Companies are starting to address not just their own direct CO2 emissions but also those that have to do with their supply chains and the use of their products and services. As the indirect emissions cannot be fully controlled by the company itself, collaboration with suppliers and customers is needed.
On October 11, we welcomed the Combient network companies to discuss, how companies can reduce their Scope 3 emissions in international and complex value chains. What kind of supplier requirements, co-development partnerships, or product development initiatives can support you in the Scope 3 journey? And how do you organize internally to ensure meeting the targets?
Figure 1: What are Scope 1, 2 and 3 emissions? Image from GHG Protocol (https://ghgprotocol.org)
Companies utilize various practices to reduce their Scope 3 emissions. These include:
Clauses on emission in Supplier Code of Conducts
Internal policies and protocols for procurement
Knowledge-sharing among suppliers and customers
Prioritization and rewarding of suppliers based on their climate action
Penalties or contract termination for suppliers for lack of climate action
Emission reducing co-innovation with suppliers and customers
At the event we had a group of leading companies share their best practices on Scope 3 work.
Microsoft is reducing its Scope 3 emissions by influencing suppliers and utilizing an internal carbon fee
The keynote speaker of our event was Mark Kroese, General Manager of Sustainability Solutions at Microsoft, who is also a member of the Combient Pure Advisory Council. Microsoft has the ambitious target of removing the company’s historical Scope 1 and 2 emissions from the atmosphere by 2050. The company has also founded a billion-dollar climate innovation fund, which Mark Kroese is running with his team. But what kind of Scope 3 actions has the company imposed?
As one of the largest companies in the world, Microsoft has a large responsibility when it comes to climate action. Or as Mark puts it: “We have a responsibility to do our part, and then go further! For Microsoft to do well, we also need the world to do well.” Scope 3 emissions correspond to nearly 98 % of Microsoft’s emissions, mainly comprising of the emission categories purchased goods & services (35 %), capital goods (30 %) and use of sold products (28 %). The company aims to cut its Scope 3 emissions by over 50 % by 2030, from a 2020 baseline.
“If companies want to reach 2030 targets, most of the actions need to be taken in the next 2-3 years to reach full impact by the target year”
According to Mark, the question is not anymore whether to reduce emissions, but how to reach the targets. “If companies want to reach 2030 targets, most of the actions need to be taken in the next 2-3 years to reach full impact by the target year”, he highlights. Nevertheless, the task is not easy. Microsoft’s Scope 3 emissions grew by 23 % in 2021 due to the increased use of products and services during the pandemic.
A key tool that Microsoft uses for decreasing supply chain emissions is the Supplier Code of Conduct, where the company can contractually require emission reductions from its suppliers. The tool is powerful as Microsoft usually has the purchasing power to directly influence suppliers’ actions. “The more organizations contractually require emission reductions from their suppliers, the sooner low- and zero-carbon standards become the norm”, he stresses. Microsoft has been successful also in raising the number of suppliers that report their emissions – about 87 % of Microsoft’s suppliers already provide the information. Microsoft supports its suppliers with carbon reporting, renewable energy procurement, energy efficiency and sustainable procurement-related knowledge sharing.
Mark Kroese, General Manager of Sustainability Solutions at Microsoft
One of the most interesting tools for emission reduction at Microsoft is the internal carbon fee, which currently is around $15 per ton of CO2, and varies based on the cost of abatement. Since 2021 has been extended to also cover Scope 3. The internal carbon fee is based on emission information from e.g., the supply chain and product energy use and addressed to different business groups in the organization to direct their decarbonization work. The fee for business travel was recently increased to 100 dollars / tCO2e. You can learn more about Microsoft’s internal carbon fee here.
Next to Microsoft, we got to hear interesting insights from Anna Denell who works as the Sustainability Director of Vasakronan.
Construction materials – the main Scope 3 issue for Vasakronan
Vasakronan started its climate journey in 2006, after which the company reduced its energy consumption by 70 % and overall Scope 1 and 2 emissions by 90 %. Nevertheless, as in many other companies, ten years ago Vasakronan recognized that Scope 3 emissions are “the elephant in the room” – making up to 75-95 % of the company’s carbon footprint.
The largest source of Scope 3 emissions for Vasakronan is construction materials. According to Anna, as the company started to measure material-related emissions, they soon found out that for a ton of material used for each square meter, 98 % of the weight came from non-renewable material sources.
Now Vasakronan aims at being carbon neutral throughout its value chain by 2030, including Scope 3. To reach this target, the company is also aiming at using only renewable, reused, or recycled materials by 2030. This requires a strong emphasis on circular economy. Vasakronan has already some interesting building projects where many parts of old buildings are being reused in new building projects. Together with Combient Pure, Vasakronan is also working on developing the circularity of buildings’ technical equipment.
After Anna Denell, we heard from Andreas Follér, Head of Sustainability at Scania.
Vehicle use still the largest Scope 3 emission source for Scania – but for how long?
Andreas Follér explained that most of Scania’s emissions are still coming from the use of their vehicles, but electrification is moving the weight between emissions categories from the downstream more towards the upstream. When the use of the vehicle is based on low carbon electricity, the emphasis of supply chain emissions grow – and battery production, including related material extraction, is very emission intensive.
Scania has recognized this and recently set material-specific emission reduction targets for 2030 that vary between 65-85 % for a material group. Andreas believes that a good strategy for emission reduction is to put the target year as near in time as possible because as humans we are very good at procrastinating. It is also important to be clear about the accountability inside the company.
All our speakers agreed that the accountability for Scope 3 targets needs to start from top management. Nevertheless, all employees need to be included in the work. Often ambitious company-level sustainability targets also make employees prouder of the company they work for.
As we asked the audience about the most impactful Scope 3 reduction methods, winning options were emission reducing co-innovation with suppliers and customers as well as business model transformation that can truly accelerate the value chain wide decarbonization development. With that, we decided to roll up our sleeves and look at opportunities for collaborating on emission reductions together with the Combient network – many thanks to all our interesting speakers as well as the guests from Combient companies that attended the event!
