July 30, 2022
As ESG reporting is becoming increasingly widespread across all industries and countries, these organisations need to measure their environmental impact to account the the ‘E’ in ESG.
Typically, reporting this environmental performance requires greenhouse gas (GHG) accounting - that is counting the amount of emissions a company produces over a period of time, to allow for emission reduction strategies to help the organisation plan for net-zero. Typically the period of measurement and reporting is a single year.
Fortunately, there is a globally used framework called the Greenhouse Gas (GHG) Protocol that is used by most companies, providing a framework so we can compare emissions and impact between companies on a like-for-like basis.
Unfortunately, this is not always simple to use and can be complicated to understand exactly what needs to be measured, and whose responsibility it is to account for the impact.
This guide explains what Scope 1, 2, and 3 emissions are, and how Alectro helps companies to measure them, reduce them, and target their transition to a low-carbon economy.
So what is the GHG Protocol?
The GHG Protocol is a partnership between the World Resources Institute and the Business Council for Sustainable development. It was put together to provide accounting and reporting standards to organisations preparing a business-wide GHG emissions inventory.
It splits a company’s greenhouse gas emissions into three separate groups, called Scopes, which allow the company to report to different levels. These are called Scope 1, Scope 2, and Scope 3 emissions.
What are Scope 1, 2, and 3 emissions?
The official definition of the Scopes is given by the GHG Protocol as: “Scope 1 emissions are direct emissions from owned or controlled sources. Scope 2 emissions are indirect emissions from the generation of purchased energy. Scope 3 emissions are all indirect emissions (not included in scope 2) that occur in the value chain of the reporting company, including both upstream and downstream emissions.”
These are given by the GHG Protocol diagram, showing Scope 1, 2, and 3 emissions here:
The problem is, that even this isn’t clear enough to be helpful!
So, what does this mean in practice?
Scope 1: these are emissions that arise from the direct release of GHG emissions from company assets. Broadly speaking these fall into three categories for most businesses:
Scope 2: these are emissions that arise from creating the electricity that’s consumed by the business. When you turn on the lights, the electricity consumed was probably generated by an external provider from a power station. To generate this electricity this power station would have created emissions in the process. These vary according to the type of power stations with low-carbon generation coming from nuclear or renewables, and high-carbon generation coming from coal and natural-gas.
Scope 3: comes from all indirect emissions that occur in the value chain of the reporting company, or simply put, everything else. Originally, the GHG Protocol was produced for energy intensive industries with large power consumption, so Scope 1 and 2 were the most important ones. For most modern service based organisations, however, Scope 3 tends to account for over 80% of all emissions and so measuring these is crucial to understand the full impact of an organisation.
Scope 3 emissions are broken down into Upstream (Purchased goods and services, Capital goods, Fuel and energy use, Upstream transport and distribution, Waste generated, Business travel, Employee commuting, Upstream leased assets) and Downstream (Downstream transport and distribution, Processing of sold products, End-use of sold goods and services, Waste disposal and treatment of products, Downstream leased assets, Operation of franchises, Operation of investment) emissions.
What are Scope 3 Upstream and Downstream emissions?
Scope 3 Upstream
For the majority of individual organisations this is where a company can either stand out from, or fall behind, competitors due to its GHG accounting and reporting methods. By under-reporting Scope 3 Upstream emissions it will give a false account of the actual impact, but if you do it right, then it gives a comprehensive and true reflection of the company impact.
Business travel can be significant if a company travels internationally. Flights have a significant impact, and for any organisation that relies on international air-travel, this is likely to be a crucial part of any future sustainability strategy. It also includes international and domestic rail travel, taxis, buses, underground and other rail, and business milages using personal vehicles.
Employee commuting is another key component of a company footprint. The whole business, travelling up to 250 times per year, between their home and place of work quickly adds up. Employee engagement and workshops can really help employees to make their own sustainable choices, and company initiatives can also help to create change and drive reduction. Commuting needs to be balanced with the impact of working-from-home and the choices employees make when using their home office, espcially due to the increasing hybird working situations driven by the pandemic.
Waste from operations, the impact from transport and distribution of goods by land, air, and sea, and and other fuel and energy use are calculated appropriately.
Finally, capital goods like vehicles and machinery and purchased goods like electronic equipment (laptops, monitors, mobile phones etc) and office supplier are also accounted for using the embodied emission of the item.
Purchased services can be accounted for understanding the impact of your suppliers. Currently, this is still very tricky, as not all suppliers measure and report every aspect of their service. As an alternative, companies can report their purchased service impact by using complex economic models to explain how monetary spend could have an associated impact to give a top level indication of purchaed service emissions. Unfortunately, this method would not allow you to reduce your impact unless you reduce your spend which isn’t a very practical option.
As an alternative and actionable step, you should research your supply chain and determine the suppliers that measure and report thier emissions, and ideally receive supplier ratings for their services. This is one area that we focus on at Alectro, as we aim to give full transparency to company supply chains.
Scope 3 Downstream
Generally relating to companies that produce goods, or have large investments like financial institutions, Scope 3 Downsteam emissions refer to anything accountable after being ‘processed’ by the organisation.
The processing, transport and distribution, end-use and disposal of any sold products has to be accounted for by the company directly. Some leading companies like Apple have an ambitious programme to make all sold products carbon neutral by 2030.
A few categories are even more complex, and are uaually decided on a company-by-company basis based on the nature of the relationships in question:
How to begin reporting Scope 1, 2, and 3 emissions?
There are many factors to consider when starting to think about reporting Scope 1,2, and 3 emissions, including the boundary and scale of reporting includes i.e. deciding how many of the categories to report and what format to report them in.
Ultimately, reporting and reducing the carbon impact of a company can seem an overwhelming task when you’re just starting, and usually more time and cost effective to use an expert to do it quickly and efficiently.
Alectro’s Virtual Sustainability Officer platform allows you to measure and track your impact in days, not months, giving you total transparency on your impact, ready to use in any reporting required. The platform also gives every single employee the tools they need to contribute to a best-in-class sustainability programme - empowering them to become climate champions for this generation and the next.
Prepare for net-zero now by requesting a demo by clicking the button below.
If you'd like to get in touch, then send us a message on firstname.lastname@example.org and we'll get straight back to you.
Keep up to date with our news and receive our monthly newsletter by clicking the image below.