As the world is increasingly learning about Sustainability, business organizations across countries are working towards minimizing their environmental impact. The fashion industry contributes around 2-10% of global greenhouse gas emissions. Hence, the need of the hour is greenhouse gas (GHG) emissions accounting including its scope 1, 2, and 3 emissions, a crucial tool that allows companies to measure, follow, and control their carbon footprints.
Scope 1, 2, and 3 Carbon Emissions Explained
Greenhouse gas emissions are classified into three scopes to better understand their sources. Scope 1 emissions are direct emissions from a company’s owned or controlled sources, such as emissions from on-site fuel combustion or company-owned vehicles. On the other hand,Scope 2 emissions are indirect emissions resulting from the generation of purchased energy, like electricity or heating, that the company consumes.
Scope 3 emissions cover all other indirect emissions throughout a company’s value chain. These include emissions from suppliers, employee commuting, waste disposal, and the use or disposal of products. Together, these scopes provide a comprehensive framework for measuring a company’s total carbon footprint.
Scope 1: Direct Emissions
Emissions that originate from sources directly owned or controlled by the company fall under Scope 1 emissions. These emissions can be better managed and tracked than Scope 2 and Scope 3 emissions because these emissions are within the organizational boundaries of a company.
Scope 1 Emission Examples
Emissions from burning fossil fuels for electricity generation, heating, and running machinery are included in Scope 1. A factory that uses natural gas boilers to produce steam would identify their emissions under this scope. Scope 1 also includes emissions from chemicals like CO2 a cement plant produces during the calcination process. Emissions from transportation owned and controlled by the company, including trucks, cars, and other transportation equipment for business operations, are considered Scope 1 emissions.
Scope 2: Indirect Emissions – Owned
Scope 2 is accountable for the indirect emissions of greenhouse gases (GHG) related to the consumption of purchased electricity, heat, and steam by an organization. These are indirect emissions because they take place at the units where energy is generated, but they are linked to the organization consuming energy. Even if these emissions take place off-site, it is crucial to measure and evaluate them because they reflect the environmental impact of a company’s operations.
Scope 2 Emission Examples
Emissions result from the burning of fossil fuels like natural gas, coal, or oil at power plants to generate electricity. The organization buys this electricity from a grid for its operations. They also purchase steam for industrial processes, generated by burning fuels at a central plant. Companies that buy heat instead of producing it on-site from a third-party provider or a district heating system also account for their emissions under Scope 2.
Importance Of Assessing Scope 2 Emissions
Evaluation Scope 2 is important because organizations can gain insights into their energy consumption and explore new ways to improve energy efficiency. With this, they can come up with innovative strategies by investing in more advanced technologies and adapting to eco-friendly processes. Companies should also opt to source their electricity from renewable energy sources, to minimize Scope 2 emissions. The right assessment is necessary as many regulatory frameworks and sustainability standards demand for the disclosure of Scope 2 emissions. Hence, the compliance is important to establish transparency.
Scope 2 Guidance
Scope 2 guidance is all about giving organizations the right set of standards and recommendations so that they can track, measure, and report their greenhouse gas emissions that fall under Scope 2. The guidance originates from the Greenhouse Gas Protocol, detailing the measures to be taken to report these emissions. It requires companies to report their Scope 2 emissions in two different ways:
Location-Based Method
This refers to the method of measuring emissions based on the standard emission factors of the electricity grid. It highlights the impact of electricity mix in a specific geographical area.
Market-Based Method
This method measures emissions from electricity that have been chosen by companies through agreements like renewable energy certificates (RECs), power purchase agreements (PPAs), or supplier-specific emission rates.
Companies are encouraged to use the highest-quality data available for both these methods. To help select the most accurate and stable data, the GHG Protocol also provides data guidance.
Scope 3: Indirect Emissions – Not Owned
Scope 3 emissions go beyond the direct operations of the company, including indirect emissions across the entire value chain. It highlights a company’s total GHG impact, involving suppliers, customers, and product lifecycle impacts. Upstream activities (emissions from purchased goods and services, waste disposal, transportation, etc.) and downstream activities (emissions from product disposal, transportation of sold goods, etc.) together constitute Scope 3 emissions.
Scope 3 Emissions Categories
Upstream Activities
Purchased Goods and Services
Think about all the materials and supplies a company buys to make its products, like fabrics for a clothing brand or metal for electronics. The emissions from producing these materials count here.
Capital Goods
This includes the emissions from manufacturing long-term items a company needs to run, like its buildings, machines, and vehicles.
Fuel- and Energy-Related Activities
Imagine the energy and fuel that power a company’s operations. This category covers the emissions from producing that energy, like mining coal or refining oil.
Upstream Transportation and Distribution
Think about how raw materials travel from suppliers to the company’s facilities. The emissions from these journeys, like trucks transporting cotton to a clothing factory, are included here.
Waste Generated in Operations
This includes the emissions from dealing with the waste that comes from a company’s daily operations, like packaging waste from a factory.
Business Travel
When employees fly, drive, or take the train for work trips, the emissions from these travels are counted here.
Employee Commuting
This covers the emissions from employees traveling between their homes and the workplace, whether by car, bus, train, or bike.
