In today’s business landscape, understanding GHG (greenhouse gas) emissions is essential for achieving net zero and complying with intensifying regulations. Supply chain carbon accounting focuses on Scope 3 emissions, a critical and complex area that covers both upstream and downstream activities.
By combining spend-based accounting and activity-based accounting, businesses gather accurate emissions data and prioritise emissions reduction efforts.
This Supply Chain Carbon Accounting Guide explores strategies for target setting, reducing emissions, and implementing effective supplier engagement. With the right tools, such as Gaia’s AI-powered carbon accounting software, organisations can enhance transparency and accountability while meeting regulations and advancing sustainability goals.
What Is Supply Chain Carbon Accounting?
Supply chain carbon accounting is both a subset of carbon accounting as well as a specialised area. While general carbon accounting encompasses 3 scopes, supply chain carbon accounting revolves primarily around Scope 3 emissions, covering upstream and downstream business activities under a scrutinising lens to consider all bases of business activities from the extraction of the raw materials to the systems in place at the end of the product’s life.
Examples
Scope 3 covers upstream, such as employee commutes, goods transportation, supplier manufacturing, or raw material extraction. To counter emissions, carbon accounting software could encourage an optimisation of the transportation system and logistics—like swapping to low-emission transport or electric vehicles. Beyond this, softwares may flag to collaborate with suppliers to adopt renewable energy, implement remote work, or provide public transport incentives.
For downstream, it can focus on franchises, investments, transportation of sold products, product use, and end-of-life treatment. Countering emissions may look like designing products sustainably, incorporating circular economy practises, and generally improving distribution, such as optimising delivery routes or opting for low-carbon transport.
How it Fits in Overall Carbon Accounting
Amongst overall carbon accounting, Scope 3 is the most complex and nuanced category. It provides a full understanding of the company’s footprint.
Without this specialised focus, results will be incomplete. Scope 3 often makes up the largest share of a company’s carbon footprint, because Scope 1 and 2 are easiest to manage and reduce through direct company operations, and involve fossil fuels, which brand-conscious businesses are quick to address within sustainability strategies.
Incorporating Scope 3 ensures accountability across the entire value chain, ensuring transparency and meaningful emission reduction.
Carbon Emission Scopes
Without measuring carbon emissions across all scopes, it’s impossible to truly understand your company’s carbon footprint. Being generally ‘green’ does not suffice—as the 15 categories of Scope 3 alone quite clearly indicate. It’s likely that most first-time assessments will reveal significant unseen emissions, with nearly every activity having an impact. Then, meaningful reductions can begin.
Scope 1
Scope 1 emissions, as defined by the GHG Protocol, includes direct emissions from sources owned or controlled by a company. These emissions, often stemming from fossil fuel combustion and fugitive emissions, are generally easier to identify, measure, and manage, making them prime targets for reduction or offsetting efforts.
Contributors of Scope 1 emissions could include manufacturing companies (such as cement factories, steel mills, and chemical plants), non-renewable energy companies (like oil and gas extraction firms), plus industries like coal mining, power generation, airlines, agriculture, construction, waste management and more.
Scope 2
In contrast, Scope 2 emissions encompass the indirect emissions let off by generating a business area’s electricity, steam, heating or cooling. Instead of direct control over the source, this tends to lie in the hands of the providers and can make smart changes to the greener operators as a way to lower emissions.
They usually acquire regular data from the providers in order to maintain the monitoring processes.
Scope 3
Scope 1 is direct, Scope 2 is indirect, and then Scope 3 covers everything else in the corporate value chain. Businesses yield even less control over these than Scope 2. Importantly, Scope 3 can be split into upstream and downstream.
Upstream refers to all supply chain activities early in the supply chain, such as forestry operations, textile sourcing, agricultural production, oil and gas extraction, or mining raw materials.
This involves focusing on the early stages of the supply chain and the beginning of a product’s life. It places an emphasis on sustainability of inputs, as well as quality.
This could be the inputs that are required to start production, and the obtaining and processing of these raw materials.
With upstream, communications will be with third party suppliers and raw material providers.
