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How to determine a company’s carbon footprint

Sustainability reporting
How to determine a company’s carbon footprint

Regulatory pressure is increasing: How to determine a realistic carbon footprint for a business? Picture: Deemerwha studio – stock.adobe.com

The competitiveness of companies is increasingly influenced by their sustainable actions. So far, however, it has been difficult to distinguish which measures are really sustainable and which are just so-called greenwashing. How can the determination of the carbon footprint be standardised?

The EU has launched the Corporate Sustainability Reporting Directive (CSRD) to make corporate sustainability reporting comparable. As of 2024, companies with more than 250 employees and/or more than 40 million euros in net sales and/or a balance sheet total of more than 20 million euros are obliged to prepare a sustainability report that contains concrete information on the understanding of the business development, the business results and the situation of the company and also includes the effects of its activities on people and the environment. In future, the management will be liable for the sustainability reporting. Environmentally relevant disclosures include, for example, greenhouse gas emissions and energy efficiency.

What does Scope 1–3 mean in relation to greenhouse gas emissions?

But how to determine a realistic carbon footprint for a company? The GHG Protocol is one of the most widely used international standards for calculating company-related greenhouse gas emissions. There are three scopes in which companies or organisations emit greenhouse gases. Scope 1 concerns emissions from sources that are directly owned or covered by the company (e.g. boilers or vehicle fleet). Scope 2 concerns emissions from the use of energy that is purchased (e.g. the company’s own electricity consumption, heating, cooling, etc.). If the company generates the electrical energy used itself, then this electricity is not accounted for as Scope 2, but the fuel used is accounted for under Scope 2. Scope 3 concerns emissions resulting from activities that do not belong directly to the company (e.g. from business travel or waste management).

The difficulty is at Scope 3

Scope 1 and 2 emissions are the easy parts to address on the road to net zero greenhouse gas (GHG) emissions – reducing the emissions produced directly in the company (Scope 1) and the emissions from the energy consumed (Scope 2). The heavy lifting will come from Scope 3 emissions – all the rest that come from upstream and downstream that indirectly impact the value chain.

Scope 3 is the hardest to both control and measure but also will have the greatest impact on overall emissions reductions. For the upstream part, a key aspect is ensuring the raw materials bought, including the way they get to the company, are also low carbon or carbon neutral. That’s where big momentum is building. Chemical companies are increasingly being asked by customers about the carbon footprint of their products, which not only takes into account the direct emissions emitted to make that product and the energy required, but the carbon footprint of the raw materials used to make it. Regulatory pressure on Scope 3 emissions disclosures is building as well – particularly in Europe and the US.

Switzerland-based Clariant is seeing a broadening of its customer base seeking carbon footprints of the products they buy. Clariant aims to cut Scope 1 and 2 greenhouse gas emissions by 40% and Scope 3 emissions by 14% by 2030 – targets validated by the Science Based Targets initiative (SBTi). It is one of the few chemical companies that have outlined a Scope 3 emissions target.

Clariant works with suppliers to calculate the carbon footprints of the raw materials it purchases as well as consulting databases that calculate supplier-specific carbon footprints based on certain process technologies used. Clariant is also part of the working group in Together for Sustainability (TfS), a chemical procurement organisation which has come out with a criteria catalogue for calculating product carbon footprints, he noted.

Scope 3 in chemical companies

On the journey to net zero GHG emissions, measuring and reducing Scope 3 emissions is critical as it is by far the largest part of the overall emissions picture. For manufactured products, typically 60 to 80% of the total emissions will be Scope 3. US-based Dow estimates its 2021 Scope 1 emissions were 28.3 million tonnes of carbon dioxide (CO2) equivalent and Scope 2 emissions were 5.7 millin tonnes. That compares to estimated Scope 3 emissions of 77.6 million tonnes, or 70% of the total. Of Scope 3, which includes upstream as well as downstream emissions, over 50% were from purchased goods and services.

Dow had collected climate data from around 100 suppliers, representing 31% of its 2020 raw materials spend, and is targeting engagement with around 350 suppliers in 2022 and 500 in 2023, asking these suppliers to disclose carbon emissions data and reduction plans. The company plans to use the data to improve the accuracy of measuring its own Scope 3 emissions along with its ability to take action and track progress toward its emissions reduction goals.

