Scope 3 Explained: A Discussion with Andy Bastien and Holly Crawford

Lyndsay Deckert
Hello and welcome to the FigBytes podcast, The Sustainable Leading Edge, where we explore how business can be the driver for this shift to the net positive, regenerative, and inclusive economy and society we require to recognize the changes we want to see in the world.

I’m Lyndsay Deckert, the vice president of marketing at FigBytes, which has developed the most comprehensive software platform for impact-focused organizations to understand their environmental, social, and governance performance and how to use that performance to drive change.

On today’s episode, we are taking a deep dive on scope three and to help us navigate the sea of definitions, categories, and reporting requirements. We have two FigBytes experts to join us today. Andy Bastien and Holly Crawford. Welcome on Andy and Holly.

Andy Bastien
Hi.

Lyndsay Deckert
Great. I just to get started. We’d love to know a little bit more about your experience here at FigBytes. So Andy, can you tell us a little bit about what you do at FigBytes?

Andy Bastien
Yeah, so so I’m a product manager for two of our Solutions, the supplier transparency and Scope 3, as well as our water stewardship platform. And basically I look into that problem and try to figure out how we at FigBytes can best solve these issues.

Lyndsay Deckert
Love to hear about how technology can solve those complex challenges and holly over to you. Uh, can you share a little bit about your experience at FigBytes?

Holly Crawford
Sure I am a client success manager here at FigBytes. So what I do is work with our clients to make sure that they’re getting the most out of the platform as they’re using it and work with them to grow and mature. They’re sustainability programs throughout their journey with us.

Lyndsay Deckert
Fantastic Holly. So I know you’ll be able to bring us some real-life examples of what you’ve seen clients experience as they try and tackle the complicated challenge that is scope 3. But before we go down that path, I’d like to start with definitions and a little bit counter to what might come naturally. I’d love for you to 1st tell me what Scope 3 is not.

Holly Crawford
Sure. So what scope 3 isn’t is any emissions that are directly associated with your organization. And this sounds a little bit counterintuitive since you are still accounting for those emissions, but essentially scope one and two emissions are going to be the direct emissions associated with your organization. So if you buy fuel and then combust it for any purpose, that is your scope, one emission, you’re purchased energy like electricity is going to be your scope too. And anything that falls under those two categories is going to be excluded. From scope three completely, so it’s sometimes feels like something might be scope 3, but it actually does fall under scope one or two.

Lyndsay Deckert
OK. That’s a great starting point. So if that’s what it’s not, tell me a little bit about what scope three does include.

Holly Crawford
Sure. So scope 3 effectively are all of the emissions associated with your value chain, whether that is upstream or downstream. So this is going to be things like things you buy, what have you bought, what’s the carbon impact of the products that you have purchased and services that you’ve purchased, even things like a distribution. If you don’t own and operate your own vehicles to distribute things from your factory to your warehouse, that’s going to fall under Scope 3.

Waste you generate would be under Scope 3 investments fall under Scope 3, so it includes a lot of different information, but essentially, even though it includes a lot of things, it’s things that you don’t necessarily have direct control over.

Lyndsay Deckert
Got it. That makes a lot of sense. So when I’m thinking about scope three, I can think about my entire value chain and how they’re contributing to my footprint. Is that the right way to think of it? OK, great.

Holly Crawford
Exactly.

Lyndsay Deckert
I now that we understand what scope three is and is not help me understand what scope three data can help an organization do.

Holly Crawford
Sure. So what scope three data, it can really help and organization to understand is their overall impact. So the scope one in two tells you OK, this is what I am actively doing and this is what I can actively decide you know with scope one emissions you can make a choice to use a lower carbon fuel for scope two you can make decisions that will mean you’re going to consume electricity once you hit scope three. What this can tell you is what should I potentially stop spending money on.

Or spend less money on or choose lower carbon alternatives for so it’s sort of understanding, hey, when I am buying something, what am I able to do to reduce that impact and downstream it’s also what am I selling and can I sell something that has a lower environmental impact. So it’s really sort of taking a look at the products and services both that you buy and that you sell and trying to understand what you can do to reduce that impact both upstream and downstream.

Lyndsay Deckert
That’s great. So it sounds like it’s really powerful data. If you can get your hands on it and we’re going to talk a little bit more about what that means to get your hands on that data. I what are the benefits of taking a proactive approach to managing and measuring scope 3?