In contrast, downstream refers to the later stages in the supply chain, where the finished product heads towards customers or end-users (final customers). This could be customer delivery, distribution and logistics, waste management, or customer relationship management.
This involves the end stages of the product’s life, and communications with distributors, retailers, and end customers. Downstream emission assessment is crucial for customer satisfaction, strong market reach, and brand loyalty.
The Significance of Scope 3 Emissions
The 3 scopes exist to ensure a thorough coverage of emissions company-wide, including direct and indirect throughout the entire supply and value chain. The standardised scopes are a benchmark to follow. They guide companies towards complete transparency and clarity, aligning operations with a robust framework and internationally recognized standard.
The Importance of Reducing Supply Chain Emissions
Supply chains can be managed in a way that best lowers greenhouse gas emissions. Emissions caused by any cog in the supply chain should be monitored, tracked and reported to identify the biggest contributors and areas where reduction targets are most needed.
For example, sourcing locally reduces emissions from transport, which in the long-term can save masses of emissions depending on a company’s age. Emission-dense suppliers can be swapped for green suppliers, who strictly practise with forward-thinking and sustainable operations.
Steps to Reduce Supply Chain Carbon Emissions
Identify Key Emission Sources
The first step of the GHG Protocol is to identify the many potential emission sources, including everything from the energy used to power office lights, heating and cooling systems, machinery, and even smaller activities like running office equipment or washing your hands.
For example, when monitoring vehicle emissions, the protocol goes into granular detail about each employee’s vehicle type, fuel efficiency, consumption, and age. This data is then used to generate periodic reports (e.g., quarterly or annually) based on representative sampling provided by the staff, ensuring an accurate assessment of the company’s overall emissions.
Conduct Supplier Emissions Audits
Suppliers could be energy suppliers, logistics providers (transportation/shipping), packaging suppliers, component makers, or providers of raw material. Many companies will have a broad range of suppliers, and a carbon accounting will lead to an assessment of which have the largest carbon footprints.
This can be done by requesting data from all, verifying the data accuracy through audits, then analysing their energy sources and practises.
Set Science-Based Reduction Targets
Setting science-based reduction targets involves an understanding of SBTi criteria (more on this at the end of the blog). They are crucial for companies with significant Scope 3 emissions; setting targets that align entire value chains with global climate goals.
These targets are strictly in line with climate science. Rooted in quantitative thinking, scientific frameworks such as the IPCC’s carbon budget allow for meaningful reductions to be made.
They are validated by experts, for example, with submissions reviewed by the SBTi (Science Based Targets initiative).
Collaborate With Suppliers on Sustainable Practices
Opening a proactive dialogue with suppliers can encourage mutually beneficial green alternatives, with results tracked over time to see tangible improvements.
Companies with significant Scope 3 emissions should communicate with suppliers along every rung of the supply chain, setting mutual goals, knowledge and tools. Offers such as preferred supplier status can incentivize achieving sustainability targets, and organisations could co-invest in sustainability initiatives.
Optimise Logistics and Transportation
Logistics, covering a broad spectrum of operations, can be optimised through routes of management to lower emissions in many ways.
For example, transportation management routes can be optimised, reducing fuel consumption with shorter routes.
Management of inventory can administer local sourcing, calling for less travel emissions.
Partnering with green logistic providers have many methods of operating sustainability fit for a large number of businesses, making it straightforward to do so.
It would also be good practice to monitor the emissions from different logistic operations, to report and ensure that they are being lowered and consistently meet the green standard.
Transition to Renewable Energy Sources
All businesses should be looking to pull away from finite fossil fuels, which speed up climate change and intensify global warming. Businesses should look to purchase and install solar panels where possible, which, after an initial cost, likely pays itself off over some years. Investing in wind power can also generate heaps of renewable energy.
Primarily in the US, RECs (Renewable Energy Certificates) allow businesses to claim that some of their electricity consumption is from renewables, and REGOs operate similarly in Europe and the UK.
More commonly used in the UK, green tariffs allow businesses to buy renewable energy directly, offered by most UK energy suppliers allowing for a streamlined process.
