This week, James Baglia, a Senior Climate Analytics Lead at Persefoni, sheds light on the importance of emissions data exchanges in achieving accurate and comprehensive emissions measurements. James provides expert insights into the different calculation methods for scope 3 emissions and why collaboration and transparency across the value chain are needed to improve emissions data accessibility and promote a transition to a net zero economy.
The Scope 3 Data Challenge
When it comes to calculating emissions, the GHG protocol provides a variety of calculation methods based on the source of emissions and the type of data available. Calculating scope 1 and 2 emissions is relatively simple, as the data required is often housed within the reporting organization and uses only a small number of straightforward calculation methods. For example, utility bills provide accurate measurements of electricity, heat, or steam consumption facility operations, enabling the measurement of scope 2 emissions.
Scope 3 is where it gets more complex. Whereas scope 2 emissions are calculated by one of only two methods that cover both categories, each of the 15 scope 3 categories can be calculated by multiple different methods, with data varying in granularity and accessibility. Let's take category 1 - Purchased Goods & Services as an example, which offers three distinct calculation methods:
- Spend-based: This method estimates emissions based on what the user spends on a given service or good. It is often the simplest approach, as spend-based data is most easily accessible. However, it is the least accurate method as it assumes that any one good or service produces the same emissions, regardless of the manufacturer or provider.
- Average Data: This method estimates emissions based on the quantity of purchased material (e.g., kilograms of aluminum) and the corresponding material name, utilizing the average emissions associated with the production of that material. It provides higher accuracy compared to the spend-based method, although acquiring the necessary data may be less accessible.
- Supplier Specific: This method provides an estimate based on the quantity of purchased materials and supplier-specific product-level emission factors, commonly known as Product Carbon Footprints (e.g. from a life-cycle assessment). Although this method offers the highest level of accuracy, it relies on primary data that is often challenging to obtain.
Primary emissions data = increased footprint accuracy
Primary data direct from companies, while unfortunately not easily accessible, yields the most accurate emissions calculations. Not only is primary data important for the sake of accuracy, but it is paramount to the enablement of managing emissions, as it provides a more comprehensive view of emissions sources. Let’s look at scope 3 category 1, again, as an example. If an organization uses only spend-based calculations, the only way they could reduce their scope 3 Category 1 measured emissions is by reducing spend. However, a supplier-specific approach would offer more avenues for reduction, such as transitioning to more sustainable suppliers. These opportunities may not be captured through a spend-based approach or may have the opposite effect, as sustainable alternatives can sometimes incur higher costs.
Data Exchange as a solution
According to CDP, scope 3 emissions account for an average of 75% of an organization’s overall footprint. MSCI found that out of their ACWI IMI constituents, only 18% reported on their scope 3 emissions as of 2020. Although the latter number is on the rise, reaching 35% as of May 2023, it still indicates a significant number of emissions that remain unaccounted for. Considering the substantial portion of emitting activities falling under scope 3, calculating emissions across the 15 different categories, each with its own calculation methods and reliance on external data, can be a laborious task.
This is where data exchange becomes critical. An emissions data exchange enables companies to share high-quality firsthand emissions data, including their scope 1 and 2 emissions. Access to this emissions data removes a massive hurdle for reporting organizations by easing the burden of having to “hunt” for your scope 3 emissions data, and provides easy access to the necessary data to make accurate calculations.
This exchange of emissions data enables accurate calculations of scope 3 data, but requires coordinated collaboration across the value chain. As the saying goes, a chain is only as strong as its weakest link. In this context, the accuracy of your measured emissions relies on the quality and accessibility of data from organizations within your value chain. Therefore, a collective effort to improve transparency, accuracy, and accessibility of emissions data is vital in the transition to a net zero economy.
As impossible as it may seem to produce a comprehensive and accurate calculation of an organization’s scope 3 emissions, it is feasible. As new technology enables interoperability across the value chain, this process of collecting high-quality primary data is becoming iteratively less burdensome. This positive trend will only continue as more companies join in the effort to enhance transparency. While it’s true that some calculation methods produce less-than-ideal measurements in terms of accuracy and actionability, they serve as a good starting point for organizations that are early in their decarbonization journey. The best thing a sustainability team or professional can do for their organization is to start somewhere, even if that means relying on spend-based data, and progressively adopting more granular calculation methods as better data becomes available. As I like to say, “crawl, walk, run.”
Climate & ESG News Roundup
Potential GHG Protocol Updates Present Carbon Accounting Challenges
Scope 2 emissions accounting made headlines this week as disagreements arise over the methodology for measuring the GHG emissions from their electricity purchases. The World Resource Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) have begun the process of updating the existing GHG Protocol Corporate Standards across scopes 1, 2, and 3. Through a global online survey and stakeholder process conducted from August 2022 to March 2023, GHG Protocol collected over 1,400 responses to inform the updates. The submissions and findings are currently being reviewed and analyzed by the GHG Protocol secretariat, and are now being shared with the public.
