Sustainability regulations and consumer pressure are compelling businesses to measure their scope 3 emissions. But what are scope 3 emissions, and why do freight forwarders need to worry about measuring them for their clients?
In this blog post, we’ll walk you through everything you, as a freight forwarder, need to know about your clients’ scope 3 emissions, including what they are, which ones you need to worry about and why you should start measuring them now.
Before we dive into the world of scope 3 emissions, it's essential to understand the broader context of greenhouse gas emissions (GHGs).
GHGs are gases that trap heat in the Earth's atmosphere contributing to the greenhouse effect and global warming. Over the last 150 years, human activity — including the transport of freight — has greatly increased the output of GHGs, accelerating global warming to levels that, if not reduced, will have profound and long-lasting negative impacts on Earth’s weather patterns and ecosystems.
Major GHGs include:
Carbon dioxide (CO2)
Methane (CH4)
Nitrous oxide (N2O)
Fluorinated gases like hydrofluorocarbons (HFCs)
Perfluorocarbons (PFCs)
Sulfur hexafluoride (SF6)
Nitrogen trifluoride (NF3)
The Greenhouse Gas Protocol, developed by the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD), categorises emissions into three scopes:
Scope 1 emissions: Direct emissions produced by a company's owned or controlled sources, such as on-site combustion processes and company vehicles.
Scope 2 emissions: Indirect emissions generated by the production of the electricity, heat or steam purchased and consumed by the company.
Scope 3 emissions: All other indirect emissions that occur in a company's value chain, both upstream and downstream, including emissions from suppliers, transportation, distribution and the use of products.
Scope 3 emissions encompass the entirety of a company's supply chain emissions, which for many businesses constitutes about 80% of their total carbon footprint. They are a major contributor to climate change but are also the most difficult emissions for businesses to measure and manage.
Under the GHG Protocol, scope 3 is divided into 15 different categories divided into up- and downstream emissions covering a wide range of activities.
Upstream emissions are those that occur before a company's products or services reach the customer, for example, the emissions from the extraction and production of raw materials.
Downstream emissions are those that occur after a company's products or services reach the customer and the transportation of the products to the customer, for example, the emissions from the use of a company's products.
Purchased goods and services
Capital goods
Energy- and fuel-related activities not included in Scope 1 or 2
Upstream transportation and distribution
Waste generated in operations
Business travel
Employee commuting
Upstream leased assets
Downstream transportation and distribution
Processing of sold products
Use of sold products
End-of-life treatment of sold products
Downstream leased assets
Franchises
Investments
Under current legislation, many businesses are required to measure and report their scope 1 and 2 emissions. These are also the emissions that are easiest to measure and have traditionally been the most visible to consumers.
Scope 3 has typically been much more difficult to measure, with many businesses and their customers having little to no visibility of these emissions. However, there’s now increased pressure on businesses to measure their scope 3 emissions.
The two main reasons your clients are now starting to measure their scope 3 emissions are:
Sustainability regulations are making it mandatory for many businesses to report their scope 3 emissions — for example the EU’s Corporate Sustainability Reporting Directive (CSRD) will require businesses to report their 2024 scope 3 emissions. Businesses that fail to meet these regulations will face large fines — for CSRD this could be as much as €10 million or 5% of annual revenue.
Consumers are demanding that brands be more eco-conscious — a study by Simon Kucher found that in the past 5 years, 85% of consumers said their purchase behaviour become more sustainable. To meet this demand, businesses will need to implement reduction strategies which require the measurement and understanding of the complete carbon footprint related to a product or service.
There are two scope 3 emissions categories that specifically involve supply chain activities relevant to freight forwarders — categories 4 and 9.
Category 4: Upstream transportation and distribution of goods
Category 4 encompasses emissions arising from the transportation and distribution of goods that a company purchases or acquires from suppliers such as a delivery from a factory to a warehouse.
Category 9: Downstream transportation and distribution of goods
Category 9 deals with emissions from the transportation and distribution of products from the reporting business’s warehouse to the end customer or user such as last-mile delivery.
The complex nature of global shipments means the most viable and accurate way to measure scope 3 category 4 and 9 emissions is to use shipment data to model the emissions output attributed to a shipper’s cargo.
As coordinators of freight in the supply chain, freight forwarders have visibility of each client’s shipment data and shipment leg breakdowns that are critical to informing reduction strategies. Their access to this granularity of data means they are uniquely positioned to convert shipment data into emissions data for their clients, enabling them to meet emissions reporting obligations or inform emissions reduction strategies.
As a result, more and more shippers are turning to their freight forwarders to fulfil their scope 3 disclosure requirements for categories 4 and 9.
Measuring shippers’ scope 3 supply chain emissions doesn’t need to be an added stress for freight forwarders — if done correctly, it can present them with an opportunity to improve and add value to their service for clients.
Forwarders can promote the benefits of measuring and managing scope 3 emissions for shippers as a value-add that they can provide, helping them overcome their pain points. These include:
Meeting sustainability regulations
Making more informed supply chain decisions
Reducing environmental impact
Helping build an eco-conscious brand
By promoting these value-adds for clients, forwarders can successfully leverage emissions measurement to gain a competitive advantage, helping them win new business and drive client loyalty.
Now you know exactly what scope 3 emissions are, which ones relate to the supply chain and why you, as a forwarder, are uniquely positioned to measure them, you can start taking action. Scope 3 emissions are a major contributor to climate change but also the most difficult emissions for businesses to measure and manage, so there’s a real opportunity for you to provide value to your clients with accurate and instant freight emissions measurement.
If you act now and get ahead of the curve, it’s likely you’ll see long-term benefits such as winning new business and increasing client loyalty — especially as sustainability reporting regulations start to bite.
At Pledge, we’ve built a powerful emissions measurement platform that enables you to accurately convert client shipment data into scope 3 categories 4 and 9 emissions calculations in seconds.
Sign up for your 14-day free trial to try it for yourself.
This article courtesy of Pledge, Affiliate members of IIFA.
