The Secret to Accurate Scope 3 Accounting Is Sharing Trusted, Auditable Carbon Data Across Networks

Originally published by TriplePundit

Around the world, there is a growing realization that companies, not consumers, are key to the rapid reductions in greenhouse gas emissions needed to mitigate the worst impacts of climate change.

Here’s the challenge: Most corporate emissions fall into the category of Scope 3 emissions, the business term for emissions that occur within a company’s value chain but outside of its direct control. Examples of Scope 3 emissions include those tied to the manufacture of raw materials or those produced when a consumer uses a product. In most business sectors, they represent over 80 percent of emissions.

Reducing these upstream and downstream impacts is where companies can make the biggest difference. But addressing Scope 3 emissions requires better technologies — including methodology and GHG Protocol guidance on end-to-end value chain transparency and openly sharing of actual and verified emissions data, which not based on estimates or averages, that are ideally accounted for down to the individual product and supplier level. This puts technology innovators like the software company SAP in a prime position to drive change.

“We are working on technologies, which can enable our Intelligent Enterprise customers to have a true carbon picture across their value chain,” Anita Varshney, global vice president for strategy at SAP Sustainability Engineering, told TriplePundit.

Enabling action to reduce Scope 3 emissions

The increasing focus on Scope 3 emissions means it’s no longer enough for companies to be carbon neutral in their direct operations. Sourcing 100 percent clean energy, a common press release headline, sounds significant, but it’s often a drop in the bucket when looking at the entire footprint of a company’s broader impact.

Even forward-looking companies, however, face numerous barriers to even get accurate accounting for their Scope 3 emissions, let alone devise plans to act on it. One reason is that, until recently, the methods for accounting and measuring value chain emissions were slow and cumbersome.

“Traditionally, Scope 3 data has never been collected in a systematic way because sustainability wasn’t a core business priority in the past,” Varshney said. “[Companies] were getting it from different sources, from Excel sheets, from averages, and it was never easy, as the data was not within their company. Companies have to reach out to their suppliers, to the different facilities and the people who are operating them.”

Varshney’s team found themselves working with companies that had many years of data trapped in spreadsheets. This data was not well managed and difficult to analyze and act upon, much less share with others who likely use different calculations, methods and technologies.

The GHG Protocol, a standardize framework for GHG measurement launched by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) in 2001, also hasn’t been revised in many years. With upcoming mandatory disclosure requirements from the U.S. Securities and Exchange Commission and International Sustainability Standards Board (ISSB), sustainability leaders “need a much better definition of each of the Scope 1, 2 and 3 categories,” Varshney said. WRI and WBCSD are accepting stakeholder feedback on proposed changes to the GHG Protocol until Feb. 28.

It’s clear that a combination of both better technology and accounting standards could empower better action by companies on Scope 3 emissions. SAP knows this well, having embarked on its own journey to measure and address its own Scope 3 emissions through green cloud data centers, carbon offset mechanisms and more.

While this is meaningful, Varshney said the potential for real impact is in partnership with the customers SAP serves. “SAP is a technology company. Our footprint is minuscule compared to the heavy emitters of the world, most of which are our customers.”

Industry-wide carbon data networks are growing

As a technology solutions provider, SAP is working with companies to use data to measure both the scale of emissions and how to address them. And on that front, the company and its customers aren’t alone. Growing cross-sectoral and multi-company efforts are looking to scale up the measurement, assessment and reduction of Scope 3 emissions through innovative carbon data networks.

One such initiative is the Partnership for Carbon Transparency (PACT), led by the well-respected World Business Council for Sustainable Development (WBCSD) that convenes organizations across industries to tackle the Scope 3 emissions data challenge.

“We want to have a consistent methodology that everybody follows and agrees on the way of calculating, reporting and exchanging data in an auditable way,” Varshney explained.

To achieve this, PACT created the Pathfinder Network, an open network that allows companies to connect different technology solutions and support peer-to-peer data sharing across value chains and industries. SAP is one of the network’s technology partners, along with CircularTree, IBM and Siemens.

Creating interoperability might sound like a small change, but it is actually huge, says Gunther Walden, CEO and founder of CircularTree.

“Decarboniz[ing] supply chains...needs an ecosystem of interoperable solutions to easily exchange product carbon footprint information,” Walden said in a statement. “We are excited to be part of this ecosystem and to support companies in achieving their sustainability targets.”

Since its launch, PACT has set standards for emissions data exchange, conducted a successful pilot with member companies, and is looking to bring more technology solutions on board, including from Amazon, Microsoft, iPoint and Sage Group. The Framework is already in version 2.0, which will be launched later this week.

The challenge now is one familiar to anyone working in the corporate decarbonization space: We need to speed up, and scale up, quickly. And that won’t be easy.

“There is progress, but it’s early days in the context and the scale of the problem that we are looking at. But we must continue on our momentum on achieving this radical transparency.” Varshney said.

Expanding the scope of carbon data networks to tackle Scope 3

So, what’s the path forward for carbon data networks like PACT to increase their impact? Quite simply, more companies need to come on board.

Several corporate partners are already working with PACT, including major global companies like Solvay, Aptar, Unilever and P&G, and they are optimistic that these new data-sharing tools will make a difference.

“The PACT initiative is actively removing barriers and making it easier for suppliers to share their product-level footprint,” said Reginaldo Ecclissato, chief supply chain officer at Unilever, in a statement. “It’s a move that will be replicated by companies across sectors and geographies, unlocking faster climate action as we all work toward a net-zero future.”

While this work is meaningful, Varshney is quick to point out that the only way to get the emissions reductions we need is if everyone works together. If these larger companies, through carbon data networks, could also support and empower their mid-small sized suppliers to also act, it would unlock even greater potential for decarbonization.

“Value chain collaboration will heavily depend upon how these big companies are coming forward to push the data transparency together with their suppliers,” Varshney explained. “They have to work together with the smaller companies that need more budget and resources.”

SAP hopes to play a central role in this. Beyond its contribution to PACT, the company is collaborating with its strategic customers to build industry innovations like Catena-X for SAP Industry Network for Automotive.

“With partners like Accenture, we are already leading several global conversations about driving sustainability transformation with carbon intelligence at the core,” Varshney said. “Regionally, there is growing focus as well. In Australia, we teamed up with the Australian Climate Leaders Coalition to launch the Scope 3 Roadmap: Practical Steps to Address Scope 3 Emissions." This roadmap is underpinned by five proofs of concept and provides a practical, step-by-step plan that gives business leaders the tools to tackle Scope 3, create 1.5C value chains, and understand and capitalize on the opportunities the transition presents through new business models, partnerships and growth markets.

“Companies must accelerate their decarbonization actions, deriving actionable insights from true data and scale it across their value chains with their partners, quickly,” Varshney told us. "When it comes to climate change, we need to execute on our ambitions, faster than ever before.”

This article series is sponsored by SAP and produced by the TriplePundit editorial team.

Image credit: william william/Unsplash