Closing the Gap on SBTs: Supply Chain Emissions

The setting of Science-Based Targets (SBTs) is fast becoming the new normal for business. But getting these targets verified remains an ongoing challenge – while almost 400 companies have committed to setting SBTs under the Science Based Targets Initiative (SBTi), so far only 103 companies have had their SBTs approved.

One reason for SBTs being rejected centers around the calculation of Scope 3 supply chain emissions for those required to set a Scope 3 target. Although Scope 3 targets don’t have to be science-based, they do have to meet certain criteria. The SBTi has not developed official guidance to help companies estimate and report on Scope 3 emissions, so companies setting targets are referred to the GHG Protocol as a framework for setting SBTs. Because the Protocol is not specifically tailored to SBTs, many companies have struggled to bridge the gap between the guidance and developing rigorous enough methodologies to addressing Scope 3 emissions.

Analysis undertaken by CDP found that 64% of SBTs rejected failed due to inadequate Scope 3 targets. Reasons included Scope 3 methodologies not being ambitious enough (27%), Scope 3 screening not being conducted (23%) – screening has since become a requirement of the process – and targets not covering the majority of Scope 3 emissions (10%).

Most companies struggle with Scope 3 due to the complex nature of their supply chains, the absence of a tailored Scope 3 framework, and the lack of control, not to mention access to data, they have over these indirect upstream and downstream supply chain emissions. The GHG Protocol outlines 15 different Scope 3 emission categories that companies should consider, but deciding which are applicable can prove difficult.

“Part of the problem is that companies may think only a few of these categories are relevant to them, or they are not focusing on the most significant categories,” says Chris Tuppen, managing director of Advancing Sustainability and a member of the SBTi’s technical advisory group. “Scope 3 targets should clearly demonstrate how the company is addressing the main sources of GHG emissions within their value chain, but few companies have a really good handle on their Scope 3 emissions.”  

Often companies focus on those supply chain emissions they have most control over or are the most straightforward to calculate, but these may not be the ones most material to their business operations. It may be tempting for companies to exclude emissions from their global portfolio regions where underperforming suppliers operate, or leased assets where data is missing, but this would be a mistake.

Instead, companies should begin by undertaking a full carbon footprint review in accordance with the GHG Protocol (or other relevant standard) comprising all sources of emissions across Scopes 1, 2 and 3. This will help establish where there is good data and where there is not, and enable an emissions reduction action plan to be drawn up. To go further, companies are recommended to undertake a Scope 3 gap analysis study to determine the reporting boundaries, identify where supply chain emissions data gaps lie, and set an appropriate target for Scope 3 reduction going forward.

Scope 3 footprints should be calculated with what available activity data there is – in some cases, missing data can be estimated, or even excluded if not significant. This will provide a basis to build upon, in conjunction with the gap analysis which identifies those areas where more accurate data on emission sources is required.

It is important that any data gathering process is centralized, so information can be easily located and accessed on a single platform. This will give a holistic view of energy usage across a company’s operations, and enable detailed assessments or comparisons of metrics by site, facility, building or product type. An inventory management plan can then be developed to define a clear GHG reporting process and calculation methodology.

Going forward, it is likely the SBTi will get more stringent on its Scope 3 requirements so it is critical that companies engage with the SBTi early in the target setting process for support and guidance. It’s important to show both ambition and transparency when setting Scope 3 targets even though the data may be lacking.

To learn more about the process of setting and achieving SBTs, we invite you to read our white paper, A New Approach to Climate Leadership: Ensuring Success with Science-Based Targets

Contributed by Chris Crawshay-Jones, Ekaterina Tsvetkova and Erik Mohn, Schneider Electric, Energy & Sustainability Services