Innovate UK commissioned City Science to perform a feasibility study on the estimation of Scope 3 emissions for small and medium sized enterprises (SMEs). The study was to test whether it would be feasible to obtain a due diligence estimate of Scope 3 for SMEs, based on the company’s five digit SIC code. The purpose of the study is to create a tool that determines the level of carbon emission risk that a company poses when lenders, investors and supply chain stakeholders will take on when carrying out transactions with the SME.
Overview
Scope 3 can account for 90% of the total carbon impact within business, currently there are regulations that monitor and require reporting of carbon emissions for large organizations (+500 employees) such as the TCFD reporting requirements, but there is very little set out for SMEs. SMEs are a large part of the UK economy with approximately £8.5bn of equity investment per annum. Phase 1 tested the feasibility of an estimation of a SME’s Scope 3 risk using the government provided data and City Science’s National Freight Model.
We used Frobisher’s Scope 3 assessment as a baseline for investigation on this feasibility study as it has been calculated to the highest degree by Mike Berners Lee, thus, it presented valid means of quality assurance.
To obtain the most accurate results we applied a bottom-up approach to the Scope 3 calculation using activity-based calculations rather than spend based. Scope 3 analysis was carried out by considering each of the 15 Scope 3 categories, applying detailed analysis to each of them.
Outcome
Through detailed analysis we were able to prove the feasibility of Scope 3 analysis based on Companies House’s SIC code data. Our calculations for Frobisher’s Scope 3 emissions were within 6.5% accuracy of Frobisher’s in house calculations. The study proved that through the use of government data and City Science’s National Freight model it was indeed possible to estimate Scope 3 emissions of certain companies.
Next Steps
City Science has obtained further funding from Innovate UK to carry out Phase 2 of the Scope 3 for Unlisted Assets project. Phase 2 will allow for City Science to implement this tool for a wider range of industries and develop an easy-to-use API that utilizes Companies House data and other government data to determine the level of Scope 3 risk of SMEs and unlisted assets.
Figure 1: Overview of GHG Protocol scopes and emissions across the value chain (GHG Protocol, 2011)