SCOPE 3 EMISSIONS ACCOUNTING

SCOPE 3 EMISSIONS ACCOUNTING

Scope 3 emissions are generated by activities that are outside of the company's direct control, such as the extraction of raw materials, the production of purchased goods and services, and the use and disposal of the products that the company sells. Additionally, these emissions can be generated by a company's suppliers, distributors, and customers, making it challenging to identify and quantify them

Despite the difficulties in measuring and reducing Scope 3 emissions, they are becoming increasingly important in corporate sustainability reporting. Companies are expected to take responsibility for the environmental impact of their entire value chain, not just their own direct operations. By identifying and reducing Scope 3 emissions, companies can demonstrate their commitment to sustainability and mitigate their impact on the environment

What are Scope 3 Emissions?

The Corporate Value Chain (Scope 3) Accounting and Reporting Standard of the GHG Protocol categorizes Scope 3 emissions into 15 categories, which are as follows:

1. Purchased goods and services

2. Capital goods

3. Fuel- and energy-related activities not included in Scope 1 or Scope 2

4. Upstream transportation and distribution

5. Waste generated in operations

6. Business travel

7. Employee commuting

8. Upstream leased assets

9. Downstream transportation and distribution

10. Processing of sold products

11. Use of sold products

12. End-of-life treatment of sold products

13. Downstream leased assets

14. Franchises

15. Investments

These categories provide a framework for companies to identify and measure the various sources of their Scope 3 emissions, as well as to develop strategies for reducing them. By doing so, companies can better understand their carbon footprint and take steps to improve their environmental performance throughout their entire value chain

Why Is Scope 3 Emissions Accounting Important? 

 Companies can no longer afford to ignore Scope 3 emissions in their sustainability strategy. These emissions can comprise up to 80% of a company's overall environmental impact and therefore must be addressed if a company is serious about achieving its decarbonization goals and reaching net zero

Developing a proper Scope 3 strategy is critical to success. This involves identifying and measuring the sources of emissions, setting ambitious reduction targets, and working collaboratively with suppliers, customers, and other stakeholders to reduce emissions across the value chain. It also involves using reliable industry-based data and reporting frameworks to ensure accuracy and transparency

Failing to address Scope 3 emissions can lead to reputational damage, financial risks, and regulatory pressures. Consumers, investors, and regulators are increasingly demanding greater transparency and action on sustainability issues. Therefore, it is essential for companies to take Scope 3 emissions seriously and to develop a robust and science-based decarbonization strategy to mitigate their impact.