Understanding the Scope and Impact

Measuring value chain emissions, especially Scope 3 emissions, is becoming increasingly crucial for businesses of all sizes, including small and medium-sized enterprises (SMEs). Scope 3 emissions encompass all indirect emissions that occur in a company’s value chain, including both upstream and downstream activities. For many businesses, these emissions account for more than 70% of their total carbon footprint. On average, about 75% of a company’s greenhouse gas (GHG) emissions fall under Scope 3, highlighting the significant impact of third-party activities in a company’s overall environmental footprint.

Frameworks and Challenges

The most reliable framework for measuring and managing GHG emissions is the three-scope system developed by the GHG Protocol. This system provides clear definitions and methods for calculating emissions at different points in a business’s operations and value chain. However, for SMEs, measuring Scope 3 emissions can be particularly challenging due to limited budgets and lack of internal expertise.

Regulatory and Market Drivers

There is a growing focus on GHG emissions at the supply chain level from customers, suppliers, regulators, and investors. This shift is leading companies to disclose emissions not only within their own operations but also those produced through their value chains. In the United States, policies like the Climate Leadership and Community Protection Act aim to reduce economy-wide emissions, underscoring the need for a standardized approach across entire supply chains. Additionally, proposals like those from the U.S. Securities and Exchange Commission (SEC) may require companies to disclose Scope 3 emissions, further emphasizing the importance of value chain analysis.

Benefits of Emission Measurement

Despite the challenges, there are significant benefits for SMEs in measuring their supply chain emissions. This process allows smaller firms to identify opportunities for increasing efficiency, saving money, and becoming more competitive. It also enables them to manage future risks, such as those related to climate change, which could impact their operations and supply chains.

Collaboration and Transparency

The need for data transparency will likely increase collaboration within the supply chain. Sharing data and information will be critical, as much of it is outside any one company’s control. This collaboration could lead to new ways of working together to enhance both profitability and sustainability.

Conclusion

Measuring value chain emissions, particularly Scope 3 emissions, is not only a regulatory and environmental necessity but also a strategic business decision. While it presents challenges, especially for SMEs, the benefits in terms of risk management, efficiency, and market competitiveness are substantial. As regulations tighten and market demands evolve, SMEs that proactively engage in measuring and managing their value chain emissions will be better positioned to adapt and thrive in a rapidly changing business landscape.