‘Best-guess measurements’: Should corporates be worried about Scope 3 greenwashing?

Scope 3 emissions have long been a thorn in the side of sustainability professionals. Check any of edie’s previous audience surveys and business barometers and the management of supply chains and collection of Scope 3 data is always high up on the list of challenges and priorities facing those tasked with driving company-wide change.

As more companies commit to the long-term challenge of decarbonising in line with climate science, many will be eager to promote their ambitions to stakeholders that are increasingly focused on sustainability.

This is where the ambition-to-action gap emerges – where brands have plans but no way of articulating the steps to reach them. Even the most well-intentioned companies can fall through this gap and run the risk of greenwashing.

Estimated starting points

New research from Ivalua, based on a survey of 850 procurement leaders across Europe, including 250 UK professionals, found that 53% of organisations are concerned that they could be greenwashing through their sustainability claims.

One of the main areas of concern is that of Scope 3 emissions. The research found that while 44% of professionals are “very confident” they can accurately report on Scope 3 emissions, two-thirds claim that their approach to reporting is a “best-guess” measurement. By failing to integrate better approaches to data collection, these firms could run the risk of misleading stakeholders by claiming they are taking more action on value chain emissions than they actually are.

Respondents cited ineffective collaboration with key suppliers (26%) as one of the main challenges that they are struggling to overcome. Compounded by cost and risk being prioritised over sustainability (27%), resistance and inability from suppliers to reduce emissions (25%) and incomplete or unreliable data (22%) it is clear why many firms are turning to estimates to act as a launchpad for well-intended, but potentially misleading action, on supply chain emissions.

Ivalua’s director of sustainable procurement Jarrod McAdoo sympathises with firms that are having to use estimates, and states that they can contribute to “building realistic, actionable net zero plans”, but that more progress will ultimately need to be made in this area.

“Organisations are aware they must urgently address sustainability, and understand the cost consequences of not doing so. But this lack of confidence paints a negative picture,” McAdoo says. “A lack of perceived progress could fuel accusations and fears of greenwashing, so it’s important to remember that obtaining Scope 3 data is part of the natural maturation process.

“Many sustainability programs are in their infancy, and organisations need to start somewhere. Over time, organisations will need to make significant progress on obtaining primary Scope 3 data and putting plans in place, or risk financial penalties as well as ruining reputations in the long run.”

Indeed, the survey notes that the majority (56%) of professionals across Europe realise that net-zero goals will not be met if suppliers are not involved, but the fact remains that many still aren’t making adequate progress.

One major concern that businesses face is being accused of greenwashing as they try to procure better data, buy-in and action from suppliers on the road to net-zero.

Spotlight on Scope 3

CDP estimates that the average large business will generate 11.4 times more emissions indirectly than directly. The Science-Based Targets Initiative (SBTi) requires businesses to pledge to reduce absolute Scope 3 emissions by at least 90% by 2050 under its Net-Zero Standard.

The number of companies calling on their supplier to disclose environmental data to CDP increased by 24% between 2019 and 2020.

However, Scope 3 emissions continue to be a problematic and often ignored part of corporate decarbonisation plans.

Some high-profile companies, including P&G and Colgate-Palmolive have been criticised over a failure to adequately account for Scope 3 emissions as part of climate transition plans.

In August last year, NGO Planet Tracker accused consumer goods firms of greenwashing – alleging poor reporting of Scope 3 emissions, including the exclusion of some important kinds of Scope 3 emissions from disclosures.

Additionally, a survey of  300 European firms, conducted by Centrica Business Solutions, in October, found that most businesses are still not factoring Scope 3 (indirect) emissions reporting into their net-zero plans – largely due to a perceived lack of regulatory pressure.

The survey found that  55% of businesses were either “not at all concerned” or “not very concerned” about preparing for mandatory reporting of Scope 3 emissions and, as such, were not factoring this into their net-zero strategies.

That is despite a host of new reporting frameworks, many of which will become mandatory, emerging across the EU and the UK, including the EU’s Corporate Sustainability Reporting Directive (CSRD) and the UK’s Transition Plan Disclosure Framework. Under these frameworks, many firms will need to consider the environmental impacts of their value chains and report on Scope 3 emissions as a result.

Indeed, supply chain management firm 7bridges polled 801 UK-based businesses to assess their readiness for enhanced Scope 3 disclosures under the CSRD. While 96% had heard of the CSRD and 71% had measured their carbon footprint across all scopes, one-quarter said they were concerned that they would not be able to meet the deadline. Concern was most pronounced among the smaller companies impacted.

7Bridges’ conclusion was that just 40% of the businesses would be ready to comply. A key challenge, the survey revealed, was choosing where responsibility for collecting and reporting emissions data should sit.

The Science Based Targets initiative (SBTi) has published updated guidance to outline how larger companies can engage with the supply chains and get suppliers to set their own science-based targets. The new guidance outlines the relationships and structures that need to be built internally and externally in order to catalyse action

The SBTi does require Scope 3 targets to be in place if emissions from that area account for more than 40% of the total.

Collaborative solutions

In a bid to crack the long-lasting case of Scope 3 data quality and collection, businesses are slowly realising it is in their best interest to work collaboratively on this – not just up and down the value chain, but with sectoral peers and rivals.

Many smaller firms down the supply chain will be struggling with the resources (human, expertise, time and finance) to actually uncover and offer the granular data that larger organisations are demanding. This can be compounded by different end-users going to the small suppliers and asking for differing data sets or for it to be disclosed in different ways, essentially duplicating the work.

Many sector-wide engagement initiatives have been rolled out in recent years to not just harmonise data requests but to share resources that inform suppliers in a way that drives understanding and action on climate and decarbonisation.

In December, for example, Bankers for Net-Zero and Rewired Earth jointly launched a new initiative intended to help businesses and governments to measure and verify supply chain sustainability, backed by more than 40 organisations.

‘The Constellation’, as it has been called, will see participants work collaboratively to “build up an impact methodology and metrics that reveal an organisation’s true impact on people and the planet”. The key focus is on supply chains which often account for the bulk of a business’s impact on climate, nature and people.

Elsewhere, more than 30 British universities will trial a new tool developed to accelerate the higher education sector’s work with suppliers on the net-zero transition.

More specifically, seven of the world’s largest pharmaceutical companies partnered with the World Health Organization (WHO) to introduce a new set of requirements for suppliers to abide by, including the uptake of science-based targets for carbon emissions.

As these coalitions form, larger businesses have the opportunity to lend their expertise in a way that not only contributes to their decarbonisation goals, but also drives action across the value chains of multiple sectors – delivering exponential change.

The Exponential Roadmap Initiative was launched in September 2020, as part of the Race to Zero campaign, with Ikea, Unilever, BT, Ericsson and Telia named among the founding corporate members of the 1.5C supply chain leaders. This scheme, and its other workstreams, are supported by the We Mean Business coalition.

At COP27 in 2022, businesses including Unilever, BT and Ikea singed up to a 1.5C declaration from the roadmap calling on other corporates to join them in a collective initiative to halve value chains emissions by 2030.

Signing up to this pledge is a showcase of commitment, but failing to act on it runs the risk of greenwashing. Even if a company can showcase steep levels of decarbonisation across its operations, and mention the coalitions it has publicly backed, investors and consumers alike are no longer taking claims at face value; they want action, and proof of it.

Scope 3 is a messy, tangle of data to get to grips with, but as legislation forces companies to get to grips with it, many will want to revisit strategies, targets and communications to ensure that everything is aligned – and not misleading – on the road to a net-zero value chain.