Holly Crawford
Tourists. So there are a lot of reasons you might want to do this. So as I mentioned, you can really understand sort of where is your money going and what does that mean in terms of your emissions, you know, are we spending a lot of money on something that is very high carbon that we could potentially choose another option for or something like that? And similarly, hey, do we have a certain product line that we’re selling that has a really, really high environmental impact and can we reduce that so it can help you make smart business decisions in terms of what to prioritize?

Both in terms of what you’re buying and what you’re selling, and also just behavior driven for something like business travel, you if you have your data in order for that, you can look at it and say you know what, maybe we don’t need to be taking this many short haul flights, maybe we can switch to rail for that or maybe we can do more video conferencing. So it can definitely help to inform business decisions to move towards more sustainable activities.

Andy Bastien
Yeah. And at the same time too, you can think about it also as communicating with your supply chain. So it it allows you to really look at going beyond just the carbon, the carbon aspect of your supply chain. But how are they managing their human rights, how they managing their labor practices and really looking at having a responsible supply chain as well so.

Lyndsay Deckert
It sounds like that with a strong scope 3 program, you can be making better decisions on the things your team does or does not do. You can make better decisions about which suppliers you choose to work with, what kind of data do I have to get my hands on in order to drive those good decisions?

Holly Crawford
That is a great question, and you have a couple of different options depending on which emission factors you’re going to use and what data you have available. So, the most broad type of data you can use is going to be your spend data. How much money did you spend on a certain product, and then you can sometimes find emission factors associated sort of per dollar spent.

Typically that is a little bit less precise, but it is also data that most companies have. You know, most companies have pretty good accounting departments so that is data that most people have access to. You can also sometimes find average data sort of industry averages, something like that to use or sometimes you also have processed data or distance data, things like that. So, if you were looking at something like one of the.

Transportation and distribution categories potentially, if you know that it’s a certain number of kilometers, then you might be able to find emissions data related to per kilometer traveled and potentially you could even get as granular as how many liters of fuel were used in this transportation, the granularity of the data that you have is really going to depend on what you’re able to get from your suppliers.

But most people at the very least have spend data for the categories that they have that is going to be related to them.

Andy Bastien
OK.

Lyndsay Deckert
All right. So you’re really painting a picture of kind of a complex approach or lots of different options for how I approach gathering my data and the feeling someone’s gonna tell me why that’s hard to do because it does not sound simple. So we’ll get into that here in a minute. But knowing that it’s likely not easy to do. And I wanna know why a company should do it. And and we know all of the acronyms, we know all of the frameworks that are out there. And I have to imagine that with some of those acronyms are coming regulations that are gonna require scope three data.

Andy Bastien
Yeah.

Lyndsay Deckert
To be a part of required disclosure. And so Andy, I’d love to hear from you about what disclosures are either in play or on the horizon and what they’re telling us to do about Scope 3.

Andy Bastien
Yeah, actually there’s a there’s a lot on the go right now and it’s a, it’s a, it’s coming, it’s coming pretty fast. So the the first part would be in the United States, there’s the SEC or Securities and Exchange Commission.

Uh, basically, it’s gonna require material climate related risk and opportunities, data that are impact, financial performance and what that what does that mean? It means for certain industries such as like the automotive industry, retail industry, food and beverage industry that have large supply chain which most likely it’s material to their business, they will have to report on scope 3 emissions and that’s coming that’s coming this year.

Now for the European Union, the CSRD or the corporate Sustainability Reporting Directive. It asks for large companies of over 500 employees and revenue of at least 40 million to report on their scope 3 emissions. So that means if you have, even if you have a footprint in the EU and you’re generating that kind of revenue in the EU, you will have to, you will have to report your scope 3 emissions.

And then the last piece is as we’re getting with more and more standards, one thing we’re seeing is and kind of lining up all the frameworks together and the ISSB. Has uh developed is developing a standard that aligns everything, and that is based on the GHG protocol. So within this framework there’s methodology to ask for scope 3 again and again it’s a materiality, is always included in there, but there’s whatever’s material to your business. You should have an understanding of how it impacts your scope 3. It’s absolutely.

Lyndsay Deckert
OK, so the regulations are coming and it feels like Andy, we could have a whole another conversation or debate around what is and is not material to a business. And I look forward to doing that with you on a future podcast because I am sure there’s a lot of subjectivity in those decisions. But the bottom line that I’m hearing is around the world. We’re seeing new regulations come out that are telling us Scope 3 is not something that’s going to remain forever optional. It is going to be a part of that regulatory landscape that we see companies trying to navigate right now.

