There is scientific consensus that our planet is warming as a result of human-induced emissions of greenhouse gases (GHGs) into the atmosphere. There is a global call to reduce emissions, as well as mitigate and adapt to the impacts associated with climate change. This call has been answered initially by the Paris Agreement, which in turn is addressed domestically by South Africa’s Nationally Determined Contribution (NDC). The response is embodied in Carbon Taxes imposed by South African Revenue Service (SARS), and Environmental Social Governance Sustainability (ESG) reporting requirements imposed on JSE-listed companies. There are also numerous benefits for small and medium-sized organisations to report their emissions (for more information on this take a look at this blog post).
An inventory of carbon emissions needs to be compiled and reported in the form of a carbon footprint. The preparation of a carbon footprint requires a multi-disciplinary top-down and bottom-up approach within an organisation, of which procurement can be a key strategic partner. External partnerships are enablers to unlock value from the process, including partnerships with skilled and up-to-date consultants, as well as with key stakeholders in the organisation’s value-chain (for example suppliers).
Initial hurdles facing an organisation looking to embark on their carbon footprint reporting process, include the fact that this is an ever-evolving field. In addition, there are many over-lapping and complimentary regulatory frameworks in the industry to be familiar with, as well as acronyms. It is also necessary to have access to the most recent emission factors (in some cases industry and country-specific), to calculate emissions from consumption activities. Third-party verification also needs to be factored in, for certain organisations.
Emission factor: Specific value used to convert activity data into greenhouse gas emission values, presented in specific units, for example, tCO2e/kWh.
A key first step in a carbon footprint reporting journey is to establish the boundary for measurement. Here consideration is given to the extent of operational control, ownership structures and geographies in which a company operates. Consumption data needs to be collated, as completely and accurately as possible. Systems can be put in place to enhance future reporting. The quality and source of the data is important and must be traceable and transparently reported.
The reporting framework for carbon accounting broadly classifies emissions into the following scopes: Scope 1, Scope 2, and Scope 3.
Source: Science Based Targets, 2016
Scope 1 reporting is mandatory and under the operational consolidation approach, includes direct emissions from sources owned or controlled by the reporting entity, such as those arising from the combustion of stationary, and mobile fuels as well as fugitive emissions. Many South African companies have reported increased stationary emissions from diesel consumption in generators, due to increased load shedding imposed by the national power utility Eskom. Fugitive emissions from refrigeration, air conditioning and fire suppressant result from gas leakage and service over the operational life of the equipment, as well as from disposal at the end of the useful life of the equipment. The leakage of refrigerant gas is a small but significant source of GHG emissions because of their high global warming potential (GWP). Companies that own and control fleet vehicles would account for those mobile emissions under this Scope.
Scope 2 is where indirect emissions from the generation of purchased energy are reported and are mandatory to disclose. These emissions are considered indirect because they are a consequence of activities of the reporting organisation, but occur at sources owned and controlled by another entity (i.e. an electricity utility). Both market and location-based methods must be reported. The market-based method reflects the GHG emissions associated with the specific choices of a consumer, such as choosing to purchase renewable electricity. The location-based method uses average emission factors for the electricity grids that are providing electricity to the facility.
Scope 3 indirect emissions can voluntarily be reported, accounting for emissions which are a result of an organisation’s operations supply chain. Scope 3 reporting can be industry-specific and are broken down into 15 categories. It can be challenging to gather data for Scope 3 emissions, and to decide what to report. Nevertheless, leading companies understand that stakeholders expect to see meaningful reporting.
The significance of Scope 3 and its diverse characteristics are demonstrated through the following three company examples:
Whitbread PLC, a leading UK-hospitality business, presented that 87 percent of their emissions lie in Scope 3, largely in purchased goods and services, 43 percent of which is to be found in food and beverage. The usefulness of measuring scope 3 was demonstrated in that it facilitated analysis of the menu (in terms of emissions) and corresponding suppliers, as well as tie their climate strategy to their nutrition strategy. A further step was taken to use their climate strategy to support the construction strategy, informing decisions on materials, refurbishments, and embodied carbon.
Phoenix Group, a UK investment firm, reported their financed emissions in scope 3. Using the Partnership for Carbon Accounting Framework (PCAF) as support, they analysed emissions from the assets held on the balance sheet, which were found to be larger than emissions from their own operations.
Microsoft contractually require all suppliers to disclose their Scope 1, 2 and 3 emissions, and provide a plan on how to reduce them, as part of their supplier policy.
The emissions from the case studies above, would be reported by the respective value-chain members as direct Scope 1 emissions. In this way double counting of emissions is avoided. These case studies demonstrate the need to adopt the attitude of stewardship, to engage with companies in the value-chain around their emissions and support their transition to lower-carbon activities.
The measuring and reporting of emissions can be daunting, but can ultimately be a useful internal tool to identify hotspots for the business, as well as risks and opportunities on the horizon. Importantly, emissions reporting demonstrates the organisation’s understanding of the essential need to operate sustainably, and commitment to both its shareholders and stakeholders. For companies leading the way, consider that consistent measuring of emissions using the above framework of scopes, target-setting, and continuous improvement will facilitate plans to reduce emissions, and mitigate risks. For companies seeking to embark on the journey of reporting their carbon footprint, it may be helpful to view the process as iterative, with an initial compulsory focus on Scope 1 and 2 emissions. In this way, organisations can meet the challenge of an ever-changing landscape.
Written by: Cate Steenkamp