In the realm of corporate sustainability and climate action, the concept of emissions scopes plays a crucial role in assessing and mitigating greenhouse gas (GHG) emissions. These scopes, defined by the Greenhouse Gas Protocol, help organizations categorize and understand the sources of their emissions, enabling them to develop effective strategies to reduce their carbon footprint.
Let's delve into what Scope 1, Scope 2, and Scope 3 emissions entail, their significance, and how they contribute to overall climate impact.
What are Scope 1, Scope 2, and Scope 3 Emissions?
Source: Greenhouse Gas Protocol (GHG) Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Page 5
Scope 1 Emissions: Direct GHG Emissions
Scope 1 emissions refer to direct greenhouse gas emissions that occur from sources that are owned or controlled by the organization. This includes emissions from combustion in owned or controlled boilers, furnaces, vehicles, and fugitive emissions (e.g., leaks from refrigeration equipment).
Scope 2 Emissions: Indirect GHG Emissions from Purchased Electricity, Steam, Heating, and Cooling
Scope 2 emissions encompass indirect greenhouse gas emissions from the generation of purchased electricity consumed by the organization. These emissions result from the production of electricity, steam, heating, and cooling that an organization purchases from an external supplier.
Scope 3 Emissions: Indirect GHG Emissions from Value Chain Activities
Scope 3 emissions cover all other indirect emissions that occur in the organization’s value chain, including both upstream and downstream activities. This includes emissions from purchased goods and services, business travel, employee commuting, upstream transportation and distribution, waste disposal, and use of products sold.
Significance of Scope 1, Scope 2, and Scope 3 Emissions
Understanding and categorizing emissions into these scopes is essential for several reasons:
- Measurement and Reporting: Helps organizations quantify their total greenhouse gas emissions and identify hotspots for mitigation.
- Accountability: Enables transparency and accountability in emissions reporting, both internally and to stakeholders.
- Target Setting: Facilitates setting ambitious emissions reduction targets that cover all significant emission sources.
- Risk Management: Identifies potential regulatory, operational, and reputational risks associated with emissions.
After extensive public debate spanning two years, the US Securities and Exchange Commission (SEC) approved the country's first national climate disclosure rules on March 6, 2024. These rules mandate that publicly listed companies report their climate-related risks and, in certain cases, their greenhouse gas emissions.
These requirements will apply to large accelerated filers with calendar-year ends, starting from annual reports due by December 31, 2025.
Contrary to earlier proposals, the final rule exempts companies from reporting Scope 3 greenhouse gas emissions.
The revised rules are notably weaker than the original proposals. Notably, the SEC abandoned a contentious plan to mandate reporting of Scope 3 emissions—emissions from a company's entire supply chain and its products' use by customers.
Instead, the rules mandate disclosure of Scope 1 and 2 emissions—emissions from a company's operations and energy use—but only if the company deems this information financially significant to investors.
In broader terms, the new rules require publicly listed companies to disclose climate-related risks that could materially affect their operations. They must also detail how they manage these risks and any associated corporate goals.
Understanding and effectively managing Scope 1, Scope 2, and Scope 3 emissions is pivotal for organizations committed to mitigating climate change and fostering sustainable practices.
By adapting these definitions and guidelines, businesses can play a significant role in achieving global climate targets and ensuring a sustainable future for generations to come. Guidelines that deal with such integrity often have a team that looks into every company's sustainability factors.