What is it and where should it sit in your Carbon Reduction Plan?
Introduction
In the ever-evolving landscape of corporate sustainability and the journey to Net Zero, the concept of Scope 4 emissions or ‘avoided emissions’ is gaining eminence alongside the traditional greenhouse gas emissions categories identified by the Greenhouse Gas Protocol (GHG Protocol).
The term “Scope 4” was introduced by the World Resources Institute (WRI) in 2013. In 2019 the WRI introduced a framework to cover the measurement and disclosure of GHG emissions that stem from a product or service, including avoided emissions.
The WRI recommends that organisations should initially focus on a carbon reduction strategy of calculating and reporting their Scope 1, 2, and 3 emissions to establish a comprehensive understanding of their total emissions profile and creating a carbon reduction plan to reduce. This foundational step is crucial before progressing to the consideration of Scope 4 emissions, which represent the avoided emissions.
Currently, reporting Scope 4 emissions is not mandatory. The GHG Protocol, which sets the standard for emissions reporting, has yet to officially recognise Scope 4. However, voluntary reporting of these emissions can provide a more comprehensive view of an organisation’s environmental impact and progress in sustainability.
Some organisations already include avoided emissions in their carbon reporting. Aveva, a FTSE 100 tech company, plans to develop a baseline and target for customer-saved and avoided emissions by 2025, according to its 2022 annual report.
What are Scope 4 emissions?
Scope 4 emissions refer to the greenhouse gas (GHG) emissions that are prevented through the use of a product or service. Unlike Scope 1, 2, and 3 emissions, which focus on direct and indirect emissions from an organisation’s operations and supply chain, Scope 4 emissions highlight the positive impact of an organisation’s products or services in reducing overall emissions.
For more organisations to comply, however, they need to better understand the components of Scope 4 emissions, such as:
Avoided emissions — This component of Scope 4 emissions is the most common and is calculated based on the environmental impact in the production of a product or service across its lifecycle. For example, avoided emissions are found in the production of reusable water bottles, as compared to single-use plastic bottles. In this way, Scope 4 considers the full life cycle of each product — in this case, reusable bottles, which despite requiring more resources initially, can lead to fewer emissions over time as they displace the need for producing and disposing of multiple single-use bottles.
Facilitated emissions — This is related to avoided emissions and occurs in cases in which professional services firms work with their clients to increase or decrease those emissions. For example, an engineering firm’s design of a new building development can facilitate avoided emissions by reducing operational emissions and lower those emissions that occur during the production and transportation of goods, often referred to as embodied emissions. The design firm also can base the design on innovative low-carbon materials thereby further reducing the embodied emissions associated with the building’s construction phase.
Advised emissions — The concept of advised emissions captures those created by professional services firms when they are working with external clients in pursuing projects that increase or reduce a client’s GHG footprint. Law firms, for example, often provide services that can indirectly affect GHG emissions. A firm that supports permitting and litigation matters for companies involved in fossil fuel projects is an example of increasing advised emissions, while legal support for regulatory compliance work on a renewable energy project is an example of a reduction in advised emissions.
Advertised emissions — This group of emissions arises from sales growth in response to an advertisement campaign. Advertising agencies can indirectly influence emissions through campaigns that increase the sales and production of consumer goods. A successful advertisement that boosts the demand for a high-emission product can lead to an increase in Scope 4 emissions due to the additional production required to meet consumer demand. Conversely, a campaign that helps to increase consumption of products that lower emissions can be classified under this category as well.
What role should they play in your Carbon Reduction Strategy?
Avoided emissions should be reported separately and should not be used to adjust Scopes 1, 2 or 3 carbon reduction plans and emissions reporting. Reporting of avoided emissions is best used to inform product or policy design rather than as an indication of climate mitigation efforts. Avoided emissions should not count towards near-term or long-term emission reduction targets, according to Science-Based Targets Initiative.
What are Scope 1,2 and 3 emissions
Scope 1 includes direct emissions from the organisations operations, Scope 2 includes indirect emissions that arise due to the organisations operations but are not wholly in their control, for example from generated fuels. Scope 3 includes emissions produced from an organisation’s value chain, upstream and downstream.
These Scopes create a framework for organisations to understand their direct and indirect emissions created in the running of their organisation and should form the basis of any carbon reduction strategy and carbon reduction plan. Essentially, they define who ‘owns’ and therefore has control of the emissions. This helps organisations to manage and reduce the emissions, by why of a carbon reduction plan, that they are responsible for and require the reduction of their indirect (Scope 2 and 3) emissions from other organisations.
To report on your emissions it is important to establish a scope, set a baseline for your CO2 emissions, determine any carbon reduction targets and track your success. To be able to do this you need to be regularly capturing your carbon emissions data.
