The key strategies companies should use to address Scope 3 emissions

Alan Riley
Emissions from a power station

Reducing greenhouse gas emissions requires wrestling with all three types of emissions, known as Scope 1, 2 and 3. Scope 1 covers emissions from sources that an organisation owns or controls directly: burning fuel in a fleet of non-electric vehicles, for instance. Scope 2 corresponds to emissions a company causes indirectly when the energy it buys and uses is produced, such as the electricity powering its offices. Scope 3 encompasses all other indirect emissions from the activities of the organisation along its value chain, occurring from upstream and downstream sources. If a company buys equipment from a supplier, it incurs Scope 3 emissions upstream in its supply chain. If its consumers buy and use a product like a mobile phone, on the other hand, then the company incurs downstream greenhouse gas emissions from the electricity used to charge the device.

Companies have a great deal of control over the first two emissions categories. But they generally have very limited control over Scope 3. That makes Scope 3 the hardest category to bring down and, for most companies, the greatest contributor to their overall emissions output. In telecoms, where we at epi have worked with the major players to help them operate more sustainably, Scope 3 can constitute as much as 98% of a company’s carbon footprint. But it can be tackled if companies take a strategic  approach, collaborate across the industry, and commit the right focus to Scope 3 over a significant period of time.

Lean on AI

Enthusiasm for AI has cooled somewhat since ChatGPT burst onto the scene towards the end of 2022; but there is still appreciation for what AI can do, and quite rightly. Companies looking to reduce Scope 3 emissions can take advantage of AI, specifically data analytics and machine learning, to understand things like how energy is consumed across different processes along the supply chain, from manufacturing to transportation. This is a valuable first step, and without AI, it’s a laborious one that is highly manual, costly, and at risk of being subject to human error. Supply chain sustainability insights to date have relied on manual or semi-manual applications of life-cycle assessment (LCA) techniques across varied and complex product families, often with hundreds of input materials and components for each product. Although AI tools are not quite here yet, the capability to leverage AI to map the carbon sources down through these complex supply chains is just over the horizon.

Using this insight, the next step for companies would be to identify the key “hot-spot” areas where emissions are highest and the most feasible and cost-effective opportunities to bring them down, before developing this into a comprehensive supplier engagement programme and product carbon reduction plans. That said, the majority of companies cannot afford to wait for AI carbon tools to arrive before taking concerted action on Scope 3 emissions, so some more simple rules of thumb can be applied to direct these efforts.

Work with your top suppliers …

An analysis of most companies’ supply chain will likely reveal a Pareto distribution – in other words, that a small proportion of suppliers are responsible for the vast majority of Scope 3 emissions. epi’s experience shows that while companies may have thousands of suppliers in total, typically the top 20-40 suppliers are responsible for 50% of Scope 3 emissions from the supply chain. Companies can bring about an enormous reduction in emissions if they target these top suppliers, engage them, and seek to bring them into alignment on sustainability.

In the telecom world, companies are actively promoting carbon reduction among suppliers by incorporating it into the supplier management process. This starts with minimum sustainability requirements in vendor selection, then moves to incentivisation criteria in tender scoring, carbon-linked contract clauses in contracting, and then finally dedicated supplier engagement programmes throughout the relationship, where suppliers are supported in their development and continuously assessed against their carbon reduction performance.

… then engage the next 500

Intensive engagement like this takes time and resources, and so is only appropriate for the critical few suppliers - those with a combined 50% impact on the carbon footprint. For the next 40% of emissions, epi’s experience shows the supply base is typically more fragmented, and generally comes from around 500 suppliers. This is where a more scalable approach to supplier engagement makes sense.

For this tranche of suppliers, epi has worked with the telecoms community to develop a “carbon maturity model” based programme, where suppliers can be assessed based on their public reporting, against key areas of carbon maturity. Creating a carbon maturity model allows for the classification of suppliers into maturity groups, distinguishing those with limited capabilities in carbon reduction, those with foundational elements such as targets and governance, and those who are leading the pack with things like science-based net zero targets and 100% renewable energy usage. Once the maturity ranking has been established, key people from these organisations can then be invited to tailored webinars customised to each level of maturity, to receive capability-building training on carbon reduction techniques and priorities, which they can take back and champion within their organisations.

After the webinars, these suppliers are encouraged to commit to “pledges” to improve their performance. The suppliers are then tracked up the maturity curve via an annual assessment of their public reporting, with reward and recognition events to celebrate and publicly recognise the most improved and top performers. The process then repeats with new webinars to support suppliers along the next stage of their journey.

Pursue win-wins

There’s a common misconception that sustainability activities are costly, laborious and detract from the bottom line. That isn’t necessarily true: in fact, sustainability can save companies money. There are win-wins to exploit if the right strategies are chosen.

For instance, based on epi’s experience with energy efficiency audits in China and south-east Asia, the typical manufacturing facility can generally reduce energy consumption between 5-10% annually with energy efficiency improvements that pay off within 3-4 years. This not only saves money on energy bills, but reduces carbon significantly in these geographies where the electricity grid is more carbon-intensive than facilities in other locations like eastern Europe.

Take switching to green energy. Researchers at Oxford University predict that transitioning to green energy sources such as wind and solar power could save anywhere between $5 to $15 trillion compared to taking no action. It could save even more as green technology continues to improve. In 2022, when there was record investment in renewable forms of energy, totalling $495 billion, International Renewable Energy confirmed that green energy was the cheapest form of power available. Encouraging suppliers to use green energy in line with its availability is often the quickest and simplest lever for carbon reduction, and can even result in lower energy bills.

LCAs (life-cycle assessments) also present win-win opportunities. By assessing the life-cycle of a home internet router, for instance, from the extraction of raw materials for the product to its manufacture, distribution, use, and disposal, the environmental impact of the life of the product from ‘cradle-to-grave’ can be understood in detail, and opportunities to improve sustainability can be identified. Using less material in packaging, circuit boards and other product components for example can be a huge win-win: it is cheaper to use less material, while at the same time shrinking the carbon footprint of each item sold.

A quick win found in LCA analysis can also come from the sourcing of raw materials - simply switching from aluminium sourced from carbon-intensive smelting facilities to aluminium sourced from smelters that use renewable energy, for example, can slash the carbon footprint of products like vehicles, transmission equipment and electronics.

Final thoughts

Tackling Scope 3 can be an intimidating prospect for corporations, whose thousands upon thousands of suppliers are scattered across global supply chains like stars scattered throughout the galaxy. But ultimately, getting to grips with Scope 3 is arguably the most important part of any sustainability strategy, since it is along the supply chain where the bulk of a company’s emissions originate. By following these guidelines, companies of any size can start to address Scope 3 – and that will be to the benefit of their brand reputation, their suitability for green investment, and, in the end, their bottom line.

Written by
Alan Riley
Written by
January 15, 2024