The magnitude of the challenge in Scope 3 is evidenced by the fact that very few chemical companies have outlined targets for these emissions thus far. They have predominantly focused on goals for reducing Scope 1 and 2 emissions. Driving down Scope 1 and 2 emissions to net zero is itself a big challenge, requiring substantial capital expenditures. Of course, chemical companies’ Scope 1 and 2 emissions become part of their customers’ Scope 3 emissions through the products they sell.

Supplier carbon footprints

Measuring and comparing carbon footprints of raw materials and products is a monumental challenge and critical for chemical companies to meet the sustainability goals of their customers. ICIS recently partnered with Carbon Minds to launch Supplier Carbon Footprints, which provides carbon emissions data for 71 bulk chemicals and plastics by supplier, plant and region on a global basis. As companies see the climate impact of their supply chains and compare suppliers’ carbon footprints, changing just one supplier could make an immediate and significant difference to Scope 3 emissions.

Quantify and reduce Scope 3 emissions

For companies looking to quantify and reduce their Scope 3 emissions, getting a more complete picture by product and actual plant location is vitally important. It’s always the life cycle perspective, including the entire upstream supply chain. For example, if looking at a polymer, the production process uses energy and has some direct emissions – together, this would be Scope 1 and 2. But the far bigger part of the emissions picture will be upstream Scope 3 – how the input materials for this polymerisation process are produced, the oil or gas that comes out of the ground and the transportation in between. The sum of these emissions is what is called the carbon footprint of this product.

Ultimately, these chemicals and polymers and their carbon footprints flow downstream to end market consumers, including brand owners and fast moving consumer goods companies (FMCGs) that are becoming hyper-focused on carbon impact.

BASF maps out footprints

Highlighting the importance of measuring carbon impact, the world’s largest chemical company – Germany-based BASF – has completed a massive project to measure carbon footprints for its entire product portfolio. The company uses 20,000 raw materials to make 45,000 chemicals produced in 700 plants around the world. The analysis includes the carbon used right up the chain to the exploration, production and refining of oil and conversion to naphtha or other upstream chemical feedstocks.

BASF has developed a Product Carbon Footprint (PCF) tool to show customers how they can reduce their Scope 3 carbon footprint through the use of products made, for example, with recycled feedstocks or green energy. In June, BASF announced a range of chemical intermediates with carbon footprints well below the global market average. The company aims to help its supply chain as well as competitors develop a consistent approach to carbon measurement for a level playing field. It is sharing its proprietary PCF digital solution and methodology to third parties active in software through licensing agreements.

“Although there are standards, there is room for interpretation of the standards. There is uncertainty about how you allocate emissions – for example when multiple products emerge from the same process – so if we want to benchmark companies we need more standardisation,” said Jan Schoeneboom, team lead, lifecycle assessment at BASF, in an interview with ICIS last year. Ultimately, he believes, a consistent algorithmic allocation will be required for every company that participates in carbon data exchange along the value chain, based on consensus methodology. “We realise we are quite a leader in this area of product carbon footprint quantification, but it will not be any good for us if we just keep this for ourselves. This is because the measurements will not be comparable, and hence, not useful along the value chain,” said Schoeneboom.

After providing carbon footprint transparency to customers since earlier this year, BASF is now working with them to develop tailor-made low carbon and net zero carbon products.

In March, BASF and Henkel announced an initiative to replace fossil carbon feedstock with renewable feedstock for most products in Henkel’s European Laundry & Home Care and Beauty Care businesses over the next four years.

Regulatory pressure ramps up

not only in the EU Regulatory pressure is ramping up. In the US, the Securities and Exchange Commission (SEC) has proposed a new rule that would require publicly traded companies to disclose GHG emissions, including Scope 3, along with climate-related risks and targets to achieve net zero emissions. Companies would be required to disclose Scope 3 emissions if they are material or if the company has set a GHG emissions reduction target that includes Scope 3, according to the proposed rule.

Author: Joseph Chang, Global Editor, ICIS

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