Introducing the New “Scope 3” Supply Chain Greenhouse Gas Inventory Standard

Speakers

• Pankaj Bhatia, Director, GHG Protocol, World Resources Institute
• Colleen Kohlsaat, Director, Global Environmental Sustainability, Levi Strauss & Co.
• Ryan Schuchard, Manager, Climate and Energy, BSR (Moderator)

Highlights

• The new Scope 3 Protocol, the only international greenhouse gas emissions standard that accounts for the full lifecycle of a company’s products, is a critical tool for business.

• The GHG Protocol Initiative takes an “attribution” versus a “consequential” approach, meaning that it assesses what the impacts are, instead of assessing what the consequences would be if a company took a specific action. For example, substituting biofuels for fossil fuels reduces greenhouse gas emissions, but it also reduces the amount of viable land for food production in the United States. The latter does not factor into the new Scope 3 standards.

Memorable Quotes

“There is great business value in addressing Scope 3 emissions, including risk mitigation and regulatory awareness.” —Colleen Kohlsaat, Levi Strauss & Co.

“To be successful in Scope 3 accounting, you must build the capacity of your suppliers, because this is not just about greenhouse gas inventories; it is also about energy use.” —Pankaj Bhatia, World Resources Institute

“The final product [Scope 3 Standard] seems elegant and obvious when, in fact, there were many intellectual debates that took place [to co-create the standard with business, NGOs, academia, and the GHG Protocol Initiative].” —Ryan Schuchard, BSR

Overview

Schuchard opened the session by announcing the release (on October 4) of the Scope 3 Supply Chain Standard, which has been called one of the most important standards of the decade. It provides a framework for companies to account for indirect emissions outside of energy use, such as transportation, manufacturing, and distribution, and it incorporates both upstream and downstream impacts of a product. With key investors now listing supplier vulnerability to rising energy prices and disruptions of service as a key concern, Schuchard pointed out that greenhouse gas (GHG) management isn’t just for leading companies. It is now a necessity for any business.

Bhatia, who has worked on the GHG Protocol for the last 20 years, said the key strengths of the new protocol include its mission, multistakeholder process, and application to business. In order to create a ready-to-use tool for business, companies were invited to test the standard, and input was solicited from a variety of stakeholders and thought leaders, including academics, NGOs, businesses, and scientists. The single, unifying standard for Scope 3 emissions is a powerful testament to the desire for standardization in energy and emissions management. Yet Bhatia was quick to point out that the work is not finished. Protocol training programs and integration of the standard into the Carbon Disclosure Project’s public reporting system will help companies undertake Scope 3 accounting and report their findings to investors, consumers, and other interested parties through a preestablished platform.

Levi Strauss & Co., one of the companies that tested the Scope 3 emissions tools, plans to integrate the standard into the company’s existing lifecycle-analysis model. Since the tool requires tracking not only energy use, but also water and other key product inputs, companies are expanding and deepening their understanding of their supply chain. For Levi Strauss, the pilot required a variety of teams, including IT, distribution, retail, field practitioners, and human resources to work together to develop a cohesive approach to tracking. As a result of these internal dialogues, the company developed a successful product line that has revolutionized jeans production by significantly reducing water use and emissions.

Bhatia cautioned companies to steer away from making public commitments, and instead use the standard as a tool for internal planning and identifying hot spots for key emissions reductions. Levi Strauss has focused on four products, for which, the company learned, Scope 3 emissions comprised 99 percent of total product emissions. These types of findings—which other industries are also likely to discover—are driving the development of deeper supplier relationships as well as internal metrics for achieving a low-carbon economy.

Scope 4 emissions, for which some companies would like to see a standard, are classified as emissions that companies should avoid. Bhatia highlighted the danger of cherry-picking favorable information. He recommended mitigation action accounting as a way to identify both increases and decreases in emissions, and he hinted about the possibility of a future standard for this approach.

During the Q&A session, participants asked whether Scope 3 was an even playing field since it does not account for the amount of owned operations versus third-party operations. Bhatia agreed that this discrepancy does create imbalances.

Schuchard closed the session by emphasizing the distinct need for companies to create active partnerships with suppliers on key issues in order to succeed in achieving emissions reductions.