Promote Circular Economy Principles
Circular economy practices are methods and systems designed to reuse resources through repairing, recycling or sustainable production methods, minimising waste and resource use.
Great examples of this are IKEA, with replaceable parts in furniture to swap out if faulty rather than discarding the entire piece, lowering the need for energy-intensive manufacturing processes.
Patagonia’s trade-in program encourages their customers to return clothes rather than dispose of them, reusing them or restoring quality for resale.
Another example is Too Good To Go, allowing restaurants to dispose of their excess or unneeded stock at very low prices to consumers that collect it, saving it from going to waste.
Use Sustainable Materials
To lower the emissions of a business, they should source sustainable materials which offer good recycling value, preventing masses of waste from landfill, and those with low impacts on the environment.
A business supporting suppliers who buy purely fair trade and ethically-sourced products is a great way to reduce emissions and allows for a mutual commitment to sustainability and mitigating climate change.
Outlining a clear code of conduct that suppliers must adhere to is a simple tactic to ensure that all business materials, from tiny to huge, are ethically sourced and will not contribute heavily to a businesses’ greenhouse gas emissions.
Use Carbon Accounting Software
Businesses are accountable for a significant portion of global emissions.
Carbon accounting softwares are digital platforms for businesses of any scale to measure their carbon emissions, then analyse and uncover optimal areas of reduction. They allow them to effectively track and report their progress.
This can involve scope tracking, energy efficiency, supply chain analysis, carbon offset management, renewable energy integration, and real-time data monitoring.
Carbon accounting is crucial for achieving and maintaining sustainable business practices. It helps companies comply with regulations, and further aid the environment, rather than contributing to climate change.
The Gaia Carbon Accounting Software is a powerful, UK-based solution designed for comprehensive carbon management across industries. With flexible, scalable pricing starting at £1,980 annually, Gaia’s platform adapts seamlessly to diverse sectors like manufacturing, retail, finance, and technology. Gaia offers UK businesses a powerful tool to track emissions, meet sustainability goals, and comply with regulations across various industries.
Monitor, Report and Verify Progress
Monitoring, reporting, and verifying progress are crucial steps in ensuring transparency and accountability in carbon reduction efforts.
Regular assessments allow businesses to track emissions, evaluate the effectiveness of initiatives, and demonstrate compliance with regulations and sustainability targets to stakeholders.
Initiatives
GHG Protocol
The Greenhouse Gas Protocol is the most widely used framework for carbon accounting, recognized as the global standard. It involves Scope 1 (direct), Scope 2 (indirect) and Scope 3 (value chain emissions).
The tool applies across a range of sectors, allowing for comprehensive data collection that leads to effective sustainability reporting and that can merge with SBTi and other standards. It sets targets and methods of tracking the businesswide progress.
CDP
The Carbon Disclosure Project (CDP) allows cities, states, regions, and companies to manage and report environmental impacts. The global non-profit organisation focuses mainly on deforestation, climate change, and water security.
In the UK, many prominent larger and mid-size companies use CDP, driven by supply chain pressure. They use CDP’s secure online disclosure system to measure, disclose, and manage environmental impacts, ensuring compliance with guidelines. CDP reviews all submissions, assigns a score, and results are shared. This is typically done after extensive carbon accounting.
Science Based Targets Initiative
The Science-Based Targets initiative (SBTi) is a global framework aligned with the Paris Agreement goal of ideally 1.5C, if not well below 2.C.
It implements both near-term targets (within 5-10 years) as well as longer-term net-zero targets, by 2050 or earlier.
After calculating Scope 1, 2, and 3 emissions and calculating targets, they are submitted to the SBTi for validation according to sector-specific factors and criteria.
Though not mandatory, companies risk damaging their reputation and failing to meet targets when they don’t use the initiative for validation. A significant number of large UK companies adopted the initiative.
More Information
https://ghgprotocol.org/standards
https://www.iso.org/standard/66453.html
https://www.bsigroup.com/en-GB/capabilities/environment/pas-2060-carbon-neutrality