Andy Bastien
Absolutely.

Lyndsay Deckert
Good. I can imagine that given the regulatory burden companies already faced that some of these new regulations are not without their critics and Holly, I have to assume that there’s quite a lot of pushback on collecting scope three data and reporting it. Can you tell us a little bit about what some of the critics are telling us about Scope 3?

Holly Crawford
Yeah, for sure. So I think one of the largest criticisms about Scope 3 is that you can’t really aggregate it by industry or something like that. You can’t really, you know, take multiple companies, add their scope 3 emissions together and come up with a comprehensive scope, 3 emissions number. And the reason for that, at least the main reason for it is double counting. So just as an example, category five is waste generated by an operation. So that’s going to be how it like, you know, what waste of you produced.
Another category, I believe it’s category 12 is sort of end-of-life treatment of soil to products and that is effectively meaning that you were accounting when you’re accounting for category 12 for your own organization, somebody else is probably. Capturing some of that data under category 5 in their own. So that’s just one example. There are lots of other categories that sort of like, you know, have sister categories for upstream and downstream. So for this reason, you can’t just aggregate scope 3 emissions and come up with any kinds of realistic total for an industry or
anything like that? So that is 1. Criticism is really OK. Great. We’ve got these scope 3 emissions. What are we doing with that? We can’t use that in the same way that we use scope one into. So that is 1 criticism. Another major one is sort of the burden on companies and like Andy mentioned in a lot of regulations what we’re seeing is that there’s a push to make this mandatory for larger companies and not for smaller ones. And that is at least in part because of.

You know the resources that are gonna be needed to really put together a comprehensive scope 3. Accounting. So those are two major criticisms. There are others out there, including you know, how easily available are emission factors for every single category. You know how and even if they’re out there, how accessible are they? Are they publicly available, are they not publicly available? If they are publicly available, how easy are they to use? So there are some critics of that piece of it. And I think the last thing to consider is that well, Scope 3 is really good at giving an overall. Sort of snapshot of your impact. It also can paint a little bit of potentially a false dichotomy. So as an example, if you take something like an oil and gas company, yes, they absolutely have scope one and two emissions associated with extracting oil and distributing it all of that. But they are not the ones combusting that fuel. They’re not the ones combusting the fossil fuel data. So if in their category 11. Used have sold products they have to sort of account for all of the emissions for all of the fuel that they’ve sold. Yes, that’s reasonable in that they need to understand that. This is the impact of the fuel they’ve sold, but by the same token, like you know, what reasonable steps can they take other than don’t sell oil? So again, it’s not to say that it’s not a valuable exercise, but there is some criticism that certain industries like oil and gas will sort of have this. This picture painted that they just need to stop selling their products altogether, and obviously that’s not necessarily a great narrative for a business.

Lyndsay Deckert
Of course, of course. And I think, you know, every company or organization is really trying to navigate all of what this information means and how to use it intelligently within their business practices. And odds are good that this won’t be the reason a company stops operating. It hopefully is a strong scope three approach will, I hope, help them make better decisions on how to manage those emissions throughout their value chain.

Assuming that a company owner stands the value of and is ready to tackle scope three, whether because they’re regulated to or doing it voluntarily, I have to assume because there is data involved and it sounds like a lot of data that they’re gonna encounter some challenges and I’d like to talk about some of those with both of you. So, to start with Holly, I’ve heard you mentioned several different categories. I know enough to know there’s fifteen of them and I know that each one has some unique value to figuring out scope

Three, what categories matter the most?

Holly Crawford
Sure. So the categories that matter the most are really going to vary company to company. Obviously, a manufacturing company is going to have some very different material categories than say a financial company. Now broadly speaking, this paper was published by CDP, I think in 2016. So a couple of years old now. But they found that the vast majority of emissions usually fall into category one, which is purchased goods and services or category 11.

Which is use of sold products. So those typically are going to be the largest pieces, but they’re not the only pieces, especially for something like you know, for financial organizations, investments are probably going to be a very material category and that’s probably going to not matter at all for smaller companies that aren’t making investments. So it is, it’s difficult to sort of point to a specific category universally, but if you were.

Looking to start categories one and 11 are probably a good place to begin.

Lyndsay Deckert
That’s great to know. I know so often the answer is it depends. And again I think materiality discussion sounds like it’s in our future.

