Why understanding Scope 3 emissions is a must for enterprises in 2023

In the lead-up to the federal Budget in May this year, there have been many conversations about overturning the Safeguard Mechanism, one of the government’s key policies to drive down carbon emissions to meet net zero 2050 targets. While much is up for debate from a policy perspective, if the mechanism is overturned it leaves enterprises with unlimited access to carbon credits, allowing payment for emission cuts instead of making progress towards carbon neutrality.

In 2012, when the original carbon tax was introduced in Australia, the goal was to implement a carbon price and related legislation for the country’s biggest carbon emitters. Since the carbon tax abolition, Australia has endured a decade’s worth of climate policy deliberation and within that time, nations like America and Europe have progressed with carbon policies, tax incentives and Scope 3 emission reporting requirements. Now, Australia is in a position where the laws across different jurisdictions, such as the US Securities and Exchange Commission’s mandate requiring companies to disclose their Scope 3 emissions, will have a flow-on effect on Australian companies.

Outside of policy, what needs to be of primary importance for Australian enterprises in 2023 is gaining a better understanding of their Scope 3 emissions¹, which are notoriously difficult, expensive and time-intensive to measure accurately. The Carbon Disclosure Project (CDP)² estimates Scope 3 emissions to be 11.4 times higher than the company’s direct footprint. Whether a company is in an electrical field, manufacturing field or heavily data-driven, emissions emanating from a company’s supply chain need to be the main focus to speed up decarbonisation efforts across the country.

Shine a flashlight on Scope 3 emissions

When you stop and consider that 75%³ of Australian companies have net zero 2050 targets, yet more than one-third will miss their targets, the future doesn’t look overly bright. Overall, renewable energy adoption and sustainable supply chains are becoming best practice, but what Australian enterprises are really struggling with is carbon accounting, reporting and management of Scope 3 emissions. At present, Scope 3 emissions make up 53 million tonnes or 71% of the ASX 300’s total, compared to 8 million tonnes combined from Scope 1 and 2 emissions.

Traditionally, enterprises have struggled to receive emissions data from their supply chain as the data is either incomplete or inconsistent, or requires months to manually clean and organise. Take, for example, an energy management company that has set out to aggregate supply-chain and spending data to understand, report and forecast its carbon footprint across Scope 1, 2 and 3 emissions. While hiring a consultant may make sense to manage Scope 1 emissions produced solely by the energy management company, accurately measuring and tracking all ‘indirect’ emissions from another supplier’s facility becomes almost impossible without having the right tech and data set in place.

By adapting technology that already exists, this can reduce the historical month-long process into weeks or even days. AI-backed platforms allow businesses to access their Scope 3 emissions quickly, effectively and without the burden of significant cost. Enabling change starts with creating a single source of truth around Scope 3 emissions in order to make strategic decisions to reduce emissions, which may include avoiding outsourcing and absorbing extra costs.

Decarbonisation makes good business sense

Addressing Scope 3 emissions has largely fallen by the wayside for companies over the last decade, with the focus being squarely placed on addressing carbon footprints, through offsets and endeavours for more sustainable operations. In 2022, 53%⁴ of Australian businesses still believed there to be difficulty in accessing the technology they needed to support their sustainability initiatives.

Now, what is being widely recognised is that a failure to act on sustainability strategies will hurt business as well. Following a business-as-usual approach, those lagging in understanding their Scope 3 emissions will become less competitive and resilient as suppliers engage in their own environmental action to lower costs and better their reputations to survive.

With climate risk being one of the biggest concerns for executives, boards and shareholders today, this issue isn’t going away anytime soon. For enterprise companies, shining a spotlight on Scope 3 emissions not only enables quick decarbonisation and the meeting of net zero goals, but also forecasts potential challenges within the supply chain. Given the typical supply chain size of an Australian enterprise, being the first within an industry to take the step towards understanding and making decisions around Scope 3 emissions has an extremely beneficial trickle-down impact on the business.

Act now, and thank yourself later

While many local companies will continue to claim a lack of technology and associated costs as the root cause of their failure to implement emissions measurement, this is increasingly untrue. A plethora of companies are leading the charge in their own measurement, and the increasing competition among carbon management companies speaks volumes about the technology available. There is undeniable evidence to support the availability of Scope 3 emission identification technology, which is well and truly in use.

The future of net zero emissions begins with making a change through greater ownership of emissions across all facets of enterprises and up and down the supply chain. Urgent access is required from Australian organisations to support the country in achieving its 2050 sustainability targets, and the availability of research and technologies provides a clear path to success, with Scope 3 management as the key focus.

_{1. https://www.cleanenergyregulator.gov.au/NGER/About-the-National-Greenhouse-and-Energy-Reporting-scheme/Greenhouse-gases-and-energy}

_{2. https://www.cdp.net/en/research/global-reports/transparency-to-transformation}

_{3, 4. https://news.microsoft.com/en-au/features/more-than-one-third-of-australian-organisations-will-miss-their-net-zero-targets/}

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