Why businesses need to be talking about Scope 3 emissions
Many firms have pressed ahead with net zero targets – but few have looked beyond quick wins, leaving the hardest work still to do. Paolo Spotorno, a principal at Efficio, explains that businesses must make the indirect emissions from their ecosystems a key part of their agenda, if they are to succeed.
Across the globe, companies are increasingly recognising the imperative to turn their sustainability agendas into action. Notably, a rising number of organisations have embarked on initiatives to curb their greenhouse gas (GHG) emissions. In a tangible demonstration of progress, the Financial Times’ Europe’s Climate Leaders 2024 list highlights the strides businesses have made in reducing the intensity of their Scope 1 and 2 GHG emissions, respectively produced by an organisation’s own operations and the energy it consumes.
However, a critical aspect remains that demands attention: Scope 3 emissions, indirect emissions that occur in the value chain of the reporting company. Scope 3 emissions are the largest driver of many companies' total GHG emissions, often exceeding 70%, driven in particular by Category 1 (Purchased Goods and Services).
Yet, compared to Scope 1 and 2 emissions, they have historically been more challenging to measure and address. The lack of standardised metrics and the complexity of assessing emissions across the value chain can pose significant obstacles for organisations aiming to tackle Scope 3 emissions effectively.
Addressing Scope 3 emissions
It's clear that to truly advance sustainability agendas, addressing Scope 3 emissions is paramount. As regulators worldwide intensify their focus on comprehensive GHG reporting, organisations are under increasing pressure to take ownership of their entire emissions footprint. In Europe, the Corporate Sustainability Reporting Directive (CSRD) is progressively rolling out Scope 3 emissions disclosures.
Beyond regulatory compliance, tackling Scope 3 emissions unlocks a myriad of benefits. These include appealing to eco-conscious customers; enhancing reputation to help build market share; motivating employees and engaging them with working for a company making a difference to the world; maintaining a competitive edge against other firms by getting sustainability efforts done early; adding resilience and adaptability to their firm.
Despite this, many organisations face challenges in translating their sustainability goals into actionable plans. When looking at businesses that have set targets to reduce greenhouse gas emissions, Efficio’s research shows that only a third of their leaders express confidence in their organisation’s ability to meet those targets. As a result, efforts often remain confined to high-level statements, with targets pushed as far into the future as allowed by applicable ESG regulations; indeed, 74% of business leaders agree that setting sustainability targets is much easier than achieving them. But the future is quickly approaching.
The critical next step for organisations aspiring to achieve meaningful progress towards their corporate sustainability goals is to move beyond rhetoric and embrace a proactive approach to sustainability by converting their objectives into executable strategies.
Empowering sustainable transformation
In this journey, procurement teams emerge as key catalysts for change. Positioned at the intersection of supply chains and sustainability initiatives, chief procurement officers must equip their teams with the vision, skills, and practices to proactively manage the supply base, enabling the delivery of tangible results aligned to the business-level sustainability strategy.
Based on our sustainability improvement work with our clients, we have identified three key elements that set the stage for procurement teams to successfully deliver Scope 3 impact. First, they need a digitally enabled tool to measure suppliers’ GHG emissions and identify carbon reduction opportunities.
Leveraging advanced digital tools that can map and baseline suppliers’ Scope 3 emissions, give visibility over high-impact spend categories, and help you monitor suppliers’ sustainability performance over time and their commitment to near- and long-term science-based targets. These tools empower organisations to scientifically quantify their supplier-related carbon footprint, laying a solid foundation for the development and implementation of targeted sustainable procurement strategies.
Second, it is also important to have well-defined processes and competencies in place to enable these changes. Develop robust processes and competencies for the procurement function to serve as a catalyst for transformative change. This will require a thorough examination and strengthening of various dimensions of sustainability maturity.
This includes a vision and strategy, evaluating how well sustainability is integrated within the broader supply chain strategy; organisation and people, assessing the extent to which sustainability considerations are ingrained; governance and processes, with the integration of sustainability seamlessly into policies; and enablers and reporting, where firms streamline the measurement and reporting of sustainability performance, ensuring alignment with corporate sustainability objectives.
Third, a firm needs a best-in-class methodology to build and implement prioritised initiatives. Adopt a structured, fact-based approach for translating sustainability aspirations into actionable plans. This defining a roadmap of sustainable procurement initiatives grounded in data insight; prioritising initiatives based on their potential for impact and make sure they are aligned to the wider organisation’s sustainability goals; implementing targeted interventions, including educating suppliers; and executing your sustainable procurement strategy plan, employing optimised sourcing practices and proactively managing supplier relationships to drive measurable reductions in Scope 3 emissions.
There’s no way around it: to stay ahead of the curve, organisations will have to take on the challenge of Scope 3 emissions. It will be the companies that can effectively leverage procurement as a strategic business partner that will progress organisational sustainability goals from mere talk to concrete results.