The science is clear: Greenhouse gas (“GHG”) emissions must peak before 2025 to prevent planetary warming exceeding 1.5℃. The solution is simple: Stop doing – and investing in things – that emit GHGs and instead protect the natural systems that remove them from the atmosphere. Disclosure of a company’s emissions should then let consumers and investors make informed decisions, but businesses are rarely required to disclose all of the emissions generated in their full “lifecycle.”
The Cumbria coal mine in the United Kingdom, for instance, will produce 2.8 million tons of coking coal each year for the steelmaking industry without accounting for the emissions produced when this coal is burned. These emissions, instead, represent the responsibility of the steel industry. The Cumbria coal mine has made no claims regarding net zero, but other companies have used this reporting ambiguity to claim they are on target to becoming net zero despite the use of their products being responsible for almost three-quarters of global GHG emissions.
Consumers or investors will then probably make decisions that result in emissions being generated at unsustainable levels. Since joining the United Nations Net Zero Banking Alliance, 56 banks have provided $270 billion worth of finance to fossil fuel companies. But the actions of the UK government and several large businesses offer promise. For example, the government now requires firms competing for major government contracts to report their full lifecycle emissions.
Understanding this absurdity
An organization’s climate impact – no matter the industry – can be made immediately clear by separating their GHG emissions into four groups or scopes. Scope 1 refers to GHG emissions generated directly by business activities up to point of sale. Scope 2 refers to the emissions related to the generation of the energy purchased by a business. Finally, the emissions generated in the production and delivery of a business’s resources are called scope 3 upstream, and scope 3 downstream accounts for all emissions after a product or service has been sold.
Current guidance only requires a business to report their scope 1 and 2 emissions. Yet, reports conducted in 2020 by global management consultant McKinsey found that these emissions only account for a small fraction of most sectors’ total emissions, meaning that the majority of GHG emissions are not disclosed. McKinsey determined that these emissions only account for between 14 and 25 percent of the coal sector’s total emissions.
For the retail segment, Scope 3 (i.e., those emissions generated across the value chain – including the emissions of suppliers in the manufacture and transportation of products and those of consumers in the use of products – and not directly in the control of the retailer) can account for 80 percent of the total carbon footprint for many companies and as much as 98 percent for home and fashion retailers, per McKinsey.
While a large portion of GHG emissions are not disclosed, these emissions are essential for determining the carbon footprint of an organization and are relatively straight forward to calculate. The UN has published a standard called the Greenhouse Gas Protocol that details how to calculate scope 3 emissions, and most of the goods, services, materials and equipment used by businesses have readily available GHG conversion factors. These factors allow us to convert activities like driving into their associated GHG emissions. The GHG conversion factor for driving the average car for a kilometer is 0.171 kg of CO₂e. By driving a car 100 km, we would emit 17.1 kg of CO₂e.
Applying this in practice
Companies are best placed to estimate the future GHG emissions that arise from the use of their products. Car manufacturers, for example, have the data necessary to predict the future emissions generated by their vehicles. They know the expected lifetime mileage of their models sold and the fuel type that their vehicles use. Some organizations already calculate their scope 3 emissions and provide this information willingly. Microsoft has a tool that measures the GHG emissions of your cloud software that runs off the internet usage and estimates the emissions avoided by using the cloud. And global chemical producer BASF publishes publicly available information on the GHG emissions associated with its products along their full lifecycle. This should allow consumers and investors to make more informed decisions.
The future emissions of other activities, such as land use change, are more difficult to measure. Yet, from 2010 to 2019, deforestation is estimated to have caused between 5.9 and 9.5 percent of total GHG emissions. Initiatives like the UN Land Sector and Removals Guidance, which is set for publication this year, will produce GHG conversion factors for land use change and will enable a more accurate evaluation of the climate impact of these activities. At the latest UN climate change summit (COP27), Secretary-General António Guterres criticized the current criteria for net zero commitments for having loopholes wide enough to “drive a diesel truck through.” Measuring scope 3 emissions is crucial to accurately assess how far an organization is progressing towards net zero.
Ian Thomson is the Director of the Centre for Responsible Business at the University of Birmingham. (This article was initially published by The Conversation.)