by Fiona Kinniburgh
In April 2013, the GHG Protocol, a partnership between the World Resources Institute and the World Business Council for Sustainable Development, released new guidelines to account for greenhouse gas (GHG) emissions in both upstream and downstream corporate activities.
Previously, GHG Protocol developed and published guidelines for Scope 1 emissions – which encompass direct emissions from company facilities and vehicles – and Scope 2 emissions – which relate to the electricity and heating/cooling used by the facilities for the company’s own use. In April, GHG Protocol released new guidelines for Scope 3 emissions: indirect emissions resulting from both upstream and downstream activities in production. This includes emissions resulting from purchased goods and services, transportation of goods, employee commuting, and end-of-life product management. According to GHG Protocol, this Scope 3 standard intended to “strengthen companies’ understanding of their value chain GHG emissions as a step towards effectively managing emissions-related risks and opportunities and reducing value chain GHG emissions.”
In addition to their main report on this topic, GHG Protocol also released a series of “Scope 3 Calculation Guidance” documents that provide technical guidance for emissions calculations in each of fifteen categories outlined in the main document. Assuming that a company is aiming to reduce its emissions, a proper valuation of emissions throughout the value chain could influence the company to change its behavior by, for example, altering the materials used in production or providing incentives for employees to reduce emissions while commuting to work.
Though no regulations currently require companies to report Scope 3 emissions, some companies have already used the guidelines to estimate emissions and to set targets to increase efficiency. IKEA, for example, found that the use of sold products accounted for 20 percent of the company’s total emissions and consequently has adopted a target that, by 2015, all products sold will be 50 percent more efficient on average than the products on the market in 2008.
The report similarly notes that: “Kraft Foods found that scope 3 emissions comprise more than 90 percent of the company’s [total emissions]. Within scope 3, the company found that emissions from category 1 (Purchased goods and services), including raw materials, comprised 70 percent of its total scope 3 emissions, while transportation and distribution, energy-related activities, and the use of sold products accounted for the majority of the remaining 30 percent.” Whether the company chooses to act on this information and alter its GHG scope 3 emissions depends mostly on how that decision would impact profitability or influence investors.
GHG reporting legislation requiring companies to calculate and act on information about their GHG emissions would further the impact of these GHG Protocol methods. Currently, the UK is the only country that has proposed mandatory GHG reporting as part of their corporate disclosure requirements. Starting in the fall of 2013, all UK companies listed on the Main Market of the London Stock Exchange (about 1,100 of the UK’s largest listed companies) will be required to report Scope 1 and Scope 2 emissions, including all six Kyoto protocol gases converted to their carbon dioxide equivalents. Furthermore, companies must account for both domestic and international emissions, for which the Department for Environment, Food and Rural Affairs will allow “a suitable period […] for UK parent companies to work with their overseas operations on delivery of GHG emissions information” (read the full article).
Such legislation is a step in the right direction towards raising awareness of corporate GHG emissions ultimately mitigating climate change and could be strengthened by including Scope 3 emissions, as established in the new GHG Protocol guidelines. As countries begin to implement climate change-related policies and businesses become increasingly concerned with reducing their GHG emissions, the technicalities of counting and reporting these emissions can no longer remain indeterminate and GHG Protocol’s Scope 3 Guidelines are an important step towards capturing a complete picture of corporate GHG emissions.