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Environmental Metrics : Comprehensive Module

Author

Shel

Depending on the type of activities carried out by the reporting company, disclosing a quantification of its scope 3 GHG emissions can be appropriate to yield relevant information on the company’s value chain impacts on climate change.

Scope 3 emissions are indirect GHG emissions that derive from a company’s value chain. They include emissions from activities that are upstream of the company’s operations (e.g. purchased goods and services, purchased capital goods, transportation of purchased goods, etc.) and activities that are downstream of the company’s operations (e.g. transport and distribution of the company’s products, use of sold products, investments, etc.).

If the company decides to provide this metric, it should refer to the 15 types of scope 3 GHG emissions identified by the GHG Protocol Corporate Standard and detailed by the GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard. When it reports on scope 3 GHG emissions, the company should include significant scope 3 categories based on its own assessment of relevant scope 3 categories. Further guidance on specific calculation methods for each scope 3 category can be found here.

When reporting its scope 1 and scope 2 emissions, if the company discloses entity-specific information on its scope 3 emissions, it should present it together with the information required under B3 (Energy and greenhouse gas emissions).

A GHG emission reduction target is a commitment to reduce the company’s GHG emissions in a future year compared to the GHG emissions measured in a chosen base year.

If the company has set scope 1 and scope 2 emission targets, it should disclose these targets in absolute values. If the company has set scope 3 targets as well, it should provide targets for each significant scope 3 emissions category identified. In particular, the company should provide:

  1. the target year and target year value;

  2. the base year and base year value;

  3. the units used for targets;

  4. the share of scope 1, scope 2 and, if disclosed, scope 3 emissions that the target concerns; and

  5. a list of main actions it seeks to implement to achieve these targets.

Actions that may lead to emission reductions include, for instance, electrification, renewable electricity, sustainable products development, etc. This disclosure requires that the company discloses GHG emission reduction targets for its scope 1 and scope 2 emissions.

A climate transition plan is an action plan where an organization describes its strategy to transition all its processes, operations, and business models to meet its public commitments within a specified timeframe.

If the company operates in a high climate impact sector and has adopted a transition plan for climate change mitigation, it may provide information about it, including an explanation of how it is contributing to reduce GHG emissions. If it does not yet have a transition plan for climate change mitigation in place, it should indicate whether it plans to have one and, if so, when it will adopt such a transition plan.

Establishing a credible transition plan for the company is something that should be supported by elements such as:

  1. identifying clear responsibilities and roles;

  2. integrating the plan into the company’s business strategy and financial planning;

  3. including information on decarbonisation levers and pathways as well as quantifiable indicators that can be monitored throughout predefined timeframes;

  4. allowing for regular reviewing and updating after stakeholder consultations when appropriate; and

  5. covering the entirety of its own operations and, to the largest possible extent, the value chain or else providing an explanation as to any limitation.

Removals and avoided emissions should not be accounted as reduction of the company’s gross GHG emissions. This is due to the important distinction between accounting practices for gross GHG emissions (inventory accounting) and GHG removals and avoided emissions (project-based or intervention accounting). Gross GHG emissions are designed to track the actual emissions released to the environment, providing a consistent and comparable baseline to set up GHG targets. Avoided emissions and carbon removals, on the other hand, relate to specific project activities the company undertakes, which means that their accounting is done separately from gross GHG emissions.

Removals refer to the withdrawal of GHGs from the atmosphere as a result of deliberate human activities. Examples of such activities can include plant growth (transfer of atmospheric CO2 through photosynthesis) and direct air capture of CO2. Removals are typically linked to the subsequent storage of CO2.

Avoided GHG emissions are typically referred to as emissions that would have otherwise happened but that, as a result of the company’s activities, did not happen. These may include introducing new products and technologies that reduce demand for their carbon-intensive equivalents, for example insulation solutions in a building, that avoid the demand for energy services.

A base year is a preceding year against which the company’s current GHG emissions can be measured. In general, the base year should be a recent and representative year of the company’s GHG emissions in which there is verifiable data.

