Why combining LCA and scope 3 removes the need for guesswork
The days of a spend-based or valued-based approach to scope 3 reporting are numbered. An LCA-led approach – more granular and more detailed – is the way forward.
There are many good reasons to take a more granular approach to measuring scope 3. Aside from meeting changing regulatory requirements, the more detail and the more data you have, the easier it will be to assess where the emission hotspots are across your value chain, allowing you to prioritise reduction strategies. Additionally, it’ll help you to identify which suppliers are leaders and which are laggards in terms of their sustainability performance.
So why aren’t more organisations concerned about a higher – and deeper – level of accuracy? At a time when sustainability teams are trying to strike a balance between regulatory reporting and compliance, it makes absolute sense to collaborate with product teams in the business in order to ensure that the products being created are as sustainable and as circular as possible. Doing so will also generate efficiencies within the sustainability process, avoiding wasted resources and allowing for greater speed. But how do you achieve it?
The answer is straightforward: Combine LCAs with scope 3 reporting. Putting together a granular LCA is a time-consuming and intensive process. So is figuring out where the data is for scope 3. Despite this, many businesses still separate the two. Perhaps it’s time for a rethink.
Moving away from a siloed approach
We can all agree that working together is better than working apart. At a time when regulatory demands are more stringent than ever before, customer and stakeholder expectations are heightened and sustainability reporting requirements are multiplying at an unprecedented pace, operating in siloes is not the way forward.
It’s an idea that’s very much applicable when it comes to using the same data foundation for both LCAs and scope 3 reporting. Across the product development process in any area where scope 3 is used – from product engineering to product design to product management – LCAs and PCFs are a key tool when it comes to understanding what’s going on in the product.
However, when it comes to corporate reporting, it’s often the case that different methodologies are used to analyse the same products. If different parts of the organisation are working with different types of data they are very likely to find themselves running in opposite directions when it comes to the insights they stand to gain from their reporting. By any measure, this is not a good outcome.
When considering scope 3 and product reporting at a corporate level, many organisations currently opt for a spend-based approach (i.e. taking the financial value of a purchased good or service and multiplying it by an emission factor – the amount of emissions produced per financial unit – resulting in an estimate of the emissions produced.)
However, such an approach will result in an entirely different picture from a scenario where direct purchased goods are being looked at from an LCA perspective. The likelihood is that the organisation will either end up reporting fewer emissions or too many emissions when reporting for category 1 in scope 3. The process of a spend-based approach is simply too broad and based too much on guesses and speculation, and pales in comparison to the granular analysis that an LCA is capable of.
Indeed, it’s highly likely that the insights gained at a corporate level will differ wildly from those gained by, for example, a product engineering department – due solely to the different approaches commonly in use. When it comes to scope 3, a spend-based approach has a level of abstraction that is so high that it is essentially impossible to get a real and detailed picture of what’s going on with your product, leaving you working with nothing more than a best guess as to what kind of impact it might have.
An unnecessary risk
So what does the future look like? An organisation that works hand-in-hand with a product at all stages – from early on in design to when it’s being built and the materials are being sourced – is one primed for success. But that synergy is only possible if all parties work from the same data foundation in order to drive decisions.
In today’s reporting environment, it’s not an overreaction to suggest that failing to take a joined-up approach will lead to the failure of many corporate reduction initiatives. A disparity and a lack of consistency between departments – from procurement to product development to engineering – is a risk that’s not worth taking.
Besides the operational waste generated by a siloed approach, there are numerous other risks to consider. A lack of granularity in your scope 3 reporting may lead your organisation to spend money on entirely the wrong end of its portfolio and is also likely to drive transformation and innovation in the wrong direction, the financial and reputational consequences of which may be irreparable (from losing market position to damaging stakeholder relationships to falling behind peers and competitors.)
Ultimately, in a scenario where an LCA analysis is done with one tool and scope 3 analysis is done via a spend-based approach, the result is the same: the organisation invariably has to correct their scope 3 reporting further down the line. It might seem easier to do both separately, but separating the two processes is a mistake – one pockmarked by contradictory insights from different departments, and one that risks leaving your organisation far behind peers who have had the foresight to combine both LCA and scope 3 under the same banner.
The benefits of using an LCA approach for scope 3
When we discuss using an LCA to calculate scope 3, it makes the most sense to look at category 1: ‘Purchased goods and services.’ This category includes all upstream (i.e., cradle-to-gate) emissions from the production of products purchased or acquired by the reporting company in the reporting year. Products include both goods (tangible products) and services (intangible products).
The data granularity gained from an LCA approach is significantly better than what could be achieved by using a spend-based methodology, with some companies having seen reductions of up to 90% in their scope 3 category 1 GHG emissions as a result. Furthermore, LCA data can also be used to explore decarbonisation pathways. Using already existing LCAs and PCFs and utilising data that is significantly more precise makes by far the most sense.
The pros for using actual data for calculating scope 3 GHG inventory far outweigh the cons. It is more scientific and more accurate. It considers entire cradle-to-gate transmissions. It conforms with globally recognised standards. It enables true decarbonisation. And it offers the ability to evaluate suppliers on carbon emissions as well as price, quality and delivery. A spend-based approach – inaccurate and outdated – is simply no longer fit for purpose.
Finally, beyond the obvious risks and inefficiencies we’ve highlighted in this article, it’s worth remembering that this a decision potentially worth many multiple millions. If you’re only conducting LCAs right now but find yourself in a position where scope 3 reporting is coming very soon then you’re reading this at the right time. If you’ve already separated LCAs and scope 3 reporting, then now is very much the time for change.