Addressing Corporate Scope 3 Value Chain Greenhouse Gas Emissions: Part 1

This blog was coauthored by Nicole Labutong, Technical Manager at CDP

To keep the global temperature increase to well below 2⁰C and meet the goals laid out in the Paris Agreement, everyone must take bold action to reduce their share of emissions as soon as possible. Companies are responsible for the majority of global emissions and therefore play an integral role in meeting these goals.

To date, over 400 companies have joined the Science Based Targets initiative (SBTi), committing to reduce their greenhouse gas (GHG) emissions in line with climate science. Over 100 of these companies already have targets approved by the initiative, and approximately 90% have scope 3 targets. Scope 3 emissions are indirect upstream and downstream emissions that occur in the value chain of the reporting company, excluding indirect emissions associated with power generation (scope 2).

In this first blog in a series of two we explore why scope 3 value chain targets are important and how science-based climate targets can be set.

Why Are Scope 3 Targets Important?

Momentum for science-based targets continues to grow; however, we must move faster to meet the ambitious goals set out in the Paris Agreement. Emissions across all scopes need to be reduced and eventually reach net zero. This means more companies setting science-based targets, and more and more of those companies addressing emissions across their value chains. For most sectors, the largest sources of a company’s emissions lie upstream and/or downstream of their core operations. For that reason, if scope 3 emissions represent more than 40% of a company’s overall emissions, the SBTi requires they set a target to cover this impact. There are different options for companies to set a scope 3 target.

Applying SBT Methods to Scope 3

The most ambitious scope 3 targets are set using a science-based targets setting method. These methods are designed for addressing scope 1 and 2 emissions, but they can be applied to scope 3 as well.

The Sectoral Decarbonization Approach provides sector-based emission reduction pathways for corporate activities. They take into account inherent differences between sectors, such as their expected growth and potential for emissions reduction activities. Using this method, a company could use multiple sector pathways to address its different activities. For example, a company may use the aluminum pathway to set targets for its purchased aluminum, or the commercial buildings pathway for its leased assets.

Another method is absolute contraction. Under this method, the rate at which global emissions need to be reduced to stay within 2°C is uniformly applied to all companies. Unlike the Sectoral Decarbonization Approach, there is no sector differentiation or correction for business growth. However, it is the easiest to understand and communicate and the most robust in terms of preserving the global carbon budget.

Finally, the GHG emissions per unit of value added (GEVA) method sets intensity targets based on COe per value added (i.e., gross profit), at a rate assuming absolute global emissions would be reduced to stay within 2°C.

These methods are considered the most ambitious ways to set a scope 3 target because they:

• Align with GHG foot-printing standards
• Quantify a clear target to strive for and achieve
• Are based on robust climate science
• Provide the opportunity to set different targets for different scope 3 categories
• Provide confidence to investors, NGOs, clients, and customers that a company is applying best practices

In our next blog we will provide insight in how scope 3 value chain emissions can be addressed.