At City Science, our carbon accounting team is dedicated to developing the best-in-house tools and methods for accurately measuring for corporate GHG emissions, tracking them over time, and ultimately reducing them. Indirect “Scope 3” emissions, or emissions that span a company’s entire value chain that are outside of its direct operations, are crucial for a comprehensive sustainability strategy, as these emissions are usually by far the most material part of a company’s footprint.
Below, we dive into a range of advanced modelling techniques that our carbon accounting experts apply daily to simplify and automate the complexity of Scope 3.
Data Collection and Consolidation
- Seamless and automated data collection: Data collection is arguably the most arduous and time-consuming part of the carbon accounting process, but it can be accelerated through automation. We use a number of digital tools and software integrations, both in house and on the client side, to accelerate data collection, irrespective of your level of progress.
- Data Consolidation and Modelling: In the absence of specific data, modelling approaches can be employed. For each of the 15 Scope 3 emission categories, our software has models that estimate emissions based on Full-Time Equivalent (FTE) employees, building floorspace, revenue generated, and business Standard Industrial Classification (SIC) codes, ensuring comprehensive emissions accounting. This approach can be useful for companies looking to start their journey into Scope 3 accounting, but who currently lack the infrastructure and tools to track and collect data to a sufficient standard for primary calculations.
Customised Emission Factors and a Spend-Based Approach
- Custom and Granular Emission Factors (EFs): Developing tailored EFs that reflect specific processes, materials, and regional differences allows for more precise emissions calculations. We have a team of PhD-level engineers that can draw from their extensive experience in areas like chemical engineering, transport planning, and energy system management to help improve the accuracy of “average data” emissions calculations. Improved accounting accuracy is crucial in facilitating better-informed sustainability strategies.
- Environmentally Extended Input-Output Modelling (EEIO) and the spend-based approach: EEIO estimates emissions by examining economic transactions between sectors alongside the environmental impact of each sector to create an estimate of average emissions impact per unit of monetary spend, or a “spend-based” EF. By leveraging data at the country and industry level, this method provides a high-level overview of supply chain emissions, particularly useful for companies with complex and diverse supply chains. Specifically, our team employs the leading EEIO model EXIOBASE alongside the four-digit level of the NACE Rev. 2.1 industry classification, creating an in-house dataset of over 50,000 highly granular EFs.
Currency Adjustments and Inflation
- Currency Conversions for International Expenses: Modern supply chains are highly international and globalised. When estimating emissions using a spend-based approach, it is important to assign localised emission factors to these expenses and processes to account for the differing carbon intensity of countries’ energy mixes, transport systems, and industrial processes. Invoices may also cover a number of different country-based entities, so having a process to flag and understand this is important. Our database provides localised emission factors for every country, meaning we can comprehensively estimate supply chain emissions, regardless of the origin.
- Inflation: Accounting for inflation is crucial in spend-based carbon accounting to ensure accurate representation of emissions over time. Price changes distort spending figures, affecting calculated emissions if not adjusted. By applying inflation factors, organisations can obtain a more reliable estimate of their carbon footprint and track emission reduction efforts effectively.
Technological Integration
- Multilevel Assessment: Within our expense related models, we undertake a multilevel assessment, which assesses expenses at the transactional level across different tiers of granularity. This is important because a company’s most material transactions should be classified at the highest level of specificity. The benefit of this modelling approach is that it delivers maximum coverage across expenses, but at a much higher level of resolution, with relatively little effort.
- AI-Driven Techniques: Artificial Intelligence (AI) can also be leveraged to assign EFs, particularly when assigning emission factors at the transaction level within expense ledgers. Integrating AI reduces manual processes and increases the precision of emissions calculations where direct data processes still need to be developed.
Integrated Analytical Approaches
- Integrating Lifecycle Assessment (LCA) into Purchased Goods and Services: A company can collaborate with a manufacturing supplier to conduct a joint LCA on the supplier’s products. By calculating the emissions associated with raw material extraction, processing, transportation, and manufacturing required for a specific product the company is purchasing, rather than relying on country-industry averages per unit of spend for these processes, a company can significantly improve the accuracy of their scope 3 calculations through the creation of a product-specific emission factor.
- Hybrid Approach: The hybrid approach combines a process-based approach with EEIO spend-based analysis, offering detailed insights into specific processes and covering broader economic activities. Integration of dual approaches can improve the overall emissions calculation accuracy while ensuring that data gaps are filled.
Supplier and Value Chain Engagement
- Supplier Carbon Maturity Assessments and Data Integration: Assessing the carbon maturity of suppliers and integrating their data into emissions accounting is crucial. This involves evaluating suppliers’ sustainability practices and obtaining primary data on their emissions, enhancing data accuracy and promoting sustainability throughout the supply chain. This data can be modelled to assess emission intensity and feed into your value chain emissions, giving a better picture of supplier climate risk.
- Communication and Collaboration with Suppliers: Ultimately, the only way Scope 3 emissions are likely to be reduced is through working closely with suppliers to inform and encourage them to take action. When working with clients, we advise establishing these conversations through the Scope 3 data collection stage. As a first step, our carbon maturity model can help suppliers understand their own progress and help you track where to focus decarbonisation and engagement efforts.
In conclusion, as companies face mountilng pressure to address their environmental impact, these advanced Scope 3 accounting techniques offer a pathway to more effective climate action. By adopting these methods, you’re not just improving the accuracy of your sustainability reporting – you’re gaining the insights needed to drive meaningful change and contribute to a more sustainable future.
Isn’t it time your organisation took its Scope 3 reporting and reduction to the next level?
If you want to discuss any of these techniques, or book a free consultation with our team, please get in touch at info@cityscience.com.