Scope 1, 2, and 3 emissions are greenhouse gases that are released across an organization’s entire value chain. Scope 3 emissions are the most complex, as they are released before and after a product is delivered or consumed, McKinsey explains in a recent article.
Greenhouse gas emissions are classified into three categories, or scopes. Organizations divide their emissions into these scopes to help them create effective reduction plans. McKinsey says that Scope 3 emissions, which are often hard to categorize, can potentially contribute far more to an organization’s overall carbon footprint than the other two scopes. An organization’s Scope 3 emissions, also known as its life cycle emissions, are those that arise across the value chain, both upstream and downstream.
Scope 3 emissions can potentially contribute far more to an organization’s overall carbon footprint than the two other scopes
Scope 1 emissions are released when a company manufactures a product or delivers a service (During production)
Scope 2 emissions are released by off-site energy providers when a company makes a purchase. (Upstream)
Scope 3 emissions: Upstream, they are released from the activities that a company engages in prior to production, from employee commuting to leased assets to transportation and distribution. Downstream, Scope 3 emissions are released from use or disposal of a product or service.
McKinsey highlights that regardless of the industry, the reduction of Scope 3 emissions will likely require not only new processes and technologies but also new kinds of collaboration with customers, suppliers, and stakeholders.
Ultimately, lower emissions may even require completely new business strategies.
Six levers for reducing emissions while capturing new value
- Supplier and customer selection. One way organizations can decrease their upstream Scope 3 emissions is by selecting suppliers that have minimized their own carbon footprints. Dual-mission sourcing, or buying a product that minimizes both cost and carbon footprint, is becoming the standard across corporate procurement teams.
- Downstream, organizations can encourage customers to reduce emissions while using their products.
- Product specification. Organizations can adjust their product specifications to rely more on lower-emissions materials.
- Partnerships. Partnerships focused on new technologies are particularly well suited to creating low-carbon product lines and processes, which in turn can propel decarbonization actions. End-of-life solutions. Recycling and other circular solutions can reduce end-of-life emissions once a product has been purchased. Recycling can also produce raw materials that are suitable for reuse in new products, thereby reducing upstream emissions as well.
- Green portfolio strategies. Companies with significant downstream emissions can consider redistributing their portfolio, with a greater emphasis on lower-carbon business segments.
- Value chain integration. Value chain integration is when an organization creates new opportunities for value in the course of its normal production operations. Upstream integration can increase a company’s control over gases emitted prior to production. Downstream integration, after a product is sold, can help control emissions during a product’s use.
Addressing Scope 3 emissions is paramount for several reasons, has explained Sjoerd de Jager, CEO & Co-Founder of PortXchange. ”Firstly, they constitute the most significant portion of a port’s carbon footprint. Ignoring them risks an incomplete sustainability strategy and missed opportunities for improvement. Secondly, it affects the ability of ports to reduce their impact on the local environment, including air and water pollution, greenhouse gas emissions, noise, and traffic congestion, as well as allowing them to positively engage with the local community. ”Finally, acting on Scope 3 emissions can yield cost savings through increased efficiency and build resilience to regulatory changes and market shifts.”
From 2025, EU companies will be required to track and report their Scope 3 emissions. Most global shippers and providers are already shifting toward greener shipping practices, which means using as few resources and as little energy as possible to move goods. And more than seven in ten of those recently surveyed said they would be willing to pay more for green shipping products. McKinsey estimates that demand for green logistics could reach an estimated $350 billion in 2030.
The Danish group Maersk plans to use green fuels for its ocean shipping; 26 of its vessels have been commissioned to run on green methanol. Companies are also developing collaborative partnerships to accelerate shipping decarbonization, such as the one between Maersk and French shipping company CMA CGM.
