Scope 1, Scope 2, Scope 3
Companies will increasingly be asked to report on the greenhouse gas emissions they produce to meet regulatory mandates and voluntary standards. Niche sustainability terms like the Greenhouse Gas Protocol, scope emissions, and carbon accounting will become key drivers for how a company will operate from 2023 and beyond, but it’s important to understand what they mean and how companies can start preparing for them today before facing regulatory and administrative disturbances in the near future.
1. A Brief History
To better understand the current ecosystem of corporate climate goals, it’s helpful to look back on a brief history of the private sector’s interaction with climate. Beginning in 2001, a consortium led by the World Resources Institute (WRI), an international NGO and the World Business Council for Sustainable Development (WBCSD), a convening organization consisting of over 200 companies developed a set of climate accounting standards and tools to help companies around the world better understand the greenhouse gasses their operations were releasing into our atmosphere and warming our planet. These standards, known as the Greenhouse Gas Protocol introduced the scope categorization method that quickly became the blueprint for climate regulations around the world including in the European Union and United States.
2. Scope Emissions
The scope emissions categorization is a simplified approach that creates three distinct buckets for the greenhouse gasses a company emits into the atmosphere. These categories, known as Scope 1, Scope 2, and Scope 3 emissions allow for better internal tracking of emissions produced by a company for disclosure purposes and helps external tracking by lowering duplicate counting of emissions across companies and industries.
Scope 1, considered the only direct source of a company’s emissions, consists of the greenhouse gas produced by a company’s key business operations and any emissions occurring from sources the company owns or controls. This includes facilities and vehicles owned by the company. Scope 2 emissions are any indirect effects from the generation of electricity, steam, heat, or cooling used by the company. Scope 3 requires quantifying the carbon footprint that occurs throughout a company’s value chain including but not limited to the waste generated from operations, the use of products sold, employee travel, and purchased goods and services.
While its estimated that 70-90% of a company’s total emissions are made up by Scope 3 emissions, many leading companies when reporting net zero goals make a subtle distinction to only include emissions from their operations, purposefully leaving out emissions from their value chains and underestimating their total impact on the environment.
3. Why it Matters
Reporting scope emissions are the basis for climate disclosure frameworks like the Taskforce on Climate-Related Financial Disclosures (TCFD). In early 2022, the U.S Government through the Securities and Exchange Commission (SEC) proposed the most advanced set of American sustainability rules requiring public companies to make climate-related disclosures in their public reports and detail what climate-risks they face and how they plan on managing those risks. The proposed SEC rules were developed referencing the TCFD, the leading environmental-focused framework that had used the Greenhouse Gas Protocol as its basis to develop its climate disclosure recommendations.
3. The Solution
At Philanthrofi, we’ve helped companies understand and start preparing for carbon reporting early. These organizations end up facing the fewest obstacles come reporting time and will be leaders in the new climate economy. If you are a company looking for a competitive advantage as sustainability disclosures become regulatory mandates, tap here to continue the conversation.
