Value chain decarbonization - which methodology to apply?

Measuring Scope 3 emissions for a carbon footprint is a complex task. Numerous methodologies exist, each with its own advantages and limitations. How should carbon data be collected? What is its quality level? Is it actionable? Ultimately, the challenge becomes even greater when it comes to actually reducing these emissions.

Vincent Lorich
VP Climate
Publication : 
31.10.2023
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BEGES, SBTi, CSRD… An increasing number of standards are making Scope 3 accounting mandatory. Long overlooked due to the complexity of measuring it, this scope is gradually becoming a must-have for companies aiming to remain competitive in the years to come.

According to the CDP, the value chain accounts for an average of 92% of a company's emissions. Institutions everywhere agree that Scope 3 is both an essential lever in the fight against climate change and a key factor in corporate competitiveness. Indeed, accounting for your Scope 3 today means:

  1. Preparing for regulation by getting ahead of the legal requirements and climate standards that are set to become increasingly stringent.
  2. Completing your reporting and meeting your reduction targets by improving your sustainability ratings and aligning with the globally recognized SBTi framework.
  3. Strengthening your competitiveness and the resilience of your value chain by gaining a better understanding of your carbon footprint components. Strengthening vulnerable supply lines and reducing costs through energy efficiency plans are examples of actions that can be implemented.
  4. Enhancing your brand image and employer branding by reinforcing your leadership and commitment to sustainability.

Yet, despite these concrete benefits, the CDP estimates that only 5% of companies have established a Scope 1, 2, and 3 transition plan that is sufficiently transparent, robust, and actionable. 

How can you join this top 5% of companies? And more importantly, what are the obstacles preventing the remaining 95% from improving their competitiveness through Scope 3?

What is Scope 3?

A company's greenhouse gas emissions can be categorized into 3 scopes as defined by the Greenhouse Gas Protocol (GHG Protocol). This framework for accounting and reporting greenhouse gas emissions allows companies to assess their emissions across their entire value chain.

Scope 1 includes all direct greenhouse gas emissions (heating for premises, company equipment, company vehicle emissions, etc.).

Scope 2 covers indirect emissions related to energy consumption during production processes (purchased electricity, heat, or steam).

Finally, Scope 3—the focus of our interest—encompasses all other emissions. It is further divided into two sub-categories.

  • Upstream Scope 3, which includes all activities occurring before the production of the company's products or services: purchases of raw materials and services, upstream transport, business travel, employee commuting, and waste generated by operations
  • Downstream Scope 3, which includes all emissions related to the distribution and use of the company's products and services: downstream transport, product use, waste generated at the end of a product's life, franchises, etc.
Emission categories within the 3 carbon emission scopes

This widely recognized international method for calculating emissions subdivides Scope 3 emissions into 15 distinct categories. The relevance of these different categories naturally depends on the company's specific sector of activity.

In most cases, the largest portion of Scope 3 comes from "Purchased goods and services," in other words, the upstream value chain.

The 15 Scope 3 categories according to the GHG Protocol

Various carbon accounting standards and regulations aim to encourage companies to include their purchases and other value chain elements in their carbon footprint to gain a comprehensive view of the GHG emissions linked to their activities.

Identify the real obstacles to value chain accounting.

While it is now clear that accounting for value chain emissions is essential for a complete and actionable carbon footprint, putting this into practice is another matter entirely.

Today, a company has two ways to collect value chain data: either through (1) a Life Cycle Assessment (LCA) of purchased products, or (2) its suppliers' carbon footprints.

While both approaches have their advantages, they also have respective limitations that hinder the reliability of a Scope 3 carbon footprint. The direct consequence is the difficulty in subsequently activating levers to substantially reduce GHG emissions across the value chain.

In addition to the difficulties inherent in these methodologies, there are the traditional obstacles to establishing a carbon plan that are well known to CSR project managers: a multitude of stakeholders, data collection, organizational complexity, and the market's level of maturity.

This is why any company wishing to embark on Scope 3 accounting with confidence must first identify and understand these obstacles.

