To Reduce Scope 3 Emissions, Think Data First

Reducing greenhouse gas (GHG) emissions, both direct and indirect, is one of the top priorities for companies that are working toward carbon neutrality. The reduction of direct emissions is straightforward, since it deals with emissions from within the organization. However, reducing indirect emissions from the value chain (known as Scope 3 emissions) presents a unique challenge in that it requires gathering information and collaborating along that value chain.

Since most organizations are in the early stages of inventorying their Scope 3 emissions, it's hard to say exactly how much they contribute to overall GHG emissions. Some sources, like Carbon Trust, estimate it to be upwards of 90% of overall emissions, but the general consensus among ESG professionals is somewhere in the 70% to 90% range.

A company's greenhouse gas (GHG) emissions can be broken down into 3 scopes:

• Scope 1: direct emissions from owned or controlled sources.
• Scope 2: indirect emissions from the generation of purchased energy, electricity, heat, and steam.
• Scope 3: all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.

Scope 1 is the most straightforward, accounting for direct emissions from the company itself. This scope includes company-owned facilities (buildings, boilers, furnaces), on-road vehicles (like vans, trucks, passenger vehicles and company-owned planes) and non-road vehicles (like construction and agricultural equipment). Scope 2 and Scope 3 deal with indirect emissions, which can present a new set of challenges and benefits to the company. Still, Scope 2 emissions are generally easier to track; since they are made up of purchased energy and electricity, those measurements are taken frequently for payment purposes.

Every day, more organizations are prioritizing the reduction of scope 3 emissions because of impending carbon taxes and other upcoming regulations. This includes Jabil; as an organization, we are on our own journey to track and reduce our scope 3 emissions. As part of that journey, we're sharing some of the successes we've had, hurdles we've encountered and lessons we've learned to help other organizations as they chart their own course toward decarbonizing.

The challenges for reporting and reducing scope 3 emissions include collaboration with suppliers who may not be as mature in their emissions reduction journey. Product design is also a key consideration, specifically developing product end-of-life stages that account for post-consumer emissions factors.

The Challenges of Reducing Scope 3 Emissions

Since reporting Scope 3 emissions isn't required or standardized yet, there are many challenges that companies face when attempting to measure, report and reduce them.

Collecting Accurate Data to Begin Measuring and Benchmarking

When it comes to emissions, you cannot reduce what you can't measure and control. So, the first challenge for most organizations is collecting data — which can often be outdated and siloed — and getting an accurate measure of current emissions.

To assist in this process, primary and secondary data should be collected from the various repositories that exist along an organization's value chain. In this context, primary data is considered known, specific emissions data for a particular product — meaning your organization or a supplier can use existing data to calculate exactly how much carbon was emitted throughout the complete lifecycle of a product or commodity or at a specific step in the lifecycle. Secondary data is when this figure must be extrapolated from known data or estimated with equations that use emissions factors and energy usage data.

Companies often begin their Scope 3 inventories primarily relying on secondary data. Moving toward the use of primary data provides a more accurate, true picture of their emissions. This is done through engagement with their vendors and customers to obtain their actual emissions data instead of using industry averages — a process that takes time, effort and relationship building.

Once the current footprint is measured, emission reduction benchmarking can begin. The first priority when it comes to execution should be to address your heat map concentrations. A heat map is a data visualization tool that uses color to determine areas of carbon intensity within the organization's value chain. It allows a company to prioritize areas with hot spots for increased carbon emissions first.

This is one of the largest hurdles in the process since the necessary data is usually not located in one database and may need to be extracted from vendor reports, bills, statements and other documents. The scope of the data is also enormous — from the time a material is extracted from the earth all the way to how the end product is disposed of.

Once the various data sets are collected, the secondary data requires additional steps to derive actionable metrics from it. Since there is no straightforward method for measuring Scope 3 emissions, companies have to come up with their own methods for calculating emissions without primary data.

For a secondary data calculation, you can come up with an emission value for a commodity type by using the manufacturing region's emission factor for that commodity based on either raw material or semi-processed state. An emissions factor is a representative value tied to the emissions released during a certain manufacturing activity. It usually represents an average amount of emissions released during manufacturing based on available data by region. The calculation process requires problem-solving until there is a standardized process for measuring Scope 3 emissions. As more organizations begin measuring and collecting their Scope 3 emissions, it's likely we'll be able to work together to create these standard processes.

