In today's environmentally conscious world, businesses are increasingly prioritizing sustainability. A crucial aspect of this commitment is understanding and reducing greenhouse gas (GHG) emissions. The Greenhouse Gas Protocol (GHG Protocol) categorizes emissions into three scopes, with Scope 3 encompassing all other indirect emissions that are not directly controlled by the organization.
This blog dives deep into Scope 3 Category 4, often the most complex and challenging category for businesses to address. We'll explore what falls under this category, why it's important, and practical strategies for tackling these indirect emissions.
Understanding Scope 3 Category 4
Scope 3 Category 4 covers emissions associated with transportation and distribution of products and purchased third-party transportation and distribution services including inbound and outbound logistics, movement between a company’s own facilities
These are all the indirect emissions within a company value chain, upstream transportation and distribution for Scope 3, Category 4, refers to the emissions from transporting and distribution of purchased goods, raw materials, and other essential inputs for the organization’s operations. This can include emissions from:
Transportation: movement via air, sea, rail, or road from the point of origin to the company’s facilities
Third-Party Logistics: emissions from outsourced transportation to third-party providers
Warehousing and storage: these are emissions from temporarily holding goods in warehouses before they are used in the product process
However, emissions from outbound logistics activities are accounted for separately under Scope 3, Category 9 emissions.
Transportation and distribution activity in the value chain | Scope and category of emissions |
|---|---|
Transportation and distribution in vehicles and facilities owned or controlled by the reporting company | Scope 1: (for fuel use) Scope 2: (for electricity use) |
Transportation and distribution in vehicles and facilities leased by and operated by the reporting company (and not already included in scope 1 or scope 2) | Scope 3, category 8 (Upstream leased assets) |
Transportation and distribution of purchased products, upstream of the reporting company’s tier 1 suppliers (e.g., transportation between a company’s tier 2 and tier 1 suppliers) | Scope 3, category 1 (Purchased goods and services), since emissions from transportation are already included in the cradle-to-gate emissions of purchased products. These emissions are not required to be reported separately from category 1. |
Production of vehicles (e.g., ships, trucks, planes) purchased or acquired by the reporting company | Account for the upstream (i.e., cradle-to-gate) emissions associated with manufacturing vehicles in Scope 3, category 2 (Capital goods) |
Transportation of fuels and energy consumed by the reporting company | Scope 3, category 3 (Fuel- and energy-related emissions not included in scope 1 or scope 2) |
Transportation and distribution of products purchased by the reporting company, between a company’s tier 1 suppliers and its own operations (in vehicles and facilities not owned or controlled by the reporting company | Scope 3, category 4 (Upstream transportation and distribution) |
Transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and transportation and distribution between a company’s own facilities (in vehicles and facilities not owned or controlled by the reporting company) | Scope 3, category 4 (Upstream transportation and distribution) |
Transportation and distribution of products sold by the reporting company between the reporting company’s operations and the end consumer (if not paid for by the reporting company), including retail and storage (in vehicles and facilities not owned or controlled by the reporting company) | Scope 3, category 9 (Downstream transportation and distribution) |
Implications for businesses
For businesses, meticulously calculating these emissions brings several key benefits:
The hidden footprint of your supply chain. Businesses that meticulously track emissions gain a superpower: enhanced supply chain transparency. This deep dive reveals inefficiencies and empowers smarter decisions, propelling strategic development.
Strengthen Stakeholder Relationships. By showcasing a commitment to sustainability through meticulous emissions tracking, you strengthen relationships with eco-conscious customers, investors, and partners. In today's market, environmental responsibility is a golden ticket.
Double win: save the planet, save green Identifying and implementing efficient logistics through emissions tracking can lead to significant cost-reduction opportunities. This optimizes your bottom line while minimizing your environmental impact – a win-win for business and the planet.
How To Measure Scope 3, Category 4 Emissions:
Companies may use the following methods to calculate scope 3 emissions from transportation:
Fuel-based method: determining the amount of fuel consumed (i.e., scope 1 and scope 2 emissions of transport providers) and applying the appropriate emission factor for that fuel
Companies should allocate emissions based on the following default limiting factors for each transportation mode:
Road transport: Truck capacity is typically limited by mass, so mass-based allocation should be used
Marine transport: Vessel capacity is typically limited by volume, so volume-based allocation should be used
Air transport: Aircraft capacity is typically limited by mass, so mass-based allocation should be used
Rail transport: Rail capacity is typically limited by mass, so mass-based allocation should be used.
