Let's face it — spend-based calculations for Scope 3 emissions are the quick and easy way to get a baseline for your clients. But this approach often leads to significant under-reporting of actual emissions, particularly in categories like purchased goods and services. As more companies face pressure to report accurate emissions data, it's crucial to understand where these calculations fall short.

Why spend-based methods fall short

The fundamental issue lies in how spend-based factors work. When you apply an emission factor to a dollar amount, you're making a huge assumption that all products or services in that category have the same emissions intensity per dollar. This rarely holds true in the real world.

Take electronics manufacturing. A $1,000 purchase of highly efficient, sustainably manufactured components might have far lower emissions than $1,000 spent on cheaper, carbon-intensive alternatives. But spend-based calculations would assign them the same emissions value. This discrepancy becomes even more pronounced when dealing with complex supply chains where product quality and manufacturing processes vary significantly.

The currency conversion challenge

Another major pitfall comes from currency conversions. When using databases like EXIOBASE (which uses EUR) for calculations in other currencies, you need to apply both currency conversion and inflation factors. Miss either of these, and you're potentially under-reporting emissions by 20-30% or more.

Even when these conversions are applied correctly, exchange rate fluctuations can create artificial variations in reported emissions that don't reflect actual changes in carbon impact.

Industry-specific blind spots

Different industries face unique challenges with spend-based accounting. In retail, for instance, high-margin luxury goods often show inflated emissions compared to lower-margin basic goods, despite potentially having similar actual carbon footprints. The opposite happens in manufacturing, where low-cost, high-emission raw materials can appear deceptively low in carbon impact.

Consider a fashion retailer: a $200 designer t-shirt might show higher emissions than a $20 fast-fashion piece, even though the latter could have a significantly larger carbon footprint due to mass production methods and lower-quality materials.

The data quality problem

Spend data often comes with its own set of issues. Generic account codes, inconsistent categorization, and bundled purchases can make it nearly impossible to accurately map spend to appropriate emission factors. And when forced to use broader categories, you lose the granularity needed for accurate reporting.

The problem compounds when dealing with international suppliers who may report costs differently or bundle services in ways that don't align with emission factor categories. This often forces consultants to make best-guess mappings that can significantly impact the accuracy of the final inventory.

Moving beyond spend-based methods

The solution isn't to abandon spend-based methods entirely — they're still valuable for initial baselines. Instead, focus on:

1. Identifying your most material spend categories and prioritizing them for supplier-specific data collection
2. Using activity-based factors where possible, especially for high-emission categories
3. Implementing robust data collection processes with suppliers to gather primary data
4. Maintaining consistent methodology year-over-year to track actual progress
5. Developing category-specific approaches for high-impact areas of your supply chain

The impact on reduction targets

Perhaps the biggest risk of relying solely on spend-based methods is their impact on reduction targets. If you're under-reporting baseline emissions, you're setting targets that appear more ambitious than they really are. This can lead to nasty surprises when transitioning to more accurate calculation methods later.

Moreover, spend-based calculations can mask real progress in emissions reduction. A supplier might make significant improvements in their manufacturing process, but if their prices remain the same, these improvements won't be reflected in spend-based calculations.

The path forward

While spend-based methods remain a useful starting point, organizations need to plan for a transition to more accurate calculation methods. This means investing in supplier engagement, improving data collection processes, and potentially implementing technology solutions that can handle more complex calculation methodologies.

Summary

• Spend-based calculations, while convenient, often underestimate actual emissions due to their inherent assumptions about emissions intensity per dollar spent across different products and services.
• Currency conversion and inflation factors are critical when using international databases — missing these adjustments can lead to significant under-reporting of emissions, with exchange rate fluctuations creating artificial variations.
• Industry-specific challenges vary widely, from retail where high-margin goods can show inflated emissions, to manufacturing where low-cost, high-emission materials may be under-reported.
• Data quality issues in spend data, including generic categorization and bundled purchases, make accurate factor mapping difficult and can result in less precise calculations.
• Moving beyond spend-based methods requires a strategic approach including supplier engagement, improved data collection, and potentially new technology solutions to handle more complex methodologies.

Want to help clients move away from spend-based data towards collecting supplier-specific data?

Avarni helps sustainability consultancies bridge the gap between spend-based calculations and more accurate, supplier-specific emission data by offering a suite of powerful tools and methodologies tailored to these challenges. Here's how Avarni can help you:

1. Simplify supplier engagement and scale supplier-specific data collection
2. Automate emission calculations with enterprise-grade tools
3. Maintain methodology consistency and audit readiness
4. Enhance reporting and insight generation

By using Avarni, you can help your clients avoid the pitfalls of spend-based methods, improve data accuracy, and gain actionable insights for meaningful progress in reducing Scope 3 emissions. Ready to make the shift? Get in touch to see first-hand how Avarni can help.