Once you have created a baseline for your measurements. it's important to begin making assessments and working together with your suppliers to determine the most important emissions factors with a unidirectional approach.

Lack of Reporting Standards and Regulations

Currently, the Greenhouse Gas Protocol provides guidelines for companies to follow in their Scope 3 emissions calculations, while the CDP shares that reporting in a standard format with the market. However, the actual interpretation and calculation of the emissions data needed to meet those standards is left up to individual reporting entities (i.e. companies like Jabil). So, metrics can vary depending on the emissions factors, equations and input data each reporting entity uses to calculate their emissions.

Lack of Transparency and Outdated Accounting Methods

Another barrier to Scope 3 reduction is the lack of transparency that exists between supply chain partners. There are many legal barriers to sharing certain data outside of an organization. Without a standardized method for reporting, information security could be a major impediment to reporting and measuring Scope 3 emissions. There are also operational reporting issues with vendors using outdated accounting methods, paper files, whiteboards and a lack of overall digital maturity.

While the emissions reduction process presents challenges, especially if your company lacks digital maturity, the benefits of reducing Scope 3 GHG emissions offer a considerable return on investment.

The Benefits of Reducing Scope 3 Emissions

Better Environmental Rating for Products

The benefit of implementing an emissions reduction strategy that includes product design is that you get a better environmental impact rating for the product. Designing for sustainability not only addresses emissions, but it is also a consumer issue. Environmentally conscious consumers would be far more likely to engage with a business that is also addressing an urgent issue like the global climate crisis.

An Opportunity for Industry Leadership

Aside from avoiding penalties and gaining supply chain efficiencies, being on the frontline of Scope 3 reporting and regulation will give you a position of leadership in your industry. Your company can improve supplier relationship management by assisting with data collection, reporting and standardization. Reaching emission reduction goals can also help attract top talent to your organization.

Getting Ahead of Carbon Taxes and Regulations

One of the benefits of having an emissions reduction strategy in place early is that once regulations are in place (as they will be in the near future) your company will be ahead on the timeline, avoiding penalties that are tied to delays in reaching certain emissions reduction benchmarks. If you don't have a system in place to determine your current emissions and benchmarks, you might incur penalties at the regional or federal level. For example, California has a cap-and-trade program to help them reduce emissions to 80% below 1990 levels by 2050, with the overall goal of reaching 100% carbon-free electricity by 2045 and economy-wide carbon neutrality by 2045. The European Union has also issued the Industrial Emissions Directive as their instrument to get member states to reduce emissions from industrial activities.

While regulations are driving some of the compliance around making the planet a safer and better place, the marketplace is demanding the majority of these changes. As a result, companies are now putting programs into place to begin measuring, reducing and accounting for GHG emissions. The following Scope 3 emissions reduction strategies have proven effective and represent current best practices.

Four Scope 3 GHG Emissions Reduction Strategies

Here are just a few of the strategies today's industry leaders are using to account for and reduce Scope 3 GHG emissions.

1. Engaging and Collaborating with Suppliers

Since a company's Scope 3 emissions include Scope 1 and 2 emissions from their downstream suppliers, collaboration with vendors and members of the supply chain is vital to the success of any reduction strategy.

When deciding which suppliers to engage with first, map out the size and impact of the vendors and begin with the ones that have the biggest impact. Once you have established that, you can begin to reach out to them and find out what type of reporting they're doing.

One simple but effective way to way engage with suppliers is to create a vendor assessment survey. In the survey, you can ask them questions about their GHG emissions and where they are in the process of measuring and reducing them.

Here are a few examples of questions that would appear on a vendor assessment survey:

• Do you measure Scope 1 emissions, and if so, can you share that information with us?
• Can you share information relative to emissions tied to the products we buy from you?
• Can you include measures for Scope 2 and Scope 3?

The idea here is to not only engage at the beginning of the process but to maintain open channels of communication, share relevant data, monitor progress and create incentives for future action toward emissions reduction.

2. Updating Procurement Policies for Current and Future Suppliers

When it comes to procurement policies and choices, there are two ways to engage to reduce Scope 3 emissions. The first is to engage with current suppliers to lower their carbon footprint by helping them make better choices in how they manufacture products.

