Assessing Risks, Opportunities, and Emissions Reduction

Module 4 explores what comes next after identifying your scope 3 emissions: reducing them. You’ll learn about reducing emissions through supplier engagement and the importance of prioritizing low-carbon suppliers. We’ll also cover how science-based targets establish emission reduction targets.

After this module, you’ll learn how to:

• Identify hotspots related to scope 3 emissions
• Approach partnerships with suppliers in your value chain
• Implement reduction strategies by reviewing an in-depth case study

The estimated time to complete is 20 minutes.

Terms to Know

CDP - An international non-profit organization helping companies, cities, states, regions, and public authorities disclose their environmental impact.

Circular Economy—Prioritizing reuse and minimizing waste is a cornerstone of a circular economy, a production and consumption model that involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products for as long as possible.

Materiality - The quality of being relevant or significant. In sustainability reporting, materiality refers to the significance or importance of an issue, impact, or aspect within an organization’s sustainability strategy, reporting, and decision-making.

Paris Agreement—An international treaty that aims to limit “the increase in global average temperature to well below 2°C above pre-industrial levels.”

Science-Based Targets - Emissions reduction targets that align with the Paris Climate Agreement

Science-Based Target Initiative - A collaborative partnership that drives ambitious climate action in the private sector by enabling organizations to set science-based emissions reduction targets.

Assessing Risks, Opportunities, and Emissions Reduction

Organizations conduct GHG inventories to quantify and manage their GHG emissions. GHG inventories also inform business decisions regarding environmental responsibility, regulatory compliance, and sustainability goals, such as purchasing decisions or growth strategies.

Not only do these inventories paint a picture of the organization’s emissions, but they also provide an opportunity to dive deeper and pinpoint the most significant sources of value chain emissions, also known as scope 3 emission hotspots.

Scope 3 emissions come from activities in your value chain

Conducting a GHG inventory informs organizations of the risks and opportunities associated with value chain emissions.

By understanding the composition of its scope 3 emissions, an organization is better equipped to address potential challenges that may arise from its emissions, including “unstable resource and energy costs, future resource scarcity, environmental regulations, changing consumer preferences, scrutiny from investors and shareholders, as well as reputational risk from other stakeholders,” according to the GHGP’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard.

The standard also cites scope 3 emissions as the most significant emission source on average, making it arguably the most crucial scope type to mitigate. By focusing on reducing these GHG emissions, organizations can achieve a variety of GHG-related business objectives.

Organizations can use a risks and opportunities framework to compare carbon emissions hotspots and assess whether to take action.

In a business context, a risk is something unanticipated that could negatively impact your project. On the other hand, an opportunity is something unplanned that could positively impact your project.

Case Study: Agora

As previously discussed, Agora engaged with its upstream and downstream Tier 1 suppliers to gather data associated with its scope 3 emissions. Based on this assessment, Agora can pinpoint the following emission sources as scope 3 hotspots:

• Scope 3 Category 1 - Purchased Goods and Services
• Scope 3 Category 11 - Use of Sold Products

While these are not the ONLY emission sources from Agora, they are the most material to the organization. Stephanie, the sustainability manager at Agora, creates a decision matrix to explore the risks and opportunities of each.

You may wonder, “Shouldn’t Stephanie focus on holistic reduction efforts?”

Stephanie’s analysis does not decide whether to reduce scope 3 emissions. Instead, she uses this exercise to recommend which scope 3 emission source to prioritize specifically.

On the left side of this table, she identifies a few risks and opportunities related to purchased goods and services (scope 3 category 1) to discuss with Agora’s leadership team, such as:

Risks

• Regulatory and Legal Compliance: After analyzing the organization’s GHG inventory, Stephanie notes the regulatory and legal issues of suppliers engaging in unethical business practices or not following environmental regulations.
• Reputation and Brand Impact: She also seeks to maintain Agora’s reputation and brand image, especially when a supplier is involved with environmentally unfriendly business activities.

Opportunities

• Sustainable Procurement: Prioritizing socially and environmentally responsible suppliers enhances Agora’s reputation and sets an industry standard among competitors.
• Innovation: Stephanie also researches recent breakthroughs within sustainable business practices. She prepares to discuss this with her leadership team and suppliers within the organization’s value chain, highlighting how these innovations will harness cost savings and uncover new revenue streams.

Stephanie repeats this exercise for the right side of the table, use of sold products (scope 3: category 11):

Risks

• Product Liability: Stephanie recently researched various toxic components in computers. She recognizes product liability as a potential risk for Agora, mainly if its products are not disposed of properly and could potentially harm the environment.

Opportunities

• Innovation: Sustainability innovation also applies to the use of sold products through cost savings and discovering new revenue streams.
• Circular Economy: Stephanie gathered customer feedback on product refurbishing and research from Agora’s product team to better understand circular economies. She brainstormed a new initiative that leverages reuse, recycling, and remanufacturing to minimize waste and create new revenue streams from Agora’s products.

By analyzing these risks and opportunities, Stephanie can draw conclusions about which emission hotspots Agora should focus on reducing. In the following lesson, you’ll learn more about joining forces with suppliers to mitigate scope 3 emissions.