Schemes such as Streamlined Energy Carbon Reporting (SECR) and the Energy Saving Opportunity Scheme (ESOS) already require organisations to capture and report on their emissions data, but with the potential for more schemes to be announced in the next few years, including the possibility of ESOS Phase 4, reporting emissions will become increasingly more difficult to avoid.
Why are Scope 4 emissions important?
Environmental Impact: By focusing on avoided emissions, organisations can demonstrate their contribution to global emission reduction efforts. This is crucial in the fight against climate change.
Competitive Advantage: Organisations that can effectively measure and report their Scope 4 emissions can differentiate themselves in the market. This can lead to increased customer loyalty and attract environmentally conscious investors.
How to measure Scope 4 emissions
Identify Relevant Products or Services: Determine which of your products or services contribute to emission reductions. This could include energy-efficient appliances, renewable energy solutions, or innovative technologies that reduce the need for fossil fuels.
Calculate Avoided Emissions: Use standardised methodologies to calculate the emissions avoided by using your product or service compared to a baseline scenario. This often involves life cycle assessment (LCA) techniques.
Verify and Report: Ensure that a third party verifies your calculations to enhance credibility. Report your findings transparently, including the methodologies used and the assumptions made.
Various frameworks, like the GHG Protocol and ISO 14069, define and calculate avoided emissions. These emissions provide transparency and highlight an organisation’s contribution to low-carbon products or projects. While the calculation methods are similar, the scope may vary between frameworks, with Scope 4 being specific to the GHG Protocol.
Challenges in reporting avoided emissions include measurement difficulties, high upfront costs, lack of standardisation, and the potential for greenwashing.
Avoided emissions versus reduced emissions
Do not confuse them.
It is important to understand the difference between reduced emissions, which are the result of an actual reduction in an organisation’s greenhouse gas (GHG) emissions over a fixed period following the implementation of a carbon reduction plan to reduce its carbon footprint, and avoided emissions, determined by comparing a low-carbon product or service with a reference scenario.
Benefits of reporting on Scope 4 emissions
Enhanced Reputation: Demonstrating a commitment to sustainability can enhance your company’s reputation and brand value.
Investor Attraction: Investors are increasingly looking for companies with strong environmental, social, and governance (ESG) credentials. Reporting on Scope 4 emissions can make your company more attractive to these investors.
Customer Trust: Transparent reporting can build trust with customers who are becoming more environmentally conscious and prefer to support sustainable businesses.
Technological advancement: Fuels research and development towards solutions that not only reduce emissions but also contribute to avoiding them.
Operational Efficiency: Understanding and optimising the avoided emissions of your products can lead to innovations and improvements in your offerings, driving operational efficiency and cost savings.
Innovation drive: Encourages innovation in product and service design focused on sustainability, leading to reduced environmental impacts.
Informed decision-making: Helps in understanding the broader implications of business activities, guiding decisions on sustainable projects and investments.
Strategic partnerships: Aids in choosing suppliers and partners aligned with sustainability goals, enhancing overall environmental impact.
Shareholders may also drive demand for Scope 4 reporting. ISS, the proxy adviser, allows investors and companies to assess the potential avoided emissions of investments covering more than 250 companies. Some investment firms, such as Schroders, also include avoided emissions in investment analyses.
Impact investors, who seek positive social or environmental outcomes from their investments, often include avoided emissions as a metric when determining the value of a company.
Best Practices
Organisations face unfamiliar terrain when reporting Scope 4 emissions, various best practices have surfaced to assist organisations in precisely calculating and disclosing these emissions. These methods guarantee transparency and precision and improve the integrity of the organisation’s environmental reporting and include:
1. Focus first on Scope 1, 2 and 3 emissions
Establish a robust Carbon Reduction Strategy or Carbon Reduction Plan before deciding if Scope 4 emissions reporting is right for your organisation.
2. Setting a clear baseline for comparison
Establish a baseline for emissions associated with your products or services. This helps in measuring the impact of avoided emissions accurately.
3. Conduct life cycle assessment (LCA)
Perform comprehensive LCAs to evaluate the total environmental impact of your products, including alternatives. This will help quantify avoided emissions effectively.
4. Market and consumer behaviour analysis
Understand how your product compares to alternatives in the market. This involves assessing consumer behaviour and market trends
5. Use advanced modelling methods
Employ modelling tools to predict the potential avoided emissions based on various scenarios and product usage.
6. Implement regular monitoring
Regularly track and update your emissions data to reflect changes in product usage and market conditions.
7. Engage stakeholders
Involve stakeholders in the reporting process to gather insights and improve the accuracy and automation of your emissions data.
8. Report transparently
Clearly communicate your methodology, assumptions, and results in your sustainability reporting. This builds trust with stakeholders.
External expertise and verification
Seeking independent external expertise and third-party verification enhances the accuracy and reliability of emissions calculations and any supporting carbon reduction plan. Collaboration with environmental experts and consultants adds an extra layer of scrutiny and credibility to the reporting process and the development of your carbon reduction strategy.