With the Corporate Sustainability Reporting Directive (CSRD) taking effect, organizations across Europe are gearing up to meet new, stringent sustainability reporting standards. One of the most complex aspects of these requirements is the need to report on Scope 3 emissions. This article aims to demystify Scope 3 emissions and provide guidance on how companies can meet CSRD requirements effectively.

What are Scope 3 emissions?

Scope 3 emissions are indirect greenhouse gas (GHG) emissions that occur in a company’s value chain. Unlike Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from the generation of purchased electricity, steam, heating, and cooling consumed by the reporting company), Scope 3 emissions encompass a wide range of activities both upstream and downstream of the company’s operations. These include:

• Purchased goods and services
• Capital goods
• Fuel- and energy-related activities not included in Scope 1 or Scope 2
• Upstream transportation and distribution
• Waste generated in operations
• Business travel
• Employee commuting
• Upstream leased assets
• Downstream transportation and distribution
• Processing of sold products
• Use of sold products
• End-of-life treatment of sold products
• Downstream leased assets
• Franchises
• Investments

Why is reporting Scope 3 emissions important?

Scope 3 emissions often represent the largest share of a company’s total GHG emissions, sometimes up to 70% or more. By requiring companies to report these emissions, the CSRD aims to ensure a comprehensive understanding of a company’s environmental impact, leading to more informed decision-making and enhanced transparency for stakeholders.

CSRD requirements for Scope 3 reporting

Under the CSRD, companies are required to provide detailed information on their Scope 3 emissions. This includes:

1. Comprehensive data collection: Companies must collect data from a wide range of sources within their supply chain. This requires collaboration with suppliers, customers, and other stakeholders to obtain accurate and complete data.
2. Quantitative and qualitative Information: Companies must report both quantitative data (e.g., total emissions) and qualitative information (e.g., methodologies used for data collection and calculation).
3. Materiality assessment: Companies need to assess which Scope 3 categories are material to their operations and focus their reporting on these areas.
4. Consistency and comparability: The CSRD emphasizes the need for consistency in reporting methods and the comparability of data across reporting periods and between companies.

Steps to achieve compliance

1. Conduct a materiality assessment: Identify which Scope 3 categories are most relevant to your business. This involves analyzing your supply chain to determine where the most significant emissions occur.
2. Engage with stakeholders: Collaborate with suppliers, customers, and other stakeholders to gather the necessary data. This may involve creating surveys, conducting interviews, or leveraging existing sustainability data platforms that include supplier mobilization features.
3. Select appropriate calculation methodologies: Use recognized standards and methodologies for calculating Scope 3 emissions, such as the Greenhouse Gas Protocol’s Corporate Value Chain (Scope 3) Accounting and Reporting Standard.
4. Implement data management systems: Invest in data management systems such as Avarni that can help streamline the collection, analysis, and reporting of Scope 3 emissions data. These systems should be capable of integrating data from various sources and ensuring data accuracy and reliability.
5. Continuously improve data quality: As you collect and report data, continually seek ways to improve the quality and completeness of your emissions data. This may involve refining your data collection processes, engaging with new data sources, or adopting new technologies.

The role of technology in Scope 3 reporting

Technology plays a crucial role in simplifying and enhancing the reporting process for Scope 3 emissions. Platforms like Avarni can assist companies in:

• Data collection: Automating the collection of emissions data from various sources within the value chain, reducing the manual effort and potential errors associated with data gathering.
• Data integration: Integrating data from different sources to provide a comprehensive view of emissions, ensuring that all relevant data points are captured and analyzed.
• Emission factors selection: Offering the ability to select from a wide range of emission factors, including the option to upload custom emission factors. This flexibility ensures that companies can use the most accurate and relevant data for their specific operations and supply chain activities.
• Transparency and audit-trails: Providing full transparency on all emission factors used in calculations, along with comprehensive audit trails. This ensures that all data and methodologies are fully traceable and can be audited, meeting the rigorous requirements of CSRD and building trust with stakeholders.
• Data analysis: Using advanced carbon reporting to identify trends, hotspots, and opportunities for emissions reduction, helping companies to focus their sustainability efforts where they will have the most significant impact. Additionally, the ability to forecast future carbon emissions enables companies to plan proactively, setting realistic and achievable sustainability targets based on projected data.

Conclusion

Meeting the CSRD’s Scope 3 reporting requirements is a challenging but essential task for companies committed to sustainability. By understanding the requirements, conducting thorough materiality assessments, engaging with stakeholders, and leveraging technology, companies can effectively report their Scope 3 emissions and contribute to a more sustainable future. Avarni is here to support you every step of the way, providing the tools and expertise needed to navigate this complex landscape.

For more information on how Avarni can help your organization meet CSRD requirements, contact us today.