Andy Bastien
Yeah. Mm-hmm.

Lyndsay Deckert
Andy, what information then whether in those categories or others would we expect a company is gonna have easy access to and and what data are we expecting might be missing from this equation?

Andy Bastien
So I guess there’s two ways to kind of tackle that is so one of the challenges with SCOPE 3 emissions is also about how specific and how precise do you want your inventory to be, right? So if you want it to have the best possible data, then you would want to know exactly from your suppliers the kind of in what have they done. So are they using diesel engines, are they using?

And electricity? Are they using electricity from the grid? You would want them to provide you the exact emission factor from their perspective, so that would be the best. And at the other end, as Holly mentioned a bit earlier, if you ads, just if only you know is the dollars you spend well, then you could start from that standpoint. Now the first question is to choose in which range do you wanna go from the really specific to the least specific and then the other part then is looking in terms of.

The If from the information you would have as well. So that would mean. If you know how much you spent on each of your clients. Or each of your suppliers. Then you could start with that kind of information. If you wanna be a bit more specific and not deal with the very variability of the dollar, you could have product based or.

Like Holly mentioned earlier. For example, if you know you’re based on kilometer based on weight that something like that could be better information that you already have. Now the part that you don’t have is everything else that your suppliers will have in their own systems. So anything about how they are doing their processes, how they are creating a particular product, you’re using anything like that, you’re not gonna have access to that. So that’s where it comes to really about communicating with your suppliers.

And really, having a line of communication open to ensure that they’re able to provide you back information that you required to calculate your scope 3 emissions.

Lyndsay Deckert
OK. So it’s really exciting for me to hear that some of this data is already inside the organization. It’s information that might be easily able to get their hands on. But when we think beyond that data that a lot of it can be solved by having strong supplier relationships and providing a great and easy way for them to provide you the data you need to fill out the rest of that picture. I have to imagine because we’ve already talked about some differences between industries at this point and that.

Media is going to make a difference and what industry you’re in and what you need to report, what data is going to be important. Can you talk anymore about the differences we might see on that industry basis?

Andy Bastien
Yeah, yeah, I think there’s a couple of things. I think, one, from a, you know I mentioned earlier, for example, that automotive will be heavily targeted by this because they’re large supply chain. So for their perspective, it is largely about understanding their suppliers and really having that kind of information compared to, for example, on the technology side, it may be more about the end of life of their product and how.

And some of the larger computer manufacturers, how do they deal with that perspective of it? And we’ve seen some of the manufacturers actually broadcast, broadcast and really start speaking about that even to US consumers.

And then so it, it could go all the way to that and then the other part too is again is it depends of what kind of information is really available to you. Inside some categories a lot of people have some information such as the business travel or such as your waste that you’ve generated. You may have that information in hand, but it again it depends of how large your industry is too. And then the last piece that I would say is also about how deep do you wanna go in terms of.

Years of suppliers you want to deal with, you know, most likely most of you most organization will have some kind of relationship with their tier one, meaning the first people they get from but.

What about their Tier 2 or Tier 3 suppliers and the impact that they may have on their scope? Three, that’s a whole other ball game that you know you may have to deal with at some point. So it’s something else to think about from your industry’s perspective. I don’t know, Holly, if you wanna, if you have anything else you are thinking about.

Holly Crawford
Yeah, for sure. This is a less to do with sort of differences between industries, but I thought you brought up a good point to build. Maybe you already have data for business travel, which most organizations probably do.

Umm. And that’s one of the things to sort of keep in mind with scope three is by all means report on the categories that we’ll have data for and have readily available. But don’t assume that availability of data means the most materials topics. I think there is a very it’s very easy to think, oh, business travel is super material to my school three missions and it might be in that this is something you probably have a lot more control over than some other categories. But if you actually look at your overall scope, 3 emissions.

Business travel most of the time is usually a fairly small slice of of your scope 3 emissions, so it’s something to be mindful of for sure when you are building your inventory is not to get too romanced by the inventories that are super easy to report on based on what you’ve already got.

Lyndsay Deckert
That is a great point of caution there Holly on how you can responsibly use the data and understand the data that is in your organization today and what I’d love to just do before we wrap up is to talk about maybe something you’ve actually seen in the client experience. So do you have a real world example of a pitfall you’ve seen an organization approach and then maybe avoid?

