Scope 3 data and “involuntary greenwashing”
In Part 1 of this article, we spoke with Jarrod McAdoo, Director of Procurement at Ivalua, a procurement software company with a handle on value chains and Scope 3 complexities, about why, for instance, some companies hadn’t yet started collating and reporting their Scope 3 data on their supply chain’s carbon footprint.
We had our mind extensively blown at just how complicated it could be to collate this kind of data – but also by the fact that unless companies begin to get a handle on their Scope 3 data, they could be guilty of involuntarily or accidentally greenwashing their reputation – after all, you have to know what you’re not doing in order to know you’re not doing it.
What are the complexities in Scope 3 data that can lead to this kind of involuntary greenwashing?
It’s a tough one. Most of the biggest accusations of greenwashing are made against some of the most recognized companies in the world, companies that you would consider to be leaders for managing their emissions right now if you only looked at their Scope 1 and Scope 2 figures.
Then you read a report that says “These guys are terrible greenwashers.” And if you read into it, the reason people say that is because of the absence of Scope 3 data. People say, “Well, they’re not even looking at their Scope 3 issues, and that can be three-quarters of their overall carbon footprint.” And these companies haven’t even addressed that.
The reasons are all too clear – we discussed them in Part 1. But one of the biggest reasons is that level of immaturity that prevails. There’s primary data when it comes to Scope 3, but only if a supplier has analyzed their own processes, calculated their own carbon footprint, and then brought an expert in to certify that their calculation method is accurate.
A complex picture.
So, say Supplier A has done all that. They have all the certifications, they can hand you this report, and it’s great – but the reality is that’s just a small portion of your Scope 3 journey. A lot of the suppliers don’t even know where to start.
The best way to get started on this journey is to look at secondary data where you’re using a third-party data source, where they have some industry factors to say if you’re in this business providing this commodity, this is on average the factor to use. You put that information into what you buy, and it helps you. Number one, it gives you an idea of what your footprint is, but it also helps you towards that concept of being material.
Being material is recognizing the difference between the people you hire to water your plants – because apart from driving their car, they’re not making a huge carbon impact on your business – and the elements of your business that do make a big impact on your carbon footprint. Go focus here, you’ll get a lot closer to being right in your figures.
Now, using secondary data, it’s always going to be less precise, but you’re always going to have to start somewhere, and those averages are a good place to get started and start moving in the right direction.
Honesty and clarity.
Where organizations could improve in terms of battling involuntary greenwashing is just by being very clear when they’re reporting out, so their investors and stakeholders can see, for instance, that for this portion of the supply base, they’ve had to use secondary data to do computations for this to be directionally correct. Acknowledge that it’s less precise, but also acknowledge it’s part of the natural journey.
And then, be able to say that this is the level of suppliers. I have this estimate, this is the number of suppliers for Scope 3 that I have in the middle, which means I have some data and I’m using some modelling, or I have data but it’s unaudited and uncertified, and then I have this portion.
We need to start really communicating those type of things, because we’re not mature in the market when it comes to having that complete primary data. But organizations are being transparent on how they’re calculating this, because then it becomes a discussion not on whether or not you’re hiding something, but whether or not you can do better in influencing the market on a better model for calculations.
Failures on this are where those things get blown up – where you see the reports saying “Worst greenwashers ever!” They say, “Well, they’re not reporting their Scope 3 data!” or “They don’t have audited data!” I think everybody has to understand that more or less nobody has complete audited data yet.
We’re starting to have some of those meaningful discussions. Now, we’ll always have some activists who will disagree with that, and I’m not saying they’re wrong. But you know, when you get to really start talking about it, it’s going to be that transparency that you need, to be able to say you’re taking the necessary steps on it, and be believed – that’s going to be crucial.
And I think the really smart investors, even the activist investors, will be able to understand that companies are on a journey. They’re being transparent. There’s a positive trajectory. They’re not there yet, but the trajectory’s good. So that’s how I see the involuntary greenwashing issue evolving.
In Part 3 of this article, we’ll talk about the role of smarter procurement and emissions visibility in the supply chain as tools to achieve Scope 3 goals and Net Zero targets.
21 September 2023
21 September 2023
20 September 2023