For example, you might engage with a current plastic supplier by asking them the following questions related to emissions:

• What if I switched to plastic with a lower carbon footprint?
• Can we reduce the number of materials in the production process?
• Are there ways that we can use plastics that are more recyclable?
• Are there ways that we can use a post-consumer resin? Are there ways where we can improve the logistical travel of those materials?
• Are we getting the final product to us as efficiently as possible?

When engaging with a current supplier doesn't result in reduced Scope 3 emissions, it may be necessary to move to the second way of reducing Scope 3 emissions via procurement — finding a new supplier with a lower carbon footprint. When changing your procurement policies, you may include questions on an RFP like:

• Do you have a sustainability plan?
• Can you provide a copy?
• Do you have a data repository related to GHG emissions?

This will help not only narrow the search but also inform potential and future suppliers that their commitment to reducing their Scope 1 and 2 emissions is no longer optional.

3. Incorporating Circular Economy Principles into Product and Service Design

According to the EPA, a circular economy is "an economy that uses a systems-focused approach and involves industrial processes and economic activities that are restorative or regenerative by design, enable resources used in such processes and activities to maintain their highest value for as long as possible, and aim for the elimination of waste through the superior design of materials, products, and systems (including business models)."

The principles of a circular economy can be applied to all emissions reduction strategies. When it comes to product design, there is significant room for reduction both upstream and downstream.

Design can help reduce the number of natural resources needed in the production process. It can also address end-of-life product disposal issues by designing products that can be more easily reused or recycled.

A company can design products that can be more easily disassembled so that when someone is trying to recycle them, they will have a purer commodity to reintroduce back into the secondary commodities market for post-consumer resins. It also eliminates the need to extract virgin materials from the earth down the road, which is a highly carbon-intensive step in the product lifecycle. Products made of virgin materials (plastics, metals, etc.) can have a significant impact on total cradle to gate emissions compared to products that use recycled materials due the emissions contributions of extraction.

Here are a few product design questions that can help discover new ways to reduce emissions:

• Are there alternative materials that have a better impact on the environment?
• Can we design products that use less material?
• Could a product have alternate purposes or uses?
• How will it be disposed of?
• Could a material, component or process be eliminated to save energy?
• What materials can be recycled together and which ones can't?
• Can we incorporate more sustainable packaging for the materials, components and final product?
• How do we make products more modular with different separation strategies at the end-of-life product stage?

4. Business Model Innovation and Customer Engagement

Market and financial forces are at play in every GHG emissions reduction strategy. Consumers, who are more informed than ever about the products they buy, are demanding corporate responsibility when it comes to emissions reduction. To minimize financial risks, investors are also putting similar demands on organizations moving forward. In turn, brands are requiring commitments to sustainability and emissions reduction from their suppliers and manufacturing partners.

To address these demands at all levels, businesses are providing more transparency to customers and providing information to them about how to recycle, reuse and properly dispose of products. They are also helping inform their communities, partners and governments about their plans to address sustainability and post-consumer waste.

Since Scope 3 includes both downstream and upstream emissions outside of an organization's direct actions, there are multiple business model strategies to address emissions reduction. One strategy is to increase product lifespans and thus reduce the need for additional consumption. Increasing efficiency in logistics is another approach, serving the dual purpose of providing supply chain resilience and reducing Scope 3 emissions. Putting a price on carbon is also an effective reduction lever since it forces the company to make financial decisions based on greenhouse gas emissions.

Hitting Scope 3 Greenhouse Gas Emissions Reduction Targets

Whether through supplier engagement programs or market forces, there are clear incentives for companies that choose to lead with ambitious Scope 3 reporting and reduction standards. In 2014, the CDP found that "corporations that actively manage and plan for climate change secure an 18% higher return on investment (ROI) than companies that don't — and a 67% higher ROI than companies who refuse to disclose their emissions."

In addition to a return on investment and other benefits, companies that work toward reducing their Scope 3 emissions will also gain more flexible and resilient supply chains, future-proof business models, and company cultures that reflect consumers' desire to address climate change through their purchases.

The benefits of reducing Scope 3 emissions outweigh the challenges both for the company and the planet. Regardless of your level of maturity, the time to implement your GHG reduction strategy is now.