Demystifying Scope 3 – Findings from Global Compact Denmark and SBTi Workshop
For many businesses, a majority of the carbon footprint rests in the supply and value chain. Looking outside your company’s own walls and decarbonizing Scope 3 may feel like a massive undertaking, but it’s essential – and possible. Our experts joined a climate webinar, Introduction to Scope 3, hosted by Global Compact Denmark to share best practices on how to prioritize and reduce Scope 3 emissions. The workshop was part of a Science-based Targets Initiative (SBTi) peer learning group, which also explored SBTi’s Scope 3 requirements. For everyone who could not attend, Schneider Electric’s resident experts summarize the main findings during the workshop in the interview below.
Thomas Schrøder, International Consultancy Senior Manager
Thomas works as International Consultancy Senior Manager focusing on decarbonization journeys, integrated into our clients' sustainability & climate programs to help companies in the Nordic region achieve their climate goals and spearhead the green transition.
James Oram, Sustainability Consultant
James works as a sustainability consultant within Schneider Electric ESS, helping corporate clients develop their sustainability strategies. This covers areas such as carbon accounting, target setting, and sustainability reporting in accordance with global standards (GHG Protocol, GRI, CDP, etc.)
Thomas, James – you joined the recent "Introduction to Scope 3" Workshop during the SBTi peer learning group of Global Compact members in Denmark. How did this topic resonate with companies in the region?
Thomas: Scope 3 decarbonization is a huge trend for companies in Denmark and across the Nordic region for several reasons. It’s important to understand that the Nordic region has had a strong global perspective for many years. Our small countries, with only 27 million people, make up the 12th largest economy in the world, so we have a common understanding that our impact – including that on the climate – does not end at our borders. Moreover, many Nordic companies have quite a long track record in decarbonization and have already done a lot for their Scope 1 and 2 emissions. For these advanced companies, Scope 3 is the remaining big rock on their carbon journey.
James: We see Scope 3 decarbonization as one of the most pressing issues for many of our clients within their climate action programs. Interestingly, we are on this journey together. At Schneider Electric, we just launched the Zero Carbon Project. Under this Scope 3-related initiative, we will partner with our top 1,000 suppliers - which represent 70% of Schneider’s carbon emissions - to halve their operations’ CO2 emissions by 2025. The initiative is part of our commitment to net zero by 2050. So, we have a profound firsthand understanding of the challenges our clients are facing.
What are those common challenges when companies embark on Scope 3 decarbonization?
Thomas: Per definition of the GHG Protocol, Scope 3 comprises all emissions that are not owned or under the control of a company. It is a very large and heterogeneous group of potential emission sources across the 50 GHG categories, in very different geographies and markets. The complexity to understand, model, and take actions within this network of both small and large suppliers, clients using your products, or end-of-life treatment might be overwhelming for some organizations. However, the SBTi recognizes this common challenge with their rules: While all organizations with a large Scope 3 (> 40% of total) are required to set Scope 3 target, there are many different approaches deemed acceptable. During the workshop, we discussed a variety of ways to set these targets while keeping in line with the SBTi’s requirements for ambition and measurability.
James: The complexity of Scope 3 also extends to the second big challenge: data. To understand your Scope 3 footprint and set a baseline, you have to collect large amounts of quantitative and qualitative data across the whole Scope 3 universe. The process begins with a lot of data mining. In most cases, this data is not available or exists in siloed sources. It was made very clear during the workshop that bad data quality is not the exception but the rule for most companies at the start, and that should not prevent companies from setting Scope 3 targets. The initial scope 3 screening for all relevant categories can include a lot of estimates, and data quality will increase over time.
What recommendations can you share on how companies can overcome these challenges?
James: Throughout the workshop, we discussed how a pragmatic and strategic approach to a supply chain decarbonization program can help to realize significant environmental impact while improving the reliability of your business. For our clients, we use a combination of supplier engagement, measurement, strategy setting, and implementation via efficiency, renewable energy procurement, and carbon offsetting. The offer builds on successful supply chain solutions already developed for clients including GSK, and the Sustainable Apparel Coalition.
Thomas: Another important recommendation is to collaborate with peers. In this sense, it was very timely and helpful for the Global Compact to host this session and fuel the multi-stakeholder dialogue. No company is an island—we are all part of an ecosystem. Activating this ecosystem can provide the boost we need in global decarbonization. We see many successful examples of this collaborative approach and foster knowledge sharing with our own Perspectives Virtual events, where we regularly invite our clients to share their experiences and help other companies tackle similar challenges.
According to climate science, we need to stay on a 1.5-degree pathway to avoid vast damage on our planet – this translates into a net zero ambition for the mid of this century. How was this reflected in the SBTi workshop?
James: The SBTi adapted their guidelines very soon after the IPCC Report in 2018 stated the need to strengthen the temperature target from 2 to 1.5 degrees C. Today, targets submitted for validation will only be accepted if they are consistent with limiting warming to ‘well below 2°C’ or 1.5°C above pre-industrial levels. Moreover, the SBTi is well underway to releasing a framework to enable companies to set robust and credible net zero targets in line with a 1.5°C future. This guideline is intended to be launched at COP26. Schneider Electric has actively participated in the public consolidation process and we discuss these future requirements today in our target setting strategy sessions with clients.
Thomas: Most experts agree that 2021 is a crucial year in the fight against climate change, with COP26 expected to be a catalyst for climate action. It is critical that corporations take the lead now and demonstrate that a 1.5-degree future is still in reach and bold ambitions like net zero are achievable. In the workshop, CDP’s Lea Fink encouraged companies to join the Business Ambition for 1.5°C and set a net zero target in line with a 1.5°C future. So far, over 500 companies, representing more than $8.6 trillion in market cap, have responded to the open letter from global leaders, and signed the Business Ambition for 1.5°C commitment.
With companies and countries already signing up to deep carbon cuts, what makes you hopeful these ambitions can translate into action? Do you have any related findings from the event you’d like to share?
James: It’s encouraging to see that the level of discussion was very action-focused. I think most of the companies not only want to set a target, but they are really motivated to accelerate their actions. Coming back to the Scope 3 complexity, I found it very helpful how SBTi underlines the iterative character of the exercise. That you can start small, and grow your program over time. We have seen with many of our clients that with success in early, small steps comes confidence and an appetite to go further – that was my best takeaway.
Thomas: The same sentiment was repeated by the case study from Nilfisk. Their Head of CSR, Ann-Katrine Friis, very openly shared her experiences and even frustrations when starting to work on their decarbonization journey. I was thrilled to hear that today she even joins in R&D sessions for the company's new products to embed the carbon footprint early on in the design process – informed by GHG data from Schneider Electric’s Resource Advisor technology. If we can help a client to get that far, that makes me believe the carbon neutral future is at reach.