Scope 3 of the carbon report - Why are all companies concerned by this development?
Since January 2023, companies with over 500 employees are required to include scope 3 in their regulatory GHG emissions balance sheet (carbon report). But where does this famous scope 3 begin and end? And above all, why is taking this into account crucial to achieving decarbonization objectives in all sectors?
Until last year (2022), the regulatory greenhouse gas emissions report for companies with more than 500 employees could be limited to “scopes” 1 and 2:
- Scope 1 = the company’s direct greenhouse gas emissions (emissions linked to the fleet of vehicles owned by the company and to the energy used for its production);
- Scope 2 = indirect GHG emissions linked to the company’s energy consumption (electricity, steam, heat and cooling).
On this basis, which is nevertheless relatively easy to calculate, it should be noted that only 43% of the 3,106 companies concerned by the requirement to publish their GHG emissions report every 4 years by 2021 were in compliance (report less than 4 years old + transition plan + filing on the Ademe website). The compliance rate of other organizations subject to this obligation is even lower, namely: 23% for public establishments with more than 250 employees and 18% for local authorities with more than 50,000 employees. In all, only 35% of the 4,970 “obliged” organizations were in compliance. [source: Évaluation 2021 de la réglementation des bilans d’émissions de gaz à effet de serre, Ademe, Sept. 2022
A heavyweight Scope 3!
Previously only recommended, scope 3 has been mandatory since January 1st, 2023 (decree no. 2022-982 of July 1st, 2022). The fact that it was not initially included could suggest that this category of emissions carries less weight than Scopes 1 and 2 in the organizations’ carbon footprint. This is not the case:
>> including all indirect emissions not included in scope 2, scope 3 often represents more than 75% of a company’s GHG emissions.
For example, scope 3 accounts for 90% of the total emissions of an energy distribution company like Antargaz, due to the fossil fuel nature of its products and the end use to which they are put by its customers. To reduce its scope 3, the company’s main lever for action is to change the nature of the products it distributes, a decarbonization initiative in which it has been engaged for several years (gradual switch to biopropane, which emits 77% less CO2 than propane).
The predominance of scope 3 is not specific to companies in the energy sector. 98% of the emissions of Mozilla, the publisher of the Firefox web browser, are attributable to the use of its software, in this case the electricity consumed by end-user computers. [source Magelan.tech]
This means that, for most companies, it is impossible to draw up a truly serious transition/decarbonization plan without calculating Scope 3 emissions.
Scope 3 is more difficult to grasp
The difficulty lies in the extent of the spectrum and the number of emissions items to be taken into account to cover indirect emissions upstream and downstream of production. For greater clarity, scope 3 is now divided into 3 sub-categories (using the 16 items from the previous categorization):
- indirect emissions linked to transport: upstream goods transport; downstream goods transport; commuting; visitor and customer travel; business travel.
- indirect emissions linked to purchased products: purchase of goods; fixed assets; waste management; upstream leased assets; purchase of services.
- indirect emissions associated with products sold: use of products sold; downstream leasing assets; end-of-life of products sold; investments.
A final sub-category groups together “other indirect emissions” not covered by any other Scope 3 item.
The aim is to embrace GHG emissions from the entire value chain, which means accounting for emissions generated outside the company’s operational perimeter – by its suppliers, service providers, distributors, customers and end-users of its products/services.
This can quickly become very complex… and goes a long way to explaining why, among companies complying with the obligation to produce a GHG emissions report, by 2021 only 52% had tackled scope 3 (then optional) by taking into account at least one of its 16 indirect emissions items, with an average of 4.6 items. [Source: Ademe, 2022].
“One man’s scope 1 is another man’s scope 3”
The recent tightening of regulations should change the situation. But beyond the regulatory aspect, what must motivate the inclusion of scope 3 and the production of a complete GHG emissions report is the realization that the decarbonization of our economies is necessarily played out on the scale of value chains and product life cycles. As Etienne Valtel, Managing Director of Altens (a French supplier of alternative fuels for the transport sector) points out:
“The carbon emissions report does not just concern companies with over 500 employees. Every company is part of a supply chain. As a result, one company’s scope 1 is another’s scope 3, and so on. All companies are affected. The entire company has to take action at the same time to achieve the goals.”*
This is why a growing number of companies, particularly SMEs, are undertaking to compile a full carbon footprint report, even though they are not obliged to do so. They are doing so for three main reasons:
- because their end customers, the consumers, are increasingly aware of the carbon footprint of the products they buy;
- because they have placed environmental issues and the fight against global warming at the heart of their corporate purpose and their CSR policy;
- to gain access to contracts with companies and local authorities who, in order not to burden scope 3 of their own carbon footprint, give preference to suppliers and service providers with the best GHG emissions report.
