Emission trajectory is what’s important.
Such was the message of a recent GreenBiz webcast, hosted by the Environmental Defense Fund (EDF), which tried to make sense of the ambiguity of Scope 3 reporting under the proposed SEC regulations.
Scope 3 emissions include all greenhouse gases that are not produced directly by a company. This includes emissions up and down the value chain, from suppliers, transportation of supplies or product, employee air travel; even those from product use such as in the case of a product that uses electricity.
Such metrics can be daunting to measure, let alone report.
The panel had several suggestions.
Categorize and estimate
First, break your supply chain into pockets of large carbon emissions. Don’t worry about every little output. But try to categorize the emissions, then estimate.
Kevin Rabinovitch, Global VP of Sustainability & Chief Climate Officer, Mars, Inc. had this advice: “Any estimate — even a crude one — is better than zero. This helps develop where you need better data and where it matters.”
Look at everything that is in scope, he says. Once one identifies big pockets of carbon up and down the supply chain, one can start making estimates. This leads to getting more accurate data, from which one can solve for imprecise and incomplete data.
“I would speculate that there is no emission output that you would try to estimate that someone hasn’t tried to derive that number already,” he continues. “To get started, go to your industry association, talk to peers in your sector. People have already done a lot of this work.”
Another way to get started is to know relevant business activity and then translate those activities or items into carbon values. Carbon values tend to correlate with stuff not numbers, he says. And once one knows what and how much “stuff,” one can find impact factors.
Rabinovitch uses paper usage and electricity used by the company as an example. “If I know I use 1,000 reams of paper and so many kilowatts of energy in production, I can translate that into a carbon value. Usually you can find someone in the company who knows the physical numbers.”
Scope 3 data retrieval is sometimes just that — collecting information, rather than strict measurements, Rabinovitch says. For example, if one’s supplier is already using renewable energy, that is all one needs to report. No metric is required.
Also, carbon numbers are not as steady and stable as financial metrics. They may get there, but at the moment any estimate is better than nothing, says Elizabeth Sturcken, managing Director of EDF.
Such activity proves to investors, consumers, and the government that a company is making an effort to reduce its carbon footprint, even without a specific net zero target date in mind.
Talk to your suppliers
Due to current reporting requirements, everyone should have Scope 1 and 2 emission numbers, says Rabinovitch. “Your Scope 3 metric is someone else’s Scope 1 and 2.”
Therefore, work closely with suppliers to find these numbers and hold the partners accountable.
“We can influence each other up and down the supply chain,” he continues, “by what things you choose to buy, how you design your product, what you ask of your suppliers.”
Mars, for example, developed a Supplier Leadership on Climate Transition program. Mars, along with several other manufacturers, invited partners to “what was essentially a climate target-setting bootcamp.” During the program, on-site environmental experts and consultants showed attendees how to create baselines, do tracking, and generate reports.
“This effort helps us, as we can then evaluate who we will work with based on this information,” Rabinovitch says.
Jen Bennett, Technical Director, Sustainability, Office of the CTO at Google Cloud, says, “It is about collaboration with our suppliers — not putting pressure on them.”
Bennett sees this emphasis within top-level board discussions. “Procurement is changing,” she says. “It isn’t just about the price or availability of an item. But it is about accountability and risk.”
Sturcken, Managing Director at EDF, agrees to a point. “It is really about both collaboration and pressure. A company needs to ask suppliers to help, but can demand them to do so as well.”
“We are fearful of companies greenwashing,” she continues. “As a result, we want data to prove progress and need transparency from up and down the supply chain.”
Transparency helps in several ways. Not only does it keep a company honest, but it can help motivate from within.
If one wants good input, make the numbers public, suggests Rabinovitch. “Nothing escalates the data quality better than using it for something that matters,” he says. “If one puts the data into a public commitment, suddenly there is a lot of energy into getting better data because it is now attached to people’s bonuses and public relations.”
Standardizing the way the reporting happens would help as well, he adds. Do this, and everyone will get better data.
Performance, not date
Overall, it is about performance. In the recent past, investors, companies, and the public wanted to hear commitments by companies pledging to reach net zero by a certain date.
And a business used to be able to win the reputation race by having a net zero date before others within the same industry. But if a company has a do-nothing plan to reach that target, that date is meaningless.
“The real winner is the company who cuts their emissions by 20% but may have no target,” says Rabinovitch.
This is resonating with the public and investors, who are beginning to look at performance and a company’s concrete action plans, rather than unfounded promises.
Hence the emphasis on emission trajectory.
Sturcken suggests that companies buy carbon credits all along the journey to offset their path to net zero, while internally decarbonizing and working with supply chains for Scope 3 to do the same.
Although SEC Scope 1 and 2 reporting requirements would apply before Scope 3, there is no time like the present to get started.
“It is about acting now,” says Sturcken. “Don’t let perfect be the enemy of the good. For Scope 3, figure out big buckets of carbon. Act in the void of imprecise data. The urgency to act is more important than the precise.”
