5 reasons companies should measure their Value Chain Emissions

The concept of value chain emissions, also known as scope 3 emissions, has emerged as a critical facet of corporate sustainability strategies. Accounting for a significant and often dominant portion of a company's total carbon footprint, these indirect emissions encompass a company's entire value chain, extending beyond its immediate operations. Studies indicate that scope 3 emissions often constitute between 70% and 90% or more of a company's total carbon footprint, underscoring their pivotal role in current and future regulatory compliance. This significant proportion highlights the critical need for comprehensive measurement and reduction strategies.

What are value chain emissions?

When assessing a company's carbon footprint, three distinct categories, also known as "scopes 1, 2, 3" require consideration:

• Scope 1: Direct emissions from owned or controlled sources.

• Scope 2: Indirect emissions from the generation of purchased energy.

• Scope 3: Also known as "value chain emissions," these include all the indirect greenhouse gas emissions across a company's entire value chain, extending beyond its immediate operations. This includes emissions from purchased goods and services, business travel, employee commuting, transportation and distribution, waste disposal, investments, and the utilization and end-of-life management of the company's products.

Scope 1 and scope 2 are relatively straightforward to quantify and address, while scope 3 emerges as the largest and often most intricate piece of the puzzle.

With scope 3 emissions contributing to the majority of a company's total carbon footprint, yet, many businesses grapple with incomplete visibility into this predominant portion of their environmental footprint. This lack of data impedes the development of effective strategies to drive substantial reductions in emissions.

Why is it imperative for companies to measure their value chain emissions? 

Here are 5  reasons why companies should calculate their value chain emissions: 

Gain comprehensive insight into a company's climate impact and carbon footprint.

Measuring a company's value chain emissions provides critical insights that go far beyond just the organization's direct operational footprint. These emissions, generated across a company's supply chain and from the use of its products, typically account for the vast majority of its total greenhouse gas impact - often over 70% on average. Yet many businesses overlook or underestimate this significant portion of their carbon footprint. For instance, the retail industry accounts for approximately 25% of total global greenhouse gas emissions, with the vast majority (up to 98%), of these emissions originating from the retail value chain. By comprehensively quantifying these indirect emissions, companies can gain a much more complete and accurate picture of their true environmental impact. 

This knowledge is essential for setting meaningful decarbonization goals, identifying high-impact reduction opportunities, and developing effective strategies to mitigate climate risk across the entire value chain. With only 10% of companies currently measuring all their scope 1, 2, 3 emissions, there is a significant data gap that leading organizations are working to close in order to drive meaningful progress on sustainability.

Ensure compliance and stay ahead of regulatory mandates.

Proactive measurement of value chain emissions positions companies as frontrunners amidst a rapidly evolving regulatory landscape. Governments worldwide are increasingly introducing mandatory carbon reporting and reduction targets, often encompassing those emissions. 

In Europe, the new Corporate Sustainability Reporting Directive (CSRD) will mandate over 50,000 companies to disclose their complete value chain emissions, starting in 2025.  France spearheaded this movement by incorporating scope 3 emissions into mandatory GHG reporting in 2023, setting a precedent for other nations to emulate. 

By proactively measuring and managing their value chain emissions, companies can adhere to compliance deadlines, mitigate potential fines, and safeguard future business licenses and permits. Failure to address scope 3 emissions could result in significant compliance challenges, financial penalties, and reputational harm. This proactive stance enables companies to shape emerging regulatory frameworks by furnishing valuable data and insights, potentially influencing forthcoming regulations favorably.

Identify cost-saving opportunities.

Measuring scope 3 emissions can uncover ways for companies to save money and improve financially. These emissions, often making up most of a company's environmental impact, are usually caused by inefficiencies in their supply chains. Finding these emission hotspots helps businesses identify areas where they can make improvements. Working with suppliers, using this data, can lead to smart solutions such as finding better delivery routes, using more fuel-efficient transportation methods, or cutting down on waste in manufacturing. By dealing with these indirect emissions, companies can both reduce their environmental impact and make their business more efficient. 

Enhance brand reputation and stakeholder trust.

Companies face escalating pressure from consumers, investors, and other stakeholders to exhibit transparent accountability for their overall climate impact throughout the value chain. Mere reporting of direct operational emissions no longer suffices—stakeholders demand comprehensive disclosure of all indirect emissions sources. Proactively measuring and managing these value chain emissions underscores a genuine, ambitious commitment to sustainability that transcends mere greenwashing. This level of transparency sets companies apart, bolstering corporate reputations and fostering stakeholder trust.

Many investors now integrate scope 3 data into environmental, social, and governance (ESG) assessments guiding investment decisions. By preempting this trend, companies position themselves as sustainability frontrunners, gaining a competitive edge in attracting sustainable finance and investor capital. Rather than making vague assertions, assuming accountability for their total emissions footprint enables companies to substantiate their environmental integrity with data-driven actions resonating deeply with stakeholders amidst heightened climate consciousness.

Strengthen resilience to climate risks

Companies that measure and manage their scope 3 emissions enhance their resilience to physical and transition risks associated with climate change. This approach mitigates potential financial and operational impacts by adopting sustainable practices throughout the value chain. Physical risks, such as more frequent natural disasters, can disrupt operations and supply chains, while transition risks, including carbon regulations, taxes, and technological changes, can incur additional costs.

By mapping scope 3 emissions and collaborating with suppliers and partners to reduce them, companies can:

• Secure upstream supplies.

• Make downstream products and services more resilient.

• Prepare for future regulations and avoid carbon costs.

• Access new markets for green products and services.

• Strengthen their long-term competitive advantage.

Proactive scope 3 emissions management helps companies protect against escalating climate risks and seize opportunities in a low-carbon economy.

Conclusion

As the urgency of climate action intensifies, companies must operationalize comprehensive strategies for measuring, managing and reducing their value chain emissions. Those that successfully operationalize scope 3 emissions management, underpinned by strategic technology investments, will gain a competitive advantage – minimizing regulatory risks, optimizing value chain efficiency, and meeting stakeholder demands for robust climate action.