Distance-based method: determining the mass, distance, and mode of each shipment, then applying the appropriate mass-distance emission factor for the vehicle used
Spend-based method: determining the amount of money spent on each mode of business travel transport and applying secondary (EEIO) emission factors
Industries That Should Care About Scope 3, Category 4 Emissions
While Scope 3 Category 4 impacts all businesses that move goods, some industries feel the pinch more due to complex supply chains. Here's where efficiently managing upstream transportation and distribution emissions becomes crucial:
Manufacturing & Retail:
Global sourcing of raw materials and multi-stage production processes often lead to substantial emissions in this category for manufacturers.
Getting products from warehouses to stores across vast distances, complex global supply chains with specific requirements can significantly contribute to a retailer's Scope 3 Category 4 footprint.
Food & Beverage:
Perishable goods require to be transported faster and often have more emission-intensive transportation modes
Cold chain losigitiscs for temperature-sensitive products can be complex and add emissions
Ecommerce:
The rapid growth of online shopping relies heavily on efficient delivery networks, potentially leading to high emissions in this category
Quick Commerce:
This emerging industry focuses on ultra-fast delivery within minutes or hours, relies heavily on dense delivery networks, frequent trips, potentially leading to even higher Scope 3, Category 4 emissions as compared to traditional ecommerce
Construction:
The movement of building materials and equipment across project sites can be a significant source of emissions in this category for construction companies. Utilizing local materials and promoting fuel-efficient transportation can help reduce their impact.
Pharmaceuticals:
Stringent controls over transportation conditions to maintain product integrity can result in specific, and sometimes less carbon-efficient, logistic solutions.
High-value, time-sensitive pharmaceuticals are frequently moved by air, which has higher emissions factors compared to other modes of transport.
How can companies reduce upstream transportation and distribution emissions?
While many companies focus on emissions generated within their own facilities, a significant portion of their environmental impact lurks upstream in their supply chains. Scope 3 Category 4 emissions, encompassing the transportation and distribution of purchased goods, can be a hidden monster for businesses across various industries. Here's a breakdown of effective strategies to tackle this challenge:
Optimizing the Supply Chain:
Centralized Command: Establish a central logistics planning hub to identify inefficiencies and streamline transportation across your supplier network.
Tech-Powered Efficiency: Embrace route optimization software to map out the most efficient delivery routes to reduce travel distances, minimizes congestion delays, and ensures products in good condition.
Supplier Collaboration:
Supplier Synergy: Partner with your suppliers to find joint solutions for minimizing transportation emissions. This could involve joint investments in sustainable transportation options or exploring alternative fuel sources.
Alternative Route: Encourage your suppliers to adopt more sustainable transportation modes like rail or sea freight, or consider alternative fuels like biofuels, for a lower-emission footprint.
Maximizing Load Efficiency:
Smart Packaging: Invest in optimized packaging solutions that reduce the size and weight of your products. This allows you to maximize the capacity of each shipment, reducing the number of trips required and minimizing emissions.
Sharing the Ride: Whenever possible, utilize shared transportation services to ensure vehicles are fully loaded. This collaborative approach reduces empty runs and optimizes resource utilization.
Localize Your Supply Chain
Sourcing from Locals: Reduce the overall distance your goods travel by prioritizing local sourcing whenever possible. This not only minimizes emissions but also strengthens local economies and fosters closer relationships with regional producers.
By implementing these strategies, companies can significantly reduce their Scope 3 Category 4 emissions. Remember, a sustainable supply chain is not just about the destination; it's about optimizing every step of the journey. Let's work together to build a greener future, one efficient delivery route and local partnership at a time.
Ready to Take Action?
StepChange empowers businesses to confront Scope 3 emissions head-on. Our comprehensive resources and expert guidance can equip you to accurately measure your upstream transportation and distribution footprint. Together, we can help you craft a strategic plan to implement these powerful reduction strategies and achieve measurable progress on your sustainability journey.