LRQA on COP28: Scope 3 emissions - from compliance to competitive edge

By Erin Lyon – Head of Consulting, LRQA

The 2023 United Nations Climate Change Conference (COP28) is just weeks away, and this year's agenda will certainly focus more heavily on the private sector, and the critical role in cutting emissions and curbing the impacts of climate change. The spotlight is therefore firmly on business leaders to understand what’s coming, and to equip companies with the people, processes and partners they need to meet the challenge head on. There is also a clear demand from business at COP that globally regulators need to provide clear, consistent, transparent guidelines and certainty about the regulatory framework and expectations of the private sector.

What to expect at this year's COP

On the agenda will undoubtedly be the evaluation of emissions targets set by the 2015 Paris Agreement, which aims to limit global warming to 1.5°C. This conference will for the first time conduct a ‘global stocktake’, where countries’ progress (or lack thereof) and their contributions to Paris Agreement targets will be reviewed.

There will also be an emphasis on the private sector and the first call to action has been set out. The COP28 presidency recently launched the ‘Net—Zero Transition Charter’ which seeks to ‘elevate the role of the private sector…pushing companies to move from commitment to action with a golden standard level of transparency and integrity’.

As businesses and their supply chains embrace their vital role, Scope 3 emissions – often representing the vast majority of a companies total carbon footprint – will be a key focus area. Critical is to, first, understand the distinction between Scope 1, 2 and 3 emissions, second, how to accurately track, verify and report on each within supply chain operations and third, how to implement more robust processes to lower emissions.

What are Scope 3 emissions?

The GHG Protocol classifies a company’s greenhouse gas emissions into three scopes. Scope 3 emissions encompass the indirect emissions generated by a company's value chain, including both upstream and downstream activities. These emissions result from sources not owned or controlled by the company but are involved in operations, such as suppliers, clients/customers, and the use of sold products. The interconnected nature of supply chain relationships and diverse data sources involved make it difficult to obtain clear and accurate emissions data.

Source: GHG Protocol Scope 3 Calculation Guidance PDF

Increasing Scope 3 reporting requirements

In an effort to formalise the expectations on businesses and penalise lack of action the regulatory landscape is changing and intensifying.

Recent new proposals, such as California's Climate Corporate Data Accountability Act, and mandatory requirements in markets such as such as the EU, UK, Australia, Brazil, Canada, Singapore, Hong Kong, China, New Zealand, India and Japan are set to scale, beginning with major companies and expanding to encompass larger markets.

From the SEC Climate Disclosure Rule and other specific requirements set by the regulators of the respective stock exchanges to the Corporate Sustainability Reporting Directive and other regulatory requirements, there is a growing plethora of regulations. Combining the quantity of regulations, their complexity, and the sometimes-ambiguous nature of Scope 3 regulatory enforcement presents a unique challenge.

Challenges around tracking Scope 3

Companies must now act quickly to implement better processes for tracking and reporting emissions from their operations and supply chains, regardless of the current regulatory intricacy. This comes with a challenge, as Scope 3 data is among the most complex data to accurately capture, verify and report. Scope 3 emissions account for at least 75% of a supply chain's emissions, companies either not reporting, inaccurately reporting or utilizing outdated or indefensible assumptions on Scope 3 emissions lead to a distorted view of their overall carbon footprint. Given that investors will increasingly rely on this data, the accuracy of the data is critical.

Further challenges with collecting Scope 3 carbon emission data include:

• Data availability: reliance on suppliers’ self-reported, unverified data for emissions tracking can create challenges for full visibility and data accuracy.
• Data quality: assumptions and non-verified data may vary greatly in consistency, accuracy and completeness.
• Resource intensive: tracking Scope 3 emissions requires personnel time, technical capabilities and financial investments.

Enhancing Scope 3 tracking, increasing transparency

Businesses that prioritise the tracking, data quality and reporting of Scope 3 emissions stand to ensure compliance against the new requirements, improve transparency, credibility, and demonstrate a commitment to business-driven sustainability and climate risk mitigation to stakeholders and investors.

LRQA is uniquely positioned to assess an organisation’s carbon footprint. From a holistic portfolio of advisory services, we support clients in developing expertise, obtain high-quality Scope 3 emissions data, communicate carbon commitments and progress reports in accordance with global and local GHG reporting standards to our on the ground ERSA assessment suite (including critical environmental data) and responsible sourcing assessment services. We also go beyond GHG reporting mandates to build meaningful, yet achievable decarbonisation roadmaps, inputting into climate risk mitigation and resilience plans.

Our world-leading supply chain intelligence platform, EiQ, includes a carbon data collection suite that targets a supply chain's Scope 1 and Scope 2 emissions during onsite audits and enables companies to better manage and report Scope 3 emissions. EiQ can act as a ‘fitness tracker’ for a value chain in more ways than one, and will help engage with suppliers to enable highly scalable, verified data collection across global supply chains.

Through a trusted partnership, we can help clients ensure compliance and go beyond to ensure a competitive edge, and with COP28 on the horizon, the time to act is now.