The limitations of the product LCA approach

LCA is a highly precise method for assessing a product's environmental footprint. It involves conducting an exhaustive assessment of the environmental impact of a given product or service throughout its entire life cycle.

However, this method faces several obstacles when used for Scope 3 carbon accounting:

  1. The limited availability of data required for LCA calculations. Performing an LCA for a product means taking an inventory of all material and energy flows, as well as the activity and emission factors related to its production. This can quickly become a complex, costly, and time-consuming task. Consequently, very few suppliers today are able to provide this data.
  2. The high cost of a product LCA, which averages 10,000 euros. In practice, this means LCAs are rarely updated, so annual carbon footprint tracking fails to capture the actual improvements made by the supplier.
  3. A product LCA cannot be generalized to all of a company's products. In fact, the results obtained cannot be applied to other products or services, requiring the exercise to be repeated for every product or service in the value chain.
  4. LCAs from one supplier to another are not comparable. Calculation methods and assumptions vary from one supplier to another. Consequently, it is often necessary to perform manual data processing after the fact to make them consistent and comparable.

In summary, while LCA is highly relevant for assessing a product's environmental footprint, it is not necessarily the right tool for calculating a Scope 3 carbon footprint, given the current maturity of the market.

Limitations of the supplier carbon footprint approach

The second approach involves using the supplier's carbon footprint (CF) to create an intensity indicator, also known as an emission factor (EF). This emission factor is obtained by dividing the supplier's carbon footprint by an activity metric, typically their revenue, to allocate the portion attributable to the product purchased.

Although this approach is better suited to a broader scope, the uncertainty rates it generates significantly reduce its precision and, consequently, its reliability.

  1. The often average to low availability of supplier carbon footprints can make it difficult to collect sufficient data.
  2. The scope of a supplier's carbon footprint is often far removed from the scope of the product, making the resulting intensity indicator imprecise or even completely inaccurate. It is difficult to reliably measure a product's carbon footprint by relying solely on the share that product represents in the supplier's total revenue. For example, when purchasing office furniture or IT equipment, it is better to use the emission factors from the Ademe database for those specific products than the carbon footprint of the distributor, which will only reflect the average mix of products they sell.
  3. Supplier carbon footprints are not always of high quality. Often, certain scopes or activities are missing, and/or the uncertainty is too high due to the use of monetary-based emission factors. In the absence of shared sector-specific methodologies, the data collected from suppliers is too imprecise and not comparable.
  4. The difficulty and financial costs associated with standardizing supplier data to make it comparable. Making supplier data comparable requires a deep dive into the scopes and assumptions used. When the information is available (which is rarely the case), the effort required for standardization is significant and often necessitates relying on sector averages that may not reflect the supplier's specific characteristics, which in turn undermines the value of collecting supplier-specific data.

In conclusion, while this approach is more affordable, it remains limited by inconsistent—and often imprecise—methodologies and a very high degree of uncertainty. The risk, once again, is obtaining carbon footprints that are unreliable and not actionable.

The four general obstacles

Beyond the inherent limitations of various calculation methods, four generic obstacles further complicate this exercise for many companies. 

  • The multiplicity of stakeholders

The first challenge lies in the fact that Scope 3 emissions are outside a company's direct control. Integrating and involving suppliers, customers, business partners, and, of course, the procurement team as early as possible in the collection process is a real challenge. Since a company can have thousands of suppliers, this task is a significant undertaking.

  • Data collection: the bane of CSR teams

Collecting and processing data is one of the main challenges of Scope 3 accounting due to the sheer volume and diversity of stakeholders, as well as the types and formats of data involved. Furthermore, one must assume that the quality of collected data will vary depending on the supplier's level of engagement, the specific contact person responding to the questionnaire, and the time they can (or cannot) dedicate to the task. It is therefore best to use a tool capable of collecting and processing large amounts of data while applying uncertainty factors to measure their quality. 

  • Large organizations face an additional layer of complexity

Company size can also be a major obstacle. Very large companies are often composed of various sites and/or subsidiaries spread across the globe, each with its own network of suppliers. This structure further complicates value chain data collection. It reduces the potential for economies of scale and, by default, multiplies the sources and formats of data—and consequently, their potential quality.

