What is Net Zero?
You may have heard the term ‘net zero’ more and more, but what does it actually mean?
Net zero means cutting greenhouse gas (GHG) emissions to as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere. The key guideline on what is involved is contained in the SBTI Net Zero standards - it sets out various criteria and expectations. In addition, UN Net Zero guidelines and Net Zero ISO provide further clarification on what a credible Net Zero strategy needs to cover.
For companies, net zero therefore involves:
- Taking action to reduce GHG emissions by at least 90% by a set timeline (no later than 2050) before looking at additional options to help capture the remaining 10% of company emissions i.e. permanently remove, rather than offset.
In addition, under the standards companies are expected to also:
- Set short and medium term decarbonisation goals in line with science
- Contribute to climate solutions alongside decarbonisaton efforts
- Setting up adequate decarbonisation governance structures and incentives processes - at all levels, including executives
- Review business model - net zero requires a different lens and approach, business as usual with some tweaks will not deliver the transformation needed!
- Some sectors will have additional requirements, for example FLAG related and deforestation targets for sectors that FLAG applies to.
In order to achieve the goals identified in Decarbonisation and Net Zero Strategies (all part of a company’s transition plan), companies must first understand their GHG emissions. Once a GHG emissions baseline is determined, companies can then focus on monitoring their emissions and reporting on them annually, taking action to reduce emissions, and ultimately track their progress to meeting their Decarbonisation and Net Zero Strategies.
What are Scope 1, 2 and 3 emissions?
Scope 1, 2 and 3 is a way of categorising the different kinds of carbon emissions a company creates in its own operations, and in its wider value chain. The term first appeared in the GHG Protocol of 2001 and today, Scopes are the basis for mandatory GHG reporting in the UK:
Scope 1 emissions - direct emissions from company-owned and controlled resources. In other words, emissions are released into the atmosphere as a direct result of actions, at a firm level. It is divided into four categories:
- stationary combustion (e.g fuels, heating sources)
- mobile combustion (e.g. cars, vans, trucks)
- fugitive emissions (leaks from greenhouse gases e.g. refrigeration, air conditioning units), and
- processing emissions (e.g. production of CO2 during cement manufacturing, factory fumes, chemicals).
Scope 2 emissions - indirect emissions from the generation of purchased energy, from a utility provider. In other words, someone else burns something to generate energy for a firm’s needs. This will include all GHG emissions released in the atmosphere, from the consumption of purchased electricity, steam, heat and cooling.
Scope 3 emissions - Scope 3 emissions are all indirect emissions - not included in scope 2 - that occur in the value chain of the reporting company, including both upstream and downstream emissions. In other words, emissions are linked to the company's operations including supply chains and post-sale activities.
Common pitfalls with emissions reporting
1. In some cases, the solutions exist to deliver net zero for Scope 1 and 2 emissions.
For example, an organisation can source renewable electricity, renewable gas, or electrify its heat demand, or transition to electric vehicles. Whilst solutions to deliver net zero for Scope 3 emissions are not yet advanced, there are quick wins within the Scope 1 and 2 categories that should not be ignored!
2. As an organisation begins to electrify their fleet (e.g. company cars), the emissions associated with this data will need to be reported in Scope 2 rather than Scope 1, as previously with non-electric vehicles. This may mean an organisation’s Scope 2 emissions increase despite the transition to a greener fleet.
3. According to GHG protocol, scope 3 emissions are separated into the following 15 categories but not all will be relevant to your business so don’t let this put you off taking the first steps into understanding your Scope 3 emissions. It is important to understand what may be involved even if you do not start accounting for all of them in the first run (but you need to have a strong justification for exclusions):
- Purchased Goods and Services
- Capital goods
- Business Travel
- Employee commuting
- Upstream Transportation and Distribution
- Fuel and energy related activities
- Leased assets
- Investments Franchises
- End of Life treatment
- Use of sold products
- Downstream transportation and distribution
- Leased assets
- Processing of sold products
4. Often there is a lack of granular primary data available for Scope 3 emissions. Management and financial systems are generally just not set up for the type of data that is needed for carbon accounting. All emissions calculations will involve assumptions of sorts - don’t let this prevent action!