The target year is the year in the future in which the company aims to achieve a certain absolute or percentage amount of GHG emission reductions. It should range over a period from one to three years from the base year to a short-term target. Longer term targets may also be included, for instance, for periods of twenty or thirty years (e.g. 2040 or 2050). Companies are encouraged to include target values for the short-term target year of 2030 at the least and, if feasible, for the longterm year of 2050. From 2030 onwards, it is recommended to update the base year and target year for GHG emission reduction targets after every five-year period.

To set a target, companies should consider the existing scientific evidence on GHG mitigation. The SBTi recommends a cross-sector target in GHG emissions reduction of -42% by the year 2030 and -90% by the year 2050 (base year 2020). The Stockholm Resilience Centre also proposes a ‘carbon law’ that sets out concrete steps to achieve full decarbonisation by 2050 based on a flexible way of thinking about reducing carbon emissions by halving emissions every decade and increasing renewable energy roll-out exponentially.

The authors argued that this roadmap would ensure a 75% chance of keeping the Earth below 2°C above pre-industrial temperatures , which is the target set out in the Paris agreement.

SBTi also proposes a streamlined target-setting route for small- and medium-sized companies. Specific pathways also exist by sector and may be considered by companies when setting their GHG emission reduction targets.

To achieve a quick reduction of both direct and indirect emissions, there are some simple actions that the company can take. Some actions may be easy but still able to deliver a notable emission reduction and support the company reaching its targets. For instance, electrification of the vehicle fleet by replacing vehicles running on fossil fuel with electric vehicles will lead to emission reduction as soon as the previous fleet is replaced. This can mean notable emission reduction especially for a business that is reliant on transportation. Similarly, replacing commutes and business travels by car with low carbon alternatives such as bicycles or public transport is an effective, simple and achievable decarbonisation action. Another low-hanging fruit is to review the internal energy management and update it to energy-efficient equipment and integrate maintenance into routine business operations. By regularly maintaining equipment and machinery and replacing these with more energy-efficient alternatives when and where possible, the company can reduce its energy consumption. Such equipment can include, for example, boilers, telecommunication systems, heat pumps, air-conditioning etc. Through regular maintenance their efficient operation can be ensured, wear and tear minimised and waste minimised. The company can also lower the emissions of such equipment by automating systems and using timers to define periods of use.

Climate-related risks refer to gross physical risks and gross transition risks that may result from exposure of the company’s assets and business activities to climate-related hazards.

Climate-related hazards are drivers of climate-related physical risks that arise from the effects that climate change has on the company. They can be classified into:

  1. acute hazards, which arise from particular events such as droughts, floods, extreme precipitations and wildfires, and

  2. chronic hazards, such as changing temperatures, sea level rise and soil erosion, which arise from longer term changes in the climate

Physical risks are a function of climate-related hazards, the exposure of the company’s assets and activities to these hazards, and how sensitive the company is to these hazards. Climate-related physical risks can be identified and modelled by using climate scenarios that consider high emissions trajectories such as IPCC SSP5-8.5 (see page 12 of this document).

According to TCFD, climate-related transition events can be classified into three:

  1. policy- and legal based, e.g. enhanced emission-reporting obligations,

  2. technology-based e.g. costs of transition to lower emissions technology,

  3. market-based e.g. increased cost of raw materials and

  4. reputation-based e.g. increased stakeholder concern.

If the company has identified climate-related hazards and climate-related transition events that create gross climate-related risks, it should:

  1. briefly describe such climate-related hazards and climate-related transition events;

  2. disclose how it has assessed the exposure and sensitivity of its assets, activities and value chain to these hazards and transition events;

  3. disclose the time horizons of any climate-related hazards and transition events identified; and

  4. disclose whether it has undertaken climate change adaptation actions for any climate related hazards and transition events.

The company may disclose the potential adverse effects of climate risks that may affect its financial performance or business operations in the short-, medium- or long-term, indicating whether it assesses the risks to be high, medium, or low.


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Footnotes

  1. Decarbonization levers are strategies to reduce carbon emissions. They involve various approaches such as transitioning to renewable energy, improving energy efficiency, and implementing carbon capture technologies.↩︎