Holly Crawford
Yeah, for sure. So I think one of the really interesting cases that I came across with the clients was they had sort of set their organizational targets for scope 1/2 and three emissions reduction and for scope three sort of a lot of those initial estimates of scope, three were based on spend data, which is it’s fine. It is not wrong to use spend data. But as they’ve matured the program, they wanted to start moving towards more supplier specific numbers for. You know, certain pieces of.

Of their scope 3 inventory and The thing is with more specific emission factors you might see a pretty significant change in emissions just by using something more specific. So you could see your emissions drop possibly considerably when you haven’t actually changed anything. Others said you’re calculation method, so that is a case where like sometimes you just need to do your recalculations retroactively. State this is what you’ve done and then reset your targets.

But yeah, it’s definitely something to be mindful of, is what you don’t want to do is say, OK, I set my target, I’ve changed my methodology, look at went down by 15% and you haven’t actually made any material changes to your activities. So that’s definitely something to be aware of.

Andy Bastien
But no, but just to take to go on to what you just said. I think that you know on top of you know when that brings allusion to target setting and understanding. You know I think before you even get the target setting, if you don’t even understand what you may have in your house and where what may happen in the future as you wanna get better and better and your scope three, you may come to some of these issues and that’s why you have to remain flexible in your approach and not just that as flexible and not just the approach of.

You know, what do I need? What kind of information I need, but again flexible in the approach to in how you communicate with your suppliers. You know you’re going to have suppliers that are gonna be mom and pop shops small and small and medium sized enterprises that do not necessarily have the same level of understanding of your of emissions as you do. And you know and that where or other organization where the CFO is the CSO and the analyst so.

You know when you start seeing things like that, there’s different ways you may need to communicate back, which is suppliers and as well allow them to allow yourself to be also helping hand and being able to provide back input in terms of how can they improve as well. So it’s it’s it becomes a really interesting.

A game of of you know, telephone to certain extent, like how can I best help you and how can you best help me to reach the best potential targets between both of you so.

Lyndsay Deckert
That’s great. So definitely hearing that message of flexibility and because we’re we’re wrapping up here, I’d love to hear what else you’d like to leave us with us closing thoughts. Where would you tell an organization to start or keep an eye on Holly, why don’t we start with you?

Holly Crawford
Sure. So I do think as I mentioned earlier, if you’re really don’t know where to start with scope 3, yes, consider the data that you already have available, but to you know maybe consider category one, purchase goods and services that is almost always a relevant category for an organization irrespective of industry.

So that usually a good starting point if you are someone who is selling products and use of sold products. Category 11 is also a good place to potentially start your journey.

And you would like Andy said, talk to your suppliers like you know, start building some of those relationships and begin to gather some of that data and partner with them. And conversely, as you are building your scope 3 inventory, don’t just think about what you need as a reporting entity. Also consider what your clients might need. So think in terms of both a reporting entity and in terms of being a supplier or what do you need to provide to? Your clients, in order to help them with their scope 3 pieces.

Andy Bastien
Yeah. And then and as well, I’d say, you know, just go ahead and start. You know what you most likely have some kind of information already on hand. And again as Holly said, it may not be the most material categories, but it’s a good way to start and understanding what’s going on inside your house at least from the parts that you already know. But as Holly to kind of go with the same theme that Holly just said is supplier relationship becomes really important and it and it ensures that you build a really.

Strong supplier relationship. Uh with the with those that you have and and even beyond that is you. You really can create as a responsible supply chain for yourself by ensuring that you’re not only just looking at carbon data, but you’re also looking at labor practices, human rights practices and things of the sort. So just making sure you really engage with your supplier.

Create great relationship and that will allow you to have great scope three data overall.

Holly Crawford
Yeah, definitely. Scope 3 is a really good opportunity to sort of Mary the E with the S and the G for your supply chain. It’s a really great opportunity to work with, with, with, with your suppliers and with the supply chain and really get an overall understanding of ESG as a whole. Scope 3 emissions or the carbon part of that. But it’s a very, very good bridge between the social and governance pieces as well.

Lyndsay Deckert
That the excellent and of course seeing that holistic view to approach to ESG is what we’re all about here at FigBytes. I’d like to thank you both for joining me today on this episode of the Sustainable Leading Edge. I look forward to talking to you about many of the topics I heard you mentioned today as we continue to explore what organizations need to think about and to change in the way they operate so that we can create a better future for our company and for our planet. Thanks again. Take care.