The Need of the Hour
Emissions from Greenhouse Gases (GHG) that drive climate change and its impacts around the world are growing. As per the climate scientists, carbon di-oxide emissions must be reduced by 85 percent by 2050 to limit global mean temperature rise to 2 degrees. Any further rise in temperature holds unpredictable impact on ecosystems. Thus, reduction of the anthropogenic GHG emissions becomes imperative. Along with various global and national policy formulations, emission reduction initiatives by the businesses becomes the need of the hour towards the greater goal. By addressing GHG emissions, companies can identify opportunities to bolster their bottom line, reduce risk, and discover competitive advantages (Corporate Value Chain (Scope 3) Accounting and Reporting Standard).
A detailed understanding of a company’s GHG impact is necessary for developing a corporate strategy to reduce its emissions. A GHG inventory thus becomes an important tool for identifying the emission points and the related risks and opportunities associated with actions on points of high GHG impacts.
The Greenhouse Gas Protocol (1998), convened by the World Resources Institute (WRI) and World Business Council for Sustainable Development (WBCSD), aims to develop internationally accepted greenhouse gas (GHG) accounting and reporting standards and tools, and to promote their adoption in order to achieve a low emissions economy worldwide.
Standards of measurement
Among the several standards developed by the protocol, The Corporate Value Chain (Scope 3) Accounting and Reporting Standard (also referred to as the Scope 3 Standard) finds a wide use among businesses, NGOs, and governments around the world as the international standard for developing and reporting a company-wide GHG inventory.
The Corporate Standard classifies a company’s direct and indirect GHG emissions into three “scopes”. It requires that companies account for and report all scope 1 emissions (i.e., direct emissions from owned or controlled sources) and all scope 2 emissions (i.e., indirect emissions from the generation of purchased energy consumed by the reporting company). The Corporate Standard gives companies flexibility in whether and how to account for scope 3 emissions (i.e., all other indirect emissions that occur in a company’s value chain).
Though, the standard over the years of implementation has been able to make corporates more accountable and adept towards their scope 1 and scope 2 emissions. However, mandatory focus only on the scope 1 and scope 2 emissions leads to an oversight of the scope 3 emissions. The oversight might result in exclusion of significant emission sources and sinks.
Limitation of flexibility in reporting Scope 3 emissions
The ultimate objective of accounting for and recording the GHG inventory is to identify scope for emission reduction during the product life cycle of a particular company. For manufacturing industries where emissions, during product development, are more direct in nature, accounting for scope 1 and Scope 2 emissions serve the purpose of identifying the plausible areas of emission reduction. However, for companies where the product is necessarily the delivery of services, nature of emission are mostly indirect. A large share of these emissions can be grouped under Scope 3.
Thus, identifying scope 3 emissions present the most significant opportunities to influence GHG reductions and achieve a variety of GHG-related business objectives (Corporate Value Chain (Scope 3) Accounting and Reporting Standard).
Hence, not accounting for or reporting scope 3 emissions defeats the purpose of footprint accounting. Without these emissions being recorded in the GHG inventory, it is not possible to highlight the GHG impact points of companies in the service industry. Thus reducing the scope of GHG emission reduction opportunities.
Case Study of Sambodhi highlighting the share of scope 3 emissions in a service industry:
Sambodhi is a typical service-based company, whose major GHG impact points involve use of electricity and travel to work sites. As an initiative to map the carbon footprint of Sambodhi, the standard GHG impact points were identified and the net GHG emissions for the month of April, 2015 was calculated. The figure below highlights the indirect nature of emissions of Sambodhi.
Scope 3 emissions account for 37% of the total monthly emissions for Sambodhi. While, GHG emissions are ideally calculated annually, the above figure is indicative of the share of scope 3 emissions in the GHG impact points of a service-based industry like Sambodhi.
This blog entry stresses on the necessity of accounting for and reporting of scope 3 emissions along with the scope 1 and scope 2 emissions. Only by highlighting the entire GHG inventory, will it be possible to map and hence execute all necessary emission reduction opportunities.
(The authors would like to express that the GHG emissions figures calculated in the figure are only a symptomatic estimate, and by no means consider all sources of emissions (particularly those falling in the Scope-3 bracket). The above exercise however does underline instilling the practice of carbon accounting, even for a service based industry.)