By: Ms Lungile Manzini
Corporate Sustainability expert
GHG emissions that are anthropogenic (human made or influenced) in nature drive climate change and its impacts on communities across the world has been increasing.
According to climate change specialists, global carbon emissions have to be reduced by 85% below year 2000 levels by 2050 to limit the global mean temperature increase to 2 degrees Celsius pre industrial levels.
An increase of global temperatures above this level will result in catastrophic and uncertain impacts on both humans and ecosystems.
However this was an unintentional temporary change and does not address the problem of increasing GHG emissions.
Business action to reduce their emissions still make good business sense in order to drive a green and sustainable post COVID-19 economic recovery.
In addressing GHG emissions, companies are able to identify opportunities, reduce risks and explore competitive advantage.
Furthermore, the South African government has recently implemented policies and regulations such as the GHG mandatory reporting regulations and the Carbon Tax Act 15 of 2019 to drive significant reductions in emissions and direct economic growth towards a low carbon trajectory.
In order for companies to respond effectively to their GHG impact, they have to understand their GHG impact through a GHG inventory.
In the development of the GHG inventory there are three types of GHG emissions sources; namely; Scope 1 emissions which are from operations that are directly owned or controlled by the company; Scope 2 emissions which are from the use of purchased or acquired electricity, steam, heating or cooling by the company and Scope 3 emissions which are indirect or other emissions not included in Scope 2 as a shown on the diagram below.
Source: WRI/WBCSD Corporate Value Chain (Scope 3) Accounting and Reporting Standard.
According to the GHG protocol, scope 1 and 2 emissions quantification and reporting are compulsory while Scope 3 emissions are not.
Until recently, most companies have been focusing more on emissions from their operations (Scope 1 and 2), however in recent times stakeholders have raised concerns related to the company’s activities of the value chain and the full understanding of the GHG impact of operations (Scope 3).
Scope 3 emissions are activities from assets not owned or controlled by the company that is reporting it GHG emissions. It is important to note that the Scope 3 emissions for one organisation can be the Scope 1 and Scope 2 emissions of another organisation and occur from sources owned or controlled by other entities.
Scope 3 emissions can be grouped into Upstream Scope 3 emissions (which include purchased goods and services, capital goods, fuels and energy related activities not included in Scope 1 and 2, upstream transportation and distribution, waste generate din operations, business travel, employee commuting and upstream leased assets); and Downstream Scope 3 emissions (which include downstream transportation and distribution, processing of sold products, franchises, investments, end of life treatment of sold products, use of sold products and downstream leased assets).
Collecting data for Scope 3 emissions quantification can be a challenging exercise which requires a lot of resources. To address the challenges associated with the collection of Scope 3 emissions companies should respond as follows:
- Define the reporting scope and boundaries of your Scope 3 emissions;
- Identify both the upstream and downstream Scope 3 emissions that are applicable for the industry;
- Start small and focus on the low hanging fruit such as upstream Scope 3 emissions e.g. employee commuting and business travel;
- Engage with all the Scope 3 stakeholders on the intention to expand or build on your Scope 3 and highlight the benefits of doing this; and
- Have a system (preferably online) in place that will enable frequent and effective data collection;
- Set targets and monitor performance to demonstrate commitment to all stakeholders; and
- Assurance will ensure that the inventory is complete, accurate and transparent.
As the focus in Scope 3 emissions grow and more companies start to measure these sources of emissions, the next step will be to build a strategy to reduce emissions from Scope 3 emissions. This can also be challenge as the reduction in Scope 3 emissions is often dependent on third parties and partners.
However; quantifying and managing these emissions is key for the following reasons: (a) Helps with proactively managing risks and opportunities related to the value chain emissions; (b) Gives the company an opportunities to engage with its value chain on all sustainability issues (c) It enhances the GHG inventory and improves completeness in the public reporting process and (d) Contributes to the reputation of the company.