The most withering analysis we have heard on Scope 3 reporting is that it is little better than a guess. The logic of this assessment is that most of Scope 3, which accounts for over 70% of corporate emissions, is based upon poor, opaque or very generalised averages. Much of the reporting offered today confirms this critique.
In the last two years as Net Zero has faced political headwinds, coupled with commercial pressures, it has reduced some of the drive to deliver optimal emissions reporting. Reporting numbers deliver compliance reporting, but do the numbers really account for real world impacts? Moreover, do they help companies to reduce indirect emissions?
The short answer is, no, if the majority of models and conversion factors are used. Proximity of emissions factors to real world impact can be significantly reduced but not removed altogether. Optimised data delivers real insights and options for action.
From the outset of broader emissions reporting compliance in 2020, there has been an undue focus on the numbers and not the related actions. In Scope 1 & 2, emissions have been and are a solid proxy for financial cost. These emissions comprise significant costs in many businesses and reduced emissions have a financial benefit. In Scope 3 the largely estimated and spend based impact of activity, especially in purchased goods and services, provides few efficiency levers except reducing spend. This is not a commercially realistic approach for growing companies.
Spend data has increasingly been getting a negative press as an input indicator. This is primarily driven by spend based conversion factors and models that provide low quality outputs, usually by sector. Spend itself holds a strong link to the revenue of a supplier, their emissions and the purchasers share of their emissions. For spend to work as an input for real emissions impact analysis, it needs to be based on robust data and modelling. The same applies to the calculations used for investment reporting that use multiple inputs, including investment value, equity share, scope1 & 2 emissions and debt.
Unfortunately, spend based emissions impacts by sector are opaque. They do not explain what data underlies the model, how sectors have been weighted, geographical variants and data quality scoring. There is little value in a sector average that is a global average, blending all reported results from companies and without any accounting for data quality. Our research for Ada has shown a range of inconistencies that we have been able to understand, in producing any sector result where a direct company match is not available. This is designed to ensure companies can have as close to a real world impact analysis as possible.
When overlaid with sub sector analysis, companies can compare relative performance of prospective vendors, how existing vendors benchmark against a sector and the likely impact value of a vendor switch on emissions trajectories and related targets.
The primary challenge with Scope 3, as we have seen in building multiple products over many years, is that getting a real world impact that is accurate to the last gram of CO2e is not achievable. The best that can be achieved is getting as close to such an impact as possible, using the best available data and continuing to work to improve that data. This is what the team at Ada do and can be supported by purchasing managers and investment managers respectively, in encouraging and acting to ensure better disclosure from key vendors or investments.