- As a first step, spend-based data can be used to identify hotspots within the value chain. Most times you will be surprised to see rather high emissions in categories that you thought may be low-emission for example services or digital. It is important to start with this screening so that you work with a full picture rather than assumed areas of impact.
- Once the hotspots are identified, companies can then look to improve data collection in a targeted way.
- There are so many variables that can impact the final results that it is important to get as close to primary data as possible - even if your suppliers have not done their own calculations. When you are using proxies for some of your purchases, are these from the same region as your purchases? Do the proxies assume a similar manufacturing process? Do they reflect the recycled content of the materials? There are ways to improve accuracy of your assumptions even if you are using proxies and general database factors.
- Ultimately, you will need to involve your suppliers - even if you have very good spend data and proxies, this is not a replacement for primary data from suppliers. By engaging suppliers, you will not only improve your data quality but enable you to identify opportunities for impact reduction - if you know what activities and choices drive carbon emissions in supply chains you can collaborate with your suppliers to develop an action plan.
Frequently Asked Questions about Emissions
What type of emissions are most within an organisation’s control?
This might depend on the organisation! For some, Scopes 1 and 2 activities will be easier to measure and control, and therefore can be easier to reduce e.g. where the fuel and energy activities are controlled by the entity. For other entities, these might actually be some of the activities in Scope 3 such as waste, purchasing and design of products.
Within Scope 1, what do fugitive emissions refer to?
Fugitive emissions are leaks and other irregular releases of gases or vapors from a pressurized containment - for example refrigerants, landfill gas. Fugitive emissions are difficult to identify but most Health and Safety checks of buildings/sites should identify if fugitive emissions are present and if so, may even contain the data needed to calculate Scope 1 emissions.
Which of the Scopes of emissions is the largest?
Scope 3 is often where the largest impact is. For many businesses, Scope 3 emissions account for more than 70% of their carbon footprint, and Category 1 (Purchasing) is often the largest element that contributes to Scope 3 emissions. However for some of the asset-based entities, this might look different and Scopes 1 and 2 might be bigger. For example, for an organisation that manufactures products, there will often be significant carbon emissions from the extraction, manufacture and processing of the raw materials that will be executed in company managed facilities.
How can Scope 3 emissions be addressed?
This will vary depending on the nature of the orgnisation, but consistently this will be the area of greatest focus for most companies. Businesses tend to have less control on how Scope 3 emissions are addressed but most times have an abundant amount of influence.
You can offer to collaborate on solutions to reduce emissions with current suppliers, or consider changes to your supply chain to those suppliers who offer lower carbon alternatives.
Product/ Service design decisions will drive a lot of the Scope 3 emissions, so where this is within a company’s control, understanding the lifecycle of a product can help review how the products are designed, used and disposed of.
Engaging with suppliers can give an opportunity to create new partnerships and solutions that would benefit the sector as a whole.
Consumer and client behaviours are also part of your value chain so engagement at that level will also be important. For example, a large proportion of carbon impact of shampoos is in use of water when someone washes their hair with it. This means that a business can make changes to how the shampoo is designed to account for this (e.g. make it easy to wash out) and also engage consumers to help them adapt their behaviours e.g. create awareness of the impact of taking longer (ie using more water) showers.
No one organisation can achieve Net Zero on its own - partnerships within and outside of the supply chain will be necessary to create the shift needed for the depth of decarbonisation science demands. In the example of the shampoo use, engagement with water and energy companies to help decarbonise the way hot water supply is managed will give some of the largest benefits.
Other quick win opportunities to start with might be:
- Survey your suppliers to understand what data may be available and what actions are already being undertaken across your supply chain.
- Create tender documents that include carbon reduction targets/requirements for new and existing suppliers (this one works better for companies with larger buying power).
Want to find out more about carbon footprinting and your business’ Scope 1-3 emissions? Please contact us at email@example.com to arrange an introduction call.
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