  • Market maturity: the frequently overlooked obstacle

In reality, it is nearly impossible to obtain up-to-date and accurate carbon data from suppliers. The maturity of different sectors regarding carbon footprint calculation remains highly inconsistent. To date, you should assume that only a minority of your suppliers will have precise, up-to-date carbon data for their products and services. It will likely take another 5 to 10 years to see a significant improvement in the quantity and quality of data provided across the entire value chain.

Is it possible to (effectively) decarbonize your value chain?

Can you effectively decarbonize your company based on incomplete, imprecise, and incomparable supplier data? It is highly unlikely.

Yet, when Scope 3 accounts for the majority of your GHG emissions, it can quickly feel like hitting a wall when it comes to launching decarbonization initiatives. So, how can you improve data collection throughout your company's value chain?

It is important to adopt an iterative approach and think in the medium to long term. By increasing pressure on your suppliers and supporting them in implementing carbon accounting, you will be able to collect more and higher-quality data over the years.

Beyond that, you will create a ripple effect by encouraging your suppliers to engage with their own suppliers. This will establish a virtuous cycle, allowing for the continuous improvement of activity data collection year after year, ultimately resulting in a high-quality carbon footprint.

How can you then take action on Scope 3?

Rethinking your business in depth

There are, of course, various ways to reduce the impact of Scope 3 on your carbon footprint. The most effective is to rethink your production model. Indeed, "the cleanest energy is the energy you don't consume," and this paradigm is clearly applicable to all the elements that make up your Scope 3.

Reducing resource waste, rethinking product manufacturing, and changing your business model to make it more responsible are solutions that allow for concrete action on your Scope 3 carbon footprint.

This is the project that Decathlon, for example, has embarked on by prioritizing eco-design for certain product ranges and testing a new growth model through the project “We play circular”. They want to expand their sports equipment rental business while also offering to buy back products to refurbish and reintroduce them into the sales cycle. The goal is to gradually shift from a growth model based solely on consumption to a circular growth model.

By leveraging a comprehensive view of their product life cycle, they are taking action on both design (upstream scope 3) and end-of-life (downstream scope 3), thereby significantly reducing the impact of scope 3 on their carbon footprint.

Engaging your suppliers

Changing your business model is inherently risky and is not feasible or desirable for every industry. Another approach is to engage your suppliers to take action on the GHG emissions associated with your scope 3.

The first step is to engage your existing suppliers. By informing them of your interest in environmental issues and your need for high-quality carbon accounting, you can help them understand the necessity of reporting their environmental data.

According to the SBTi, if two companies ask the same supplier to report their environmental data, there is a 68% chance they will do so. The importance of collecting this data can act as a sword of Damocles for the supplier. By refusing to provide this information or remaining evasive, they put themselves at a disadvantage compared to potential competitors who have taken this process seriously.

To go further, you can also support them in this accounting process by providing recommendations on the methodology to follow, reporting templates, or tools adapted for carbon data collection.

When identifying new suppliers, you can consider the environmental commitment of your future partners from the outset. This is the best way to ensure they will be able to provide you with high-quality carbon data.

SNCF, for example, is gradually integrating carbon criteria into its calls for tenders by setting an internal carbon price, currently at €100/t CO2. The carbon emissions of tender applicants thus have a direct impact on the company's financial score. It has also increased the weight of CSR criteria, particularly climate-related ones (decarbonization trajectory), in its selection process.

The Tennaxia Supply Chain solution

At Tennaxia, we are aware of the challenges and limitations of scope 3 accounting. We have created a modular supplier carbon management module that can be applied to all our users.

The goal of this module is to assess the maturity of your suppliers, and therefore the likelihood that the volume of emissions associated with each supplier is under control. We enable you to perform a risk analysis to overcome issues with the quality of the emissions data your supplier is able to provide. This allows you to target the key suppliers that need support and development, thereby simplifying your data collection phase.

To discover our Supply Chain module 👉 Request a demo

Also check out our article on responsible purchasing policy to learn more about decarbonizing your company's scope 3.

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