Many companies have set themselves the target of achieving net zero by 2050, and this means that, according to the net-zero standard of the Science Based Targets initiative (SBTi), they must reduce their emissions from all scopes to a minimum.
Although Scope 3 emissions are becoming more and more important, the category that emissions belong to is not always clear, especially in complex value chains.
Scope 3, category 4 emissions are highly relevant for exporting SMEs. This category includes emissions from all transportation and distribution services purchased by the company. If transportation and export are not paid for by the company, these emissions fall under Scope 3, category 9 and are recorded as such.
Lisa Bernegger, a consultant at Swiss Climate and a carbon footprint expert, answers some of the key questions about Scope 3 emissions affecting the export business of SMEs.
How exactly can a company benefit from measuring Scope 3 emissions and why is this particularly worthwhile for SMEs that export to other countries?
SMEs conducting export business are under increasing pressure due to legal and regulatory requirements arising in the supply chain. Measuring Scope 3 emissions puts companies in a better position when reporting to customers and other stakeholders, allowing them to boost their competitiveness and strengthen their market position. Collecting data on Scope 3 emissions increases transparency throughout the value chain, which in turn often leads to process optimizations and financial savings.
What challenges does a company that performs export activities face in accounting for its Scope 3 emissions?
People often assume that it is difficult to impact Scope 3 emissions and that it will not be easy to take corresponding measures, but this is not actually the case. Many Scope 3 emissions can be managed effectively, and companies can take targeted action to reduce emissions. Examples include emissions from waste, business travel, purchased goods and the supply of energy.
To reduce the time and effort involved in data collection and focus on the most significant activities, companies should prioritize emission sources. For example, during the initial estimation of Scope 3 emissions, the focus may be on the export of a key product or on a major customer. Scope 3 emissions are by definition always the Scope 1 and Scope 2 emissions of other stakeholders such as suppliers or customers. It is therefore essential to cooperate with third parties such as suppliers, business partners, customers and employees to implement actions to reduce Scope 3 emissions.
How would you advise SMEs to approach setting a climate target, and what are the main factors they should consider?
There are two basic approaches to setting a climate target: bottom up and top down.
A bottom-up approach focuses on internal factors and the target is influenced by planned measures and reduction potential. To determine the expected changes in emissions, companies need to consider external effects such as changes in the electricity mix or organizational changes such as acquisitions, in addition to the planned measures. To set a target, emission changes are presented in a waterfall chart quantifying the impact of each individual factor.
If a top-down approach is used, the target is influenced by external factors in the context of science-based targets such as those defined by the SBTi, Swiss climate policy or competitors’ targets. Specific SBTi guidance on setting targets is available for SMEs, according to which SMEs must measure their Scope 3 emissions but are only required to set targets for their Scope 1 and Scope 2 emissions.
When choosing from the two approaches, SMEs should also consider that staying within the globally agreed limit of 1.5°C may also ensure they remain competitive in the long term.
Do you believe there is high potential for SMEs to reduce Scope 3 emissions?
As I mentioned earlier, a company’s Scope 3 emissions are by definition the Scope 1 and Scope 2 emissions of other stakeholders. More and more large companies are making a commitment to reduce their Scope 3 emissions, and these companies then go to their stakeholders in the value chain and ask them to also disclose and reduce their emissions. SMEs exporting to other countries play a central role in this value chain. They act as a link between customers and producers and, when accounting for carbon emissions, can encourage the provision of data and collaboration between various stakeholders. More than 99% of all Swiss companies are SMEs, forming a large network of entities with the potential to make an important contribution. It will only be possible to successfully reduce Scope 3 emissions if all of the entities involved communicate with one another, increase transparency, and work together to find a solution.