Over the summer, I’ve been thinking a lot about Greenhouse Gas emissions and "Scope 3" in particular. My question is this - has all the focus we have seen on that topic in recent years paid off? I am not in any sense going to join the growing chorus of “anti-net zero” sentiment, but it seems to me that we need to take a hard look at the way Scope 3 is currently being discussed, measured and addressed.
So in a series of articles I’m going to look critically at Scope 3 and (on a more positive note) suggest how we might start to re-calibrate what we’re doing about these emissions. I should say that whilst I’ve thought about this for some time, I don’t claim to have all the answers and I would be delighted to stimulate debate, even opposition to my views.
But first, a quick reminder for those who are less familiar with the terminology. Scope 1 emissions are those generated directly by the organisation, for example from the petrol used in company vehicles. Scope 2 is emissions caused by the energy (gas, electricity) the organisation purchases. Scope 3 is everything else. That includes downstream emissions from the use and disposal of the company’s products – so for instance, Unilever would include the emissions connected with the hot water consumers use when shampooing their hair with Unilever’s product. But upstream, in the supply chain, is where most Scope 3 emissions lie for most organisations, and of course this is what interests those of us in the procurement and supply chain world.
To kick the discussion off, let’s start with a simple statement.
What we have been doing in recent years around reporting of emissions in general and Scope 3 in particular is not working.
We have created a huge amount of work for organisations in terms of drawing up net zero plans, trying to understand Scope 3, sending out questionnaires to suppliers about their emissions and so on, but to what purpose? We need to look at the outcomes and what has been achieved to judge the success of current approaches, and the depressing conclusion is that very little has been achieved.
Global energy-related CO2 emissions grew in 2022 by 0.9%, or 321 million tonnes, reaching a new high of more than 36.8 billion tonnes. As Norton Rose Fulbright said in their recent article, “Double materiality - what does it mean for non-financial reporting?
“Non-financial reporting is not a magic wand which will decarbonise the planet and cure all ills. In 2022, we had more sustainability reporting than ever before. We also had more greenhouse gas emissions than ever before”.
But the good news is that this increase in 2022 was well below the global economic growth rate of 3.2%. So that indicates some relative “success” in terms of emissions, which came largely from more clean energy (solar and wind in the main) replacing fossil fuels use. But that positive is not really driven by any of the Scope 3 reporting activity – it is caused mainly through decisions and policies made at governmental level, such as China’s huge solar programme or the growth of wind power in Europe.
At individual company level, it is very difficult to get actual numbers around emissions, even from those who claim to be industry leaders. But again, there is little evidence that the actions firms are taking is having any effect on Scope 3.
If we look at smaller firms, we find a lack of understanding, and confusion about what if anything they should be doing about addressing the issue. I’ve spoken to a number of mid-sized organisations who have tried sending out surveys to their supply base asking about emissions, for instance, which then get largely ignored by suppliers.
When we do delve into the leaders, even here the picture is not very positive. There appears to be little desire to publicise Scope 3 numbers, to say the least. Schneider Electric for instance, multiple award winners for sustainability and sustainable procurement, have a strong and admirable supplier programme around emissions reduction. But the firm is surprisingly shy about talking about actual hard emissions numbers. After some searching, on page 83 of their 222-page sustainability report, I found this.
“… the emissions from the supply chain upstream emissions, have increased by 5%. This increase is mainly due to the increased volume of purchased goods and services driven by the growth of the Group’s activity, despite the efforts to support suppliers’ decarbonization with the Zero Carbon Project, and to source green materials. Indeed, the outcome of these programs are not yet reflected into the Group’s corporate carbon accounting due to necessary methodology and emission factors updates that are not yet implemented. The Group is working on the reconciliation of the data in 2023”.
So the results are disappointing and methodology is proving a problem here even for an industry leader. Then we have Unilever, another sustainability leader, and again, it is quite difficult to find the hard numbers. I could not find anything in the sustainability section of the excellent company website, but on page 35 of the corporate annual report, we get this in terms of Scope 3,
“… we see that whilst there was a reduction in product volumes in the measured period, our GHG emissions increased by 2%. The progress we have made in reducing GHG emissions from our operations, packaging, logistics, and our retail emissions, was offset by an increase in emissions from raw materials and ingredients and an increase in direct consumer use emissions.
Emissions from our raw materials and ingredients represent 59% of our GHG emissions. These emissions increased by 4% from 2021 driven by changes in sales mix within our Nutrition and Ice Cream Business Groups and changes in the reported emissions of various raw materials, as a result of now having improved emissions data. The improvements that we have made to our data include the use of supplier data, rather than industry averages, for the production of soda ash (used in many of our Home Care products), and the use of more accurate data for the specific types of chocolate and soy we use in our Nutrition and Ice Cream businesses”.
An interesting point here is that as measurement has improved, the numbers look worse – using real supplier data gives higher numbers than using notional averages. I’ll come back to that in a future article. But in conclusion, I would argue the current approach to Scope 3 is not working well, and we need to understand why before we can prescribe any solutions.
So in the next article in the series, I‘ll suggest that the Scope 3 movement has ignored one of the most fundamental principles underpinning procurement, and that this is one of the reasons why we aren’t making progress.