Whatever the primary motivation, however, Stéphane Miet, Net Zero consultant and Bureau Veritas national carbon accounting specialist, points to a recurring difficulty concerning scope 3:
“Scope 3 is scary because there’s a lot of data to collect, and a lot of internal and external stakeholders to involve. For example, a company that uses transport services should ask its carriers about the carbon contribution of their transport activity. This is how to build a carbon footprint report, by respecting certain methodologies and involving external stakeholders.
Officially, carriers are not obliged to do so, but a carrier who plays the game helps to reduce the customer company’s Scope 3, as well as reducing its own Scopes 1 and 2. If it doesn’t play the game, it will potentially lose the contract.”*
Why tackle Scope 3 through transport?
This convergence of interests argues in favor of coordinated efforts between principals and their suppliers, particularly in the field of transport. Transport is often a major scope 3 item. It has the advantage of being much easier to quantify than others, such as product use by end customers. That’s why any company using transport services benefits from a strategy of collaboration with its carriers, both on the upstream freight side (supplies) and on the downstream side (distribution, last-mile delivery).
This strategy typically takes the form of longer-term commitments/contracts with carriers who are decarbonizing their services by speeding up fleet modernization or opting for alternative fuels such as the new biofuels, which are often more expensive but emit up to 90% less CO2 than diesel. Fuels made from used vegetable oils are particularly interesting, as they are compatible with conventional diesel engines. A carrier who switches to this type of fuel is not obliged to change its vehicles, bearing in mind that the first effect of buying any new vehicle, including an electric one, is to increase the carbon debt of the company acquiring it.
Two other items in the transport section of scope 3 enable companies to rapidly improve their overall carbon footprint:
- business travel. In 2021, Ademe noted that 58% of companies subject to the obligation to publish their carbon footprint report took this emissions item into account. Today, it’s pretty easy to take action in this area. Thanks to the development of videoconferencing, many journeys, especially those involving air travel, can be avoided. When the alternative exists, the company may also prefer to use the train. In professions where road travel is an essential part of professional practice (installation, troubleshooting and maintenance of equipment; on-site surveys and expert appraisals; home health care, etc.), route optimization solutions can reduce the number of kilometers traveled by around 20%, thus cutting fuel consumption and associated emissions.
- commuting to and from work. By 2021, 47% of companies were taking this item into account. The obligation, since 2019, to set up an employer mobility plan for all companies/establishments with more than 50 employees accelerates the consideration of this emissions item. Companies are all the more encouraged to work in this direction as they can mobilize significant financial aid to encourage their employees to decarbonize their home-work journeys (car-sharing, soft mobility, public transport, acquisition of a bicycle or electric vehicle, etc.). In parallel to these actions, companies can use Nomadia’s sectorization solutions to create optimized sectors based on employees’ homes and, with our route optimization solutions, minimize home-work journeys by using the employee’s home as the starting and/or ending point of the routes.
All companies can take action on the transport aspects of their carbon footprint (scope 1 and scope 3). Regardless of the item(s) of focus in this area, quantifying emissions is the first step in setting up a relevant action plan.
Did you know that Nomadia can help you collect the data needed for your calculations?
>> In addition to helping you significantly reduce your emissions, our solutions centralize detailed data on your vehicle fleet, your employees’ vehicles and their use (number, type, engine, weight, year of purchase, distance traveled by each vehicle in the year). They update this data on an ongoing basis to provide you with an estimate of your overall CO2 emissions or, for a more targeted approach, by route, by vehicle, by group of vehicles, etc.
>> What’s more, Nomadia has teamed up with Sami, the platform that enables your company to “do its bit for the climate” by carrying out its carbon report according to the Bilan Carbone® methodology and implementing a customized action plan. So that you can easily provide SAMI with the data it needs throughout the implementation of your decarbonization plan, Nomadia optimization software uses the data format required by SAMI, making it easy to export to the platform. All the more reason to tackle scope 3 of your carbon footprint now!
* All quotes are taken from the conference “Scope 3 of the Paris Agreements: we’re all concerned now!” as part of the “SiTL” event which took place on March 28, 2023.