From 2024, it will become mandatory in the EU for all listed companies and large corporations to report on sustainability policies and performance according to the “European Corporate Sustainability Directive” (CRSD). Starting in 2025, this will also apply to large companies not currently covered by the NFRD. In addition, listed SMEs, insurance companies and credit institutions will also have to comply with this reporting from 2026. So it is wise to be prepared for the fact that companies will soon have to report on their greenhouse gas emissions. Consequently, many companies are currently looking for methods to reduce their greenhouse gas emissions. When it comes to reporting progress, you will often see the terminology “Scopes 1, 2 and 3 emissions” come up, but what do these numbers really mean?
First, it is good to know that the relevant scopes are set out in the “GHG Protocol Corporate Accounting and Reporting Standard” by the Greenhousegas Protocol Initiative. This is a multi-stakeholder partnership comprising companies, NGOs, governments and others convened by the World Resource Institute (WRI), a U.S.-based environmental NGO, and the World Business Council for Sustainable Development (WBCSD), a Geneva-based coalition of 170 international companies. The main purpose of the reporting standard is to provide a standardized step-by-step approach for companies. This helps companies understand the greenhouse gas emissions impact of their entire value chain so that targeted sustainability strategies can be implemented. In addition, the standard helps with consistent and transparent reporting to the outside world. The figure below shows how the scopes are distributed along a product’s value chain.
Source: GHG Protocol – Corporate Value Chain (Scope3) Accounting and Reporting Standard, 2022
It is mandatory for a company to report scope 1. These are direct greenhouse gas emissions from sources owned or controlled by the reporting company, such as emissions from its own furnaces and vehicles.
Also, reporting scope 2 emissions is mandatory. These are indirect emissions from the generation of purchased energy such as gas, electricity, steam or heat consumed by the reporting party.
Scope 3 is an optional reporting category that captures emissions from sources not owned by the reporting party. These are all indirect emissions that occur throughout the value chain, both “upstream” (i.e., suppliers/supply chain) and “downstream” (all activities after the production of a product, including waste disposal). Some examples of scope 3 activities include the extraction and production of purchased products (upstream) or the use phase of sold products or services (downstream).
Scope 3 emissions are responsible for 75%+ of emissions for many industries. The figure below shows an average distribution between Scope 1&2 and 3 emissions for seven different sectors.
Source: Envizi, Scope 3 emissions: Breakdown by Industry
In brief, the benefits of a GHG 1/2/3 report
- Better understanding of the climate impact of your organization and value chain (scope 3)
- Gain insight on the progress of sustainability of key players in the value chain and the ability to identify hot spots and weaknesses in the value chain.
- Compliance with legal requirements on greenhouse gas reporting
- Fuel awareness and impact-related data collection across the value chain
- Improved transparency, customer trust and improved brand and reputation.
- GHG Protocol activities can be included in the CSR Performance Ladder or the CO2 Performance Ladder
At Ecoras we can help you further with emission calculations such as those of the GHG Protocol, curious about what best suits your ambition? Contact Micha Klaarenbeek at email@example.com or +31(0)6 5021 0760