Carbon footprints have become increasingly important for businesses, as seen by recent pronouncements from GAFA and other major corporations. Apple, for example, has pledged to achieve carbon neutrality in its supply chain by 2030. Transform to Net Zero was founded by nine other major corporations (including Starbucks, Microsoft, Unilever, and Nike) with the goal of accelerating their corporate value chain towards the transition to a carbon-free economy.
Carbon emissions contribute for 81 percent of total GHG emissions, with enterprises making a large portion of this. Methane (10%), nitrous oxide (7%), and fluorinated gases account for the remaining GHG emissions (3 percent). Businesses must track and report their CO2 emissions as a first step toward lowering them. To do so, businesses must divide their carbon impact into three categories.
Organisations that continue to treat climate change as a social responsibility issue rather than a commercial issue will suffer the most severe effects.
Explanation of emissions under Scope 1, 2, and 3.
A company’s greenhouse gas emissions are categorised into three scopes, according to the leading GHG Protocol corporate standard. Scopes 1 and 2 are obligatory reporting matters, while Scope 3 is optional and the most difficult to monitor. Companies that succeed in reporting all three scopes, on the other hand, will acquire a long-term competitive edge.
Greenhouse gas emissions are comprised of a collection of gases defined by the Greenhouse Gas Protocol. While the media speaks of CO2 and ‘Carbon’, it is the GHG equation overall which is being referenced. The energy use of any public or private entity may be categorised as its emissions inventory. While significant emissions can happen because of corporate travel, significant carbon emissions are due to the company’s activities at a much more fundamental level. For example, your GHG reporting disclosure will likely take into account the emissions attributable to employee commuting.
In the United Kingdom, many organisations of 250 people or more are obliged to undertake carbon reporting under the SECR, the Streamlined Energy Carbon Reporting regulation, which is a strict reporting standard. While carbon neutrality may be the goal of Net-Zero, for the UK to achieve such a goal requires enterprises of all sizes to identify their emissions sources, quantify their categories of emissions (such as indirect GHG emissions, company’s value chain emissions, direct purchase of gas or fossil fuels etc.), and then to evaluate its own operations for the first time and seek reductions through a formal Carbon Reduction Plan.
Download your copy of the graphic ‘Scopes of Emissions‘
Scope 1: direct emissions
Direct emissions from company-owned and controlled resources are included in Scope 1. In other words, at a firm level, emissions are released into the atmosphere as a direct result of a series of operations. It is classified into the broad categories of stationary combustion and mobile combustion (e.g fuels, heating sources). Scope 1 must cover all fuels that emit greenhouse gases.
Then there’s mobile combustion, which refers to all vehicles owned or controlled by a company that burn fuel (e.g. cars, vans, trucks). Because of the growing usage of “electric” vehicles (EVs), some of the organisation’s fleets may be subject to Scope 2 emissions.
Greenhouse gas leaks are referred to as fugitive emissions (e.g. refrigeration, air conditioning units). It’s vital to remember that refrigerant gases are 1,000 times more hazardous than CO2. These emissions are urged to be reported by businesses.
During industrial operations and on-site manufacturing processes, additional emissions are generated, for example CO2 during cement manufacturing, factory fumes, chemicals, etc.
Scope 2: owned indirect emissions
Indirect emissions from the generation of purchased energy from a utility provider are included in Scope 2. To put it another way, all GHG emissions released into the environment as a result of the use of purchased energy, steam, heat, and cooling.
Electricity will be the only source of scope 2 emissions for most organisations. Simply put, there are two types of energy consumed: The end-electrical user’s use is covered by Scope 2. The energy consumed by utilities during transmission and distribution is covered by Scope 3 under transmission and distribution losses.
Scope 3: non-owned indirect emissions
This paragraph should be read carefully because scope 3 emissions are the holy grail of emissions. Scope 3 emissions are all indirect emissions that occur in the reporting company’s value chain, including both upstream and downstream emissions, and are not included in scope 2. Emissions, in other words, are tied to the company’s operations. Scope 3 emissions are divided into 15 categories according to the GHG convention.
Upstream activities are divided into numerous areas, with business travel being one of the most important to record for many organisations (e.g. air travel, rail, underground and light rail, taxis, buses, and business mileage using private vehicles). Employee commuting, which arises from emissions released during travel to and from work, must also be reported. It can be reduced by using public transportation and working from home.
Upstream activities include, but are not limited to:
- Waste generated in operations includes waste that is sent to landfills, and wastewater that is treated. Methane (CH4) and nitrous oxide (N2O) emissions from waste disposal cause more harm than CO2 emissions.
- All upstream (‘cradle to gate’) emissions from the production of products and services purchased by the corporation in the same year are included in acquired goods and services. It’s important to distinguish between purchases of production-related products (such as materials, components, and parts) and purchases of non-production-related things (e.g, office furniture, office supplies, and IT support).
- Transportation and distribution take place in the value chain’s upstream (suppliers) and downstream (customers) portions. It covers emissions from land, sea, and air transportation, as well as emissions from third-party warehousing.
- Fuel and energy-related activities include emissions from the production of fuels as well as energy purchased and consumed by the reporting company throughout the reporting year that are not covered by scopes 1 and 2.
- Capital goods are long-lasting final products that a corporation uses to create a product, offer a service, or store, sell, and deliver stuff. Buildings, vehicles, and machinery are examples of capital goods. Companies should not depreciate, discount, or amortise emissions from the production of capital goods. Companies should instead account for the total cradle-to-gate emissions of purchased capital assets in the year of purchase (GHG protocol).
- Investments are primarily included for financial institutions, although it is still possible for other organisations to include it in their reporting. Investments are divided into four groups by GHG accounting: equity investments, debt investments, project finance, managed investments, and client services.
- Franchises are firms that have been granted a license to sell or distribute the goods or services of another company in a specific location. Emissions from businesses under the control of franchisees (for example, corporations that operate franchises and pay a fee to the franchisor) should be included. “In category 1 (Purchased goods and services), franchisees may report upstream scope 3 emissions related with the franchisor’s operations (i.e., the franchisor’s scope 1 and scope 2 emissions).”
- Leased assets are assets leased by the reporting organisation (upstream) as well as assets leased by other organisations (downstream). The calculating procedure is complicated, and depending on the type of the leased asset, it should be stated in scope 1 or 2.
Regarding “in-use” products sold to customers, the use of sold products is included. It calculates the emissions caused by product use, even if they vary greatly. For example, it will take many years for the emissions created during creation of an iPhone to be offset by its use. Similarly, “end of life treatment” refers to products sold to customers and is recorded in the same way as “waste generated during operations.” Companies must evaluate how their products are disposed of, which can be challenging because it typically depends on the user. This pushes businesses to create recyclable items that reduce landfill waste.
Why are all three scopes being measured?
Most of the time, emissions along the value chain have the greatest impact on GHG emissions. For decades, businesses have squandered huge chances for growth. For example, Kraft Foods reported that its value chain contributed for 90% of its total emissions (cf. scope 3). Finally, firms must complete a full GHG emission inventory (scopes 1, 2, and 3) in order to focus their efforts on reducing carbon emissions, carbon footprint, and achieving carbon neutrality.
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