The business case for Scope 3 interventions
In the complex landscape of sustainability and climate action, companies are increasingly challenged by Scope 3 emissions, which account for approximately 80% of their total greenhouse gas emissions.
With Scope 3 emissions consisting of all the indirect emissions that occur in all the upstream or downstream activities of a company, they are the hardest to track and tackle. To use a chocolate manufacturer as an example, all emissions from the cacao beans being grown and harvested to the transport and production of the chocolate would count as a Scope 3 emission. Addressing Scope 3 emissions is critical to meet the goal of the Paris Agreement to limit global warming to below +1.5 degrees.
Setting and reaching Scope 3 targets
Companies set their Scope 3 targets by identifying and quantifying their indirect emissions throughout the value chain, including both upstream and downstream activities. They then align these targets with science-based methodologies, such as the Science Based Targets initiative (SBTi), to ensure consistency with global climate goals. Collaboration with suppliers and stakeholders is essential to achieve emission reductions across the entire supply chain.
Interventions are specific actions or strategies companies implement to reduce emissions within their value chains, especially in Scope 3. These can include initiatives like improving energy efficiency, adopting renewable energy, optimising transportation, and promoting sustainable agricultural practices. By driving these interventions, often through collaboration with suppliers and other stakeholders, companies can lower their carbon footprint and meet their Scope 3 reduction targets.
Financing challenges
Despite widespread commitments and ambitious science-based targets, investment in Scope 3 interventions remains alarmingly low, with corporate and institutional contributions dropping from 30.6% in 2018 to 15.2% in 2022.
But what is the reason for this drop? This decline is largely due to the lack of a clear business case for interventions, combined with unclear accounting guidelines and an evolving regulatory landscape that fosters uncertainty and distrust.
Furthermore, many companies hesitate to disclose their investment in Scope 3 interventions for fear of scrutiny. In light of these challenges, it is imperative to establish a compelling case for Scope 3 investments that clarifies their value to companies, fosters collaboration, encourages effective resource allocations and builds trust within the investment community.
Key Challenges when making the case for Scope 3 interventions
Organisations face many key challenges when making the case for Scope 3 interventions. These include:
– Difficulties in aligning decarbonisation efforts with financial and operational priorities, as well as a lack of clarity on their business value
– Limited knowledge, expertise and financial resources combined with the complexities of measuring returns, both financial and environmental
– External uncertainties – such as evolving regulations, immature infrastructure, and market unpredictability – create further instability
– Organisational struggle with financing mechanisms, technical challenges in emission tracking, and educating both internal teams and external stakeholders, make it harder to secure buy-in for Scope 3 interventions.
With these in mind, let’s take a look at how to build a Scope 3 intervention business case.
Building the case for Scope 3 interventions
While our main focus will be on the business case and therefore the financial benefits of taking action on Scope 3, there are also several more intangible benefits which we will look at first.
To have a better idea of the key benefits organisations expect when implementing value chain interventions, VCI members were consulted to gather their insights.
From these insights we have divided the results into both business case and value case – with the business case being all benefits which have clear financial returns, and value case, where the rewards are more intangible, yet still significant.
Value case for Scope 3 interventions
Firstly, let’s take a look at the value case – that is, the benefits which are not directly related to financial return, but still offer significant benefits to the company.
Reputation benefits
With sustainability already an incredibly important topic for many (and one that is only going to increase in importance in the coming years), customers truly care about a company’s impact on the environment, and would often be willing to pay more for a product that is kind to the climate, over cheaper options that may be harmful. These so-called “green premiums” can also help smaller to medium-sized companies establish a larger position in the market, through leaning on the more climate friendly nature of their product or service compared to larger competition.
Supplier relationships
An additional benefit is improved relationships with suppliers and increased social capital as a result of making these investments and improvements to your value chain. This creates greater market resiliency for the company and can be highly significant as production methods evolve – with the strong relationship opening the door to better prices and access to these modernised and climate-friendly methods.
Business case for Scope 3 interventions
Moving on to the business case, with a primary focus on financial returns as a result of investing in Scope 3 emissions. Of course, one of the most significant financial benefits is avoiding potentially costly fines for failing to meet set targets.
Avoiding financial penalty is of course a great start, but there are also plenty of ways to not only prevent losing money, but to also actually increase profits.
Regulatory compliance
There are already numerous regulations that must be followed, with significant financial penalties if targets are missed or regulations broken. As governments around the world react to the ongoing climate crisis, the number of regulations will only increase – as will the severity of the penalties. Avoiding these penalties will be essential to prevent significant financial losses, as well as the reputational damage that would come through falling foul of these regulations.
Value chain protection
In certain areas, the damage done by climate change has already started to impact the means of production, particularly in terms of agriculture. If this damage is allowed to continue, prices will increase significantly, causing significant trouble for companies and potentially even making production impossible for all but those with the highest budgets. By investing early, benefits are numerous. Firstly, and most importantly, further damage to the environment will be averted. This will also ensure the long-term viability and function of the value chain, preventing issues with production.
Changes to our planet mean that companies will be forced to adapt and invent new ways of doing things. By investing early, numerous financial advantages are possible, as well as preferred access to suppliers and more. This leads to greater long-term security for the company.
Conclusion
Articulating the business case for Scope 3 interventions remains challenging due to the complexity and evolving nature of Scope 3 emissions, alongside ongoing developments in standards and regulations. Companies face difficulties in aligning interventions with business goals and capturing their full value, especially with unclear accounting and reporting frameworks. This lack of clarity hampers investment and undermines trust in the claims companies make about progress. To unlock investments and drive meaningful action, there is a critical need to shift the mindset from viewing Scope 3 efforts as a mere compliance cost to recognising them as strategic investments that future-proof businesses, foster innovation, and enhance consumer value. Clarity, simplicity, and flexibility are essential in developing a practical yet robust approach, ensuring that Scope 3 interventions contribute to both business resilience and long-term sustainability.
Join the conversation
If you aren’t already a member of the Value Change Initiative, we encourage you to consider joining the numerous industry-leading companies who have already done so. By becoming a member, you’ll be part of the conversation on setting new guidelines and frameworks, helping to get ahead of the game when it comes to compliance and financial success.
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