Respondents to the survey and other experts have stated that the proposed updates could lead to an increase in reported GHG emissions by companies. Under the proposed changes, companies would need to account for emissions based on the average carbon intensity of the electricity grid, rather than relying on contractual instruments such as renewable energy certificates. This shift in methodology could result in higher reported emissions for companies that currently use renewable energy sources but do not directly own renewable energy assets. Commenting companies and other critics argue that this change may discourage companies from investing in renewable energy and undermine the progress made in reducing emissions. These possible updates are not yet final, as the GHG Protocol intends to collect more surveys, convene expert stakeholders, and collect feedback on proposals before any official updates are made.
Climate Protest Disrupted Shell’s Annual Meeting as Shareholders Rejected an Accelerated Transition
On May 23, climate protestors disrupted Shell’s annual shareholder meeting for over an hour, necessitating intervention from security staff at the venue. Shareholders, however, were far from unanimous in their desire to push for more climate action. 80% of shareholders voted against a proposal to ramp up the company’s transition activities, consistent with last year’s results.
Shell has publicly committed to a net-zero target by 2050, inclusive of its scope 3 emissions, which account for over 90% of the company’s total emissions. Despite its pledge, the company has continued to receive pressure to accelerate its transition from activists, who have pursued Shell in both public settings and legal venues. In the courts, activists have already scored a meaningful initial judgment against the company: in 2021, a Dutch court ordered Shell to accelerate its transition to becoming a low-carbon company. Shell appealed that decision, and the case is pending.
Shell is not alone in facing pressure on its climate-related ambitions. As of mid-February of this year, investors had filed over 120 climate-related investor proposals.
World Meteorological Organization predicts rise of global temperatures above 1.5°C
The World Meteorological Organization (WMO) is warning that the next five years will see the warmest temperatures on record. According to their most recent report, surface temperatures between 2023 and 2027 have a 66% chance of warming 1.5°C above pre-industrial levels for at least one year. This does not mean temperatures will permanently exceed the 1.5°C level, however the WMO warns that this rise will occur temporarily on an increasingly frequent basis over the coming years due to heat-trapping greenhouse gasses El Niño, a weather event in which the Pacific Ocean waters heat to an unusually warm temperature.
Professor Petteri Taalas, WMO Secretary-General, says that this increase in temperature will threaten public health, food security, water management, and the environment. According to the WMO’s Global Annual to Decadal Climate Update, there is currently a 32% chance of the five-year mean temperature increase exceeding 1.5°C, up from the 10% likelihood that was predicted for 2017-2021. As this trend continues, Dr. Leon Hermanson, Met Office expert scientist, cautions that we will only stray “further and further away from the climate we are used to.”
UK Proposes Changes to Strengthen Board’s Role in Sustainability Reporting
On May 24, the UK Financial Reporting Council (FRC) proposed changes to the UK Corporate Governance Code that would increase the board’s oversight of ESG and sustainability issues. The FRC’s proposal, currently out for consultation until September 13, recommends that audit committees be responsible for ensuring the integrity of narrative sustainability reporting and that companies’ annual reports include details on any assurance of ESG and sustainability information.
In addition to the ESG and sustainability-related modifications, the proposal also reflects the FRC’s updated position on a number of other governance topics, including controls, application of the “comply-or-explain” principle, and reporting on clawback arrangements.
The UK intends the revised Code to be applicable for accounting years starting on or after January 1, 2025.
Events You Can't Miss
- The National Investor Relations Institute (NIRI) is hosting its Annual Conference June 6-8 in Chicago. IR professionals can connect directly with the experts in their field to discuss emerging trends and developments that are impacting their organization, including conversations on climate. Registration is open here.
- Lauded as the ‘premier sustainable finance and investing event,’ GreenFin will take place June 26-28 in Boston. GreenFin convenes leading finance, investment, and sustainability professionals to share insights and address key challenges facing the transition to a decarbonized global economy. Attendees can look forward to a session with Persefoni’s Emily Pierce, ‘New Opportunities in a New Era of Disclosure.’ Those interested can find registration information here.
- Join us at Reset Connect London 2023 from June 27-28. This event is recognized as ‘the UK’s leading sustainability and net zero event for business, investors, and innovators.’ Taking place during London Climate Action Week, Reset Connect gathers sustainability professionals, large corporates, government leaders, policymakers, tech providers, innovators, purpose-led brands and entrepreneurs to exhibit low carbon solutions and network. Registration is available here.
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