How companies can get to grips with Scope 3 emissions

Companies can reduce value chain emissions by pursuing innovative product design and supply chain partnerships.

Scope 3 emissions occur within a company’s value chain, and they are a big issue for companies that are trying to decarbonise. According to a study by CDP, the average global company’s Scope 3 emissions are 11.4 times higher than direct operational emissions, or Scope 1 and Scope 2 combined.[1]

To tackle these value chain emissions, companies will need to think about both upstream and downstream activities – from the creation of the product or service to its distribution, use and disposal – before creating a strategy to reduce those emissions. Three crucial components of that strategy will be designing products based on life cycle analysis, collaborating with supply chain partners, and educating the end user.

For Logitech, a multinational manufacturer of computer peripherals and software, reducing Scope 3 emissions starts with the product. With value chain emissions accounting for 80% of its carbon footprint, the firm has taken a life cycle analysis approach to product design that is built on “objective understanding of where [carbon] impacts are occurring”, according to Robert O’Mahony, Logitech’s global head of sustainability.

“We are equipping ourselves with the knowledge and capability to interrogate those products, the materials from which those products are made, the technologies that are applied, and the manufacturing and supply chain that supports those products,” says O’Mahony. “Bringing an idea into reality and bringing that reality to a customer.”

Sustainability has been elevated as a KPI that Logitech uses alongside other indicators such as cost, schedule and experience to work out whether to proceed with production, or to make changes in the product development process.

“It allows for a mechanical engineer who is sitting at their desk, maybe designing the next case top of a mouse, to review the materials they are using and select the ones with less impact,” says O’Mahony. “That choice filters up to this KPI that provides a sustainability score, and that sustainability score is interrogated by the P&L owner.”

The significant impact of materials that go into making products means that supply chain management is a crucial way to reduce Scope 3 emissions. For Logitech, actively engaging with its suppliers to drive a partnership around the company’s strategy helps it to find materials with the lowest carbon footprint, and it has discovered that an encouraging number of suppliers are interested in implementing sustainable alternatives to mechanical materials, batteries, sensors and power management.

“We don't just want to understand what our suppliers use,” says O’Mahony. “We want to encourage our suppliers to use renewables.” To do this, Logitech has developed a renewable energy buyers club, which consolidates the energy consumption of individual factories in parts of the world where access to renewables is limited. The idea is that this helps its smaller suppliers to switch to renewable energy.

At multinational brewer Carlsberg Group, meanwhile, Simon Boas Hoffmeyer, head of sustainability and ESG, says the Scope 3 strategy is to focus on specific emissions hotspots. Suppliers of the packaging needed for selling the beer, including glass and aluminium, for example account for 41% of value chain emissions, and agricultural suppliers account for more than a quarter. Carlsberg then assigns each area a specific action to reduce the emissions within the value chain.

“We can concretely point to causes and effects in all of our local markets,” says Boas Hoffmeyer. “And that is the core for any businessperson: to be able to measure cause and effect, to be able to see them, and to have real personal impact on the work and the reductions."

Taking a ‘climate literacy’ approach, Carlsberg has been engaging suppliers in the carbon hotspots to explain its decarbonisation ambitions: to bring its breweries to net zero by 2030 and achieve a 30% reduction in Scope 1, 2 and 3 emissions by 2030, while maintaining a clear view of a net zero value chain by 2040.

“We had a lot of really interesting conversations with management teams in our value chain about their exposure to carbon pricing, energy use / consumption and cost volatility,” says Boas Hoffmeyer. “We said: ‘How do you want to tackle that as responsible management teams? Can you live with that exposure from a pure risk perspective?’”

This engagement has also boosted other sustainability-related actions. “When one, two or three of our aluminium and glass suppliers sign up to the Science Based Targets initiative,[2]  the impact on our Scope 3 emissions is exponential,” says Boas Hoffmeyer. “An ambitious and relevant Scope 3 climate strategy should also look at the interconnected areas. For us, that's water and farming, because these are the primary hotspots when it comes to impact on biodiversity.”

Educating and collaborating with the end user also plays a vital role in reducing Scope 3 emissions. Boas Hoffmeyer gives the example of the industry target on zero packaging waste, which aims for 90% of bottles and cans to be recycled. “One of the ways to do that are effective, industry driven, not-for-profit deposit return schemes,” he says. “We need to team up with other soft drink and beer producers to create a united proposal on systems, governance and structure.”

At Logitech, the consumer use phase reportedly represents, on average, only about 16% of value chain emissions. But the firm wants its customers to be able to make responsible purchases and end-of-life decisions for its products on the basis of each product’s entire life cycle impact, not just the consumer use phase. So it has created the Carbon Clarity programme, an open ecosystem initiative whose goal is industry-wide adoption of carbon labelling on product packaging.

As consumers increasingly choose products with less carbon impact, companies would be forced to compete on carbon. And this could lead to a virtuous cycle of low-carbon innovation.

“We talk about carbon being the new calorie,” says O’Mahony. “From an environmental perspective, carbon is the currency of climate action. And now it has become a ‘right to know’ for the consumer.”

• By performing a thorough life cycle analysis that assesses materials, technologies and supply chain partners, companies can tailor product design for lower carbon impact. They can reinforce this with a designated sustainability KPI.
• Hotspot analysis can focus efforts on high-emitting parts of the value chain.
• Engagement with supply chain partners is crucial in order to increase the adoption of Science Based Targets and access to renewable energy.
• Educating consumers about responsible purchasing and end-of-life practices could lead to a virtuous circle of low-carbon innovation.

The views and opinions expressed in this article are those of the interviewees and do not necessarily reflect the views or opinions of ING. 

Society is transitioning to a low-carbon economy. So are our clients,
and so is ING. We finance a lot of sustainable activities, but we still finance more that’s not. See how we’re progressing on ing.com/climate.