Increasing concern about the climate impacts of global greenhouse gas (GHG) emissions is intensifying efforts to find ways to reduce them. That includes encouraging — and perhaps mandating — businesses to assess and report on Scope 3 emissions. But for organizations that rely on a complex network of global suppliers, doing so can present quite a challenge.
As a result, new tools are emerging to help reduce the pain of this process — like the supplier questionnaire recently unveiled by the Suppliers Partnership for the Environment (SP).
But before we dig into that, let’s take a minute to define a few terms.
What are Scope 3 emissions?
According to the U.S. Environmental Protection Agency (EPA), Scope 3 emissions — aka “value chain emissions” — are the “result of activities from assets not owned or controlled by the reporting organization, but that the organization indirectly affects in its value chain,” which include both upstream and downstream activities.
Basically, Scope 3 emissions include “all sources not within an organization’s scope 1 and 2 boundary,” the agency says, also noting that one organization’s Scope 3 emissions are the Scope 1 and 2 emissions of another.
In addition, the EPA says Scope 3 emissions often make up the majority of an organization’s total GHG emissions.
A new Scope 3 tool for the automotive supply chain
Effectively addressing Scope 3 emissions includes the ability to accurately assess what and where they are — and the automotive supply chain has a new tool that may help.
On April 3, Suppliers Partnership for the Environment (SP) announced the release of the Automotive Climate Action Questionnaire, which is the result of a collaboration that includes Manufacture 2030 (M2030) — as well as leading automakers and suppliers such as DENSO, Ford Motor Company, General Motors, Honda Development & Manufacturing of America, Magna, and Toyota Motor North America.
According to the press release, this collaborative effort is “engaging nearly 20,000 automotive supplier manufacturing sites globally seeking to improve consistency in Scope 3 emissions reporting and to reduce carbon emissions within the supply chain.”
The new questionnaire that resulted from this collaboration builds on existing industry guidance by “providing a standardized template which seeks to improve consistency and reduce reporting burdens by aligning around common questions and definitions,” the release says.
“Effectively engaging stakeholders across the supply chain is key as companies in the automotive industry work toward long-term decarbonization goals,” said Kellen Mahoney, Director, Suppliers Partnership for the Environment, in the statement. “This initiative is a testament to the leadership and commitment of our members to develop common tools and educational resources to support companies in the supply chain in building capacity in carbon reporting and reduction within the limits of applicable antitrust laws, while striving to improve efficiencies and identify opportunities to drive continuous improvement.”
The questionnaire is hosted through the M2030 program where participating suppliers can also access “energy focused best practices, learning tools, support services, and an expert network to support decarbonization efforts.”
In its announcement about the new questionnaire, M2030 said that “in a significant milestone for the automotive industry, global automakers and suppliers are uniting forces with the support of the Suppliers Partnership for the Environment (SP) and Manufacture 2030 (M2030), underscoring their steadfast commitment to driving sustainable practices and achieving science-based targets.”
“Manufacture 2030 is proud to be at the core of this pivotal movement, helping supply chains spearhead the action needed to drive measurable carbon reductions across the automotive industry,” said Martin Chilcott, Chief Executive Officer at M2030 in the statement. “Cross-sector collaboration is critical to reducing duplication and increasing the efficiency of reporting, enabling more suppliers up and down the value chain to focus efforts on reducing emissions in line with science-based carbon reduction targets.”
The growing need for a Scope 3 focus
Scope 3 resources are becoming increasingly critical as related state and international regulations advance.
A January 2023 post from the Harvard Law School Forum on Corporate Governance noted that the European Union had finalized the Corporate Sustainability Reporting Directive (CSRD) that will “introduce more detailed sustainability reporting requirements for EU companies, non-EU companies meeting certain thresholds for net turnover in the EU and companies with securities listed on a regulated EU market.”
The CSRD entered into force on January 5, 2023. Key points about the new directive include:
- “The rules will be phased in starting from January 1, 2024 for certain large EU and EU-listed companies, and will apply to all in-scope companies by January 1, 2028.”
- “In-scope companies will be required to disclose information both about how sustainability-related factors, such as climate change, affect their operations and information about how their business model impacts sustainability factors. The scope of required reporting covers environmental, social and human rights and governance factors. Environmental factors include not only climate (including Scopes 1, 2 and 3 greenhouse gas emissions) but also water/marine resources, circular economy, pollution and biodiversity.”
On the heels of the CSRD, the European Parliament voted to adopt the Corporate Sustainability Due Diligence Directive (CSDDD) on April 24, 2024.
In its post on the same day, global law firm Cooley provided an overview of the new regulation.
“For the first time, it will introduce comprehensive mandatory human rights and environmental due diligence obligations, with significant financial penalties and civil liability for companies that do not fully comply,” Cooley said. “It also will create a new obligation for companies to adopt and put into effect a climate transition plan, as well as a requirement for companies to report on their due diligence processes.”
The law firm said the new requirements will likely pose a “heavy lift” for in-scope companies, since they “reframe existing international soft laws as mandatory obligations.”
It also underscored the widespread impact that may occur.
“Companies not in scope but in the value chains of businesses that are in scope also will feel the effects of the law, and can expect increasing sustainability-related information requests, contractual requirements and climate-related transition requests,” Cooley said.
Closer to home, California’s Gov. Gavin Newsom signed two bills into law on October 7, 2023 that will “require large corporations operating in the state to disclose both their carbon footprints and their climate-related financial risks starting in 2026,” according to Politico.
Reuters refers to the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261) as “watershed climate bills.”
“SB 253 requires U.S. companies with annual revenues exceeding $1 billion and doing business in California to disclose their Scope 1 and 2 greenhouse gas (GHG) emissions data starting in 2026 and their Scope 3 GHG emissions data by 2027 (and annually thereafter),” the outlet says. “There is no minimum emissions threshold that triggers reporting duties. It is solely based on the company’s revenue and whether it is ‘doing business’ in California.”
For more details about these new regulations, see:
- EU Adopts Mandatory Rules on Corporate Sustainability Due Diligence That Will Apply to Many US Companies
- The EU Corporate Sustainability Due Diligence Directive is final. What now for your organisation?
- Newsom signs first-in-the-nation corporate climate disclosure bills
- California’s sweeping climate disclosure laws: possible impact to asset managers
- California’s Comprehensive Climate Accountability Regime: Setting an Aggressive New National Standard