Upstream Leased Assets
If a company leases equipment or buildings, the emissions from those assets, not already covered in Scope 1 and Scope 2, are included here.
Downstream Activities
Downstream Transportation and Distribution
Once manufacturers make products, they need to reach customers. This category includes the emissions from shipping products to stores or directly to consumers.
Processing of Sold Products
If a company sells parts or materials that other companies use to make new products, the emissions from this further processing are counted here.
Use of Sold Products
Consider the energy products use during their lifetime, like the electricity used by household appliances or the fuel consumed by cars.
End-of-Life Treatment of Sold Products
When products reach the end of their life, they need to be disposed of, recycled, or treated. The emissions from these processes are included here.
Downstream Leased Assets
If a company owns assets and leases them out, like rental equipment or office buildings, the emissions from those assets’ usage are counted here.
Franchises
For businesses that operate through franchises, like fast-food chains, the emissions from these independently operated units are included here.
Investments
This covers the emissions from the company’s financial investments, such as those in other businesses or projects that contribute to carbon emissions.
Importance Of Assessing Scope 3 Emissions
Scope 3 emissions give an overall image of a company’s carbon footprint, emphasizing areas where they can make reductions. Stringent regulations require companies to report on all the emissions, including Scope 3. Additionally, transparent reporting helps in building relationships with customers, suppliers, partners, and other stakeholders.
Once companies identify emissions hotspots, it also helps mitigate any risk related to resource scarcity, supply chain disruptions, and future regulatory changes. It will also help in reducing waste practices and bringing innovative ideas, leading to cost savings and enhanced efficiency.
Scope 3 Guidance
Scope 3 guidance provides various methods and practical examples for measuring greenhouse gas (GHG) emissions across a company’s value chain. Methods provided by the GHG Protocol under scope 3 guidance include:
Spend-Based Method
This method involves using financial expenditure to measure emissions.
Activity-Based Method
This method uses physical activity data like kilometers traveled, waste generated, etc.
Hybrid Method
This method combines the spend-based and activity-based methods for more accuracy.
Life Cycle Assessment (LCA) Method
This method measures the environmental impact of a product over its entire lifecycle, from raw material extraction to its disposal.
Key Differences Between Scope 1, 2, and 3 Emissions
| Scope | Description | Examples | Control Level | Management Strategies |
| Scope 1 | Emissions directly owned and controlled by the company. | Stationary combustion, mobile combustion, process emissions, fugitive emissions. | High | Process changes, fuel switching, enhanced efficiency. |
| Scope 2 | Indirect emissions from the consumption of purchased energy. | Purchased electricity, steam, heating, cooling. | Medium | Minimizing energy consumption, enhancing energy efficiency, purchasing renewable energy. |
| Scope 3 | All other indirect emissions from the value chain of the reporting company, including upstream and downstream activities. | Capital goods, business travel, employee commuting, franchises, investments, use of sold products. | Low | Engaging suppliers, optimizing supply chain, promoting sustainable practices, product innovation. |
GHG Accounting for Scope 1, 2, and 3 Emissions
The process of greenhouse gas (GHG) accounting focuses on keeping tabs and measuring GHG emissions from various sources. It is an essential practice for companies that want to assess their carbon footprint and pinpoint areas to improve their sustainability efforts. By successfully measuring emissions, companies can set targets, track progress, and implement strategies that can help minimize environmental damage.
Led by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), the Greenhouse Gas Protocol offers the most commonly used standards for GHG accounting. This protocol provides a comprehensive framework to measure emissions from both direct and indirect sources. It is significant to organizations for ensuring reliability and uniformity in their emissions reporting.
Corporate Carbon Accounting, a part of GHG accounting, allows companies to track and disclose their environmental performance. This helps create a space of accountability and transparency, allowing stakeholders, including customers, suppliers, investors, and regulators to evaluate a company’s performance. It is a structured approach for companies to emphasize reduction efforts, disclose their environmental impact, and recognize high-emission areas.
Importance Of GHG Accounting And Scope Reporting
Openly reporting about greenhouse gas emissions and establishing reduction targets offers numerous benefits. Companies can better optimize resource usage, boost brand reputation, and ensure compliance with GHG accounting standards and all other necessary regulations.
GHG accounting helps build trust between the company and its stakeholders like investors, suppliers, etc. This is because it offers a clear and measurable indication of the company’s sustainability initiatives. By adopting to GHG accounting practices, businesses gain a competitive edge while contributing to the environment.
Conclusion
In conclusion, understanding Scope 1, 2, and 3 emissions and GHG accounting are crucial aspects of sustainable business practices, displaying environmental responsibility. Companies should ensure that they include all the emissions while calculating to measure accurately and pinpoint the areas where they require reductions. Incorporating strategies to reduce these emissions involves improving supply chain practices, emphasizing sustainable product use, and enhancing end-of-life product management.
By implementing GHG accounting principles and effectively managing emissions across all scopes, organizations can play a part in contributing to an environmentally friendly future, building resilience in a constantly evolving world. Ultimately, a strong GHG accounting system will lead to informed decision-making and sustainable progress, demonstrating the company’s commitment to the environment. This puts organizations at the forefront of the shift towards a low-carbon economy.
