Contributed By: Dorottya Oláh, Sustainability Consultant, Schneider Electric Energy & Sustainability Services
In order to limit the global temperature rise to 1.5°C, businesses and governments need to set ambitious emission reduction targets, according to the Science Based Targets initiative and the Paris Agreement.
The number of companies dedicated to setting emission reduction targets is growing. However, given the urgency of climate action, Scope 1 (direct emissions of the organization) and Scope 2 (indirect emissions of the organization) targets may not be enough on their own; and not many companies feel equipped to set Scope 3 targets.
While Scope 1 and 2 emissions are easier to map, set reduction targets for and track, Scope 3 (indirect emissions associated with the entire value chain of an organization) typically represents the largest chunk of a company’s emissions and is often controlled not by the company but by its value chain stakeholders. Companies must investigate the whole value chain to understand the extent of their Scope 3 emissions and the challenges they present in order to set meaningful targets.
Getting to Know Your Scope 3
Because Scope 3 aims to categorize and define emissions across an organization’s entire value chain, the Greenhouse Gas Protocol divides Scope 3 into 15 distinct categories; from purchased goods and services, to employee commuting, to waste and investments. With such a broad sphere of influence on a company’s total emissions, many organizations simply don’t know where to start with Scope 3 targets.
First and foremost, if an organization decides to examine their Scope 3 emissions, let alone set targets on emission reduction, they need to identify and prioritize the categories and stakeholders most important to them. To prioritize categories, set baselines and make progress requires a coordinated approach to stakeholder engagement.
In our first blog in this series, we explored the 4 milestones companies will encounter on their journey to reducing Scope 3 emissions, and how to engage key stakeholders at each step:
- Identify key stakeholders & conduct a materiality assessment
- Develop a data collection process and inventory
- Disclose to sustainability frameworks
- Set long-term goals to improve performance
Click here to read part 1
By following these steps, companies can meaningfully engage value chain stakeholders for Scope 3 reporting and target setting.
Getting to Know Your Stakeholders
Let’s dive deeper into how companies can engage stakeholders on Scope 3 in a simplified scenario, where a production company decides to set Scope 3 targets:
Once the organization has completed the initial screening assessment and selected its material categories, it needs to identify the key stakeholders across the value chain related to these categories. For example, if the categories are Purchased goods and services, Waste generated from operations, and Downstream transportation and distribution, the key stakeholders they would engage with are the suppliers of the raw materials, the plant managers, the waste handling companies, and the third-party distribution companies who operate trucks that deliver products. All these stakeholders are responsible for very different aspects of the value chain and might require different engagement approaches.
After identifying key stakeholders, it’s time to open communication. In order to establish trust and cooperation, rather than simply requesting data with little explanation, the company starts building stakeholder relationships from the start. Transparently communicating goals and instilling in stakeholders a sense of ownership for the tasks ahead increases their accountability, motivation and engagement. The best way to determine what kind of information is needed and available is to involve stakeholders in collaborative dialogue form the beginning. This way, if there is a disconnect, the company can identify it quickly and find the most efficient way to resolve it.
The production company then sets out to collect data on the emissions related to purchased goods and services. In order to do that, it must meet with its biggest suppliers of raw materials to discuss data collection. Key points to discuss include what is the purpose, what is the goal they want to achieve, what is the timeline and how do they get there.
Suppliers will likely have the answers to many of these questions, as they are closest to their own operations, practices and resources. At this stage, the company then needs to ensure the data needed to calculate CO2 emissions (activity data, emission factors) can be provided by the supplier and/or from another source. Depending on the quality of data provided, the company and suppliers might need to revisit data collection practices of to work out a new methodology or apply a new tool to ensure the highest quality results. Internal training may also be needed to for employees that provide the data to apply the new methodology going forward.
Once the data collection is sorted and there’s a clear baseline, it is time to set the reduction target. There are various methodologies, but in every case, the company and its stakeholders need to build a roadmap to achieve the targets. Emission reduction can stem from various sources, such as purchase of renewable electricity, energy efficiency improvements of facilities and vehicles, introduction of new processes and so on.
It’s important to balance the asks of suppliers; too much, and they might struggle with the money and time needed to achieve the set target; too little and the company risks losing money on the investment. For example, the company can demand that suppliers complete the necessary steps to achieve the targets, or they will lose its business. Or it can go the opposite route and develop a plan based on engagement, setting up a strategy to achieve the targets using the actions of the roadmap. There are numerous options between the two extremes, and organizations need to find what is most suitable for them and their stakeholders.
As organizations proceed on the path set out by their roadmap, adjustments might become necessary. Following up is key in stakeholder engagement as well as in achieving emission targets. Listening to feedback and keeping stakeholders in the loop – involved and engaged – makes all the difference between a failed and successful Scope 3 target.
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