and established across industries and regions, it is also a lot easier to measure other emissions in the future, such as methane. We note that several companies are already looking into analyzing other areas in addition to CO2, like water security and waste.”

For more insights, look for the rest of the Brand Studio posts in this interview series with experts from Sievo and Accenture.

In part 1, Heta Ruikka, VP of Product at Sievo talks about how we can create sustainable procurement strategies for a resilient business by expanding on spend data.

Further topics will include procurement’s role in driving the enterprise sustainability agenda and spend analytics enabling sustainable procurement value through closed-loop spend management.