In today's world of increasing environmental awareness and regulatory scrutiny, businesses are under growing pressure to reduce their carbon footprint. While many companies focus on their direct emissions (Scope 1 and Scope 2), a significant portion of their overall impact lies in their indirect emissions, known as Scope 3. One particularly challenging area within Scope 3 is Category 8: upstream leased assets.
Leased assets, such as office buildings, warehouses, vehicles, and machinery, play a crucial role in many businesses' operations. However, the emissions associated with these assets are often overlooked. By understanding and addressing Scope 3 Category 8 emissions, companies can gain a more complete picture of their environmental impact, demonstrate their commitment to sustainability, and mitigate potential risks.
What Are Scope 3 Emissions?
In the fight against climate change, understanding and reducing greenhouse gas (GHG) emissions is crucial. Businesses are increasingly taking responsibility for their environmental impact, and a key aspect of this is measuring and mitigating their emissions.
Greenhouse Gas Protocol Corporate Standard categorizes emissions into three scopes to account for a company's entire carbon footprint.
Scope 1 emissions are direct emissions from sources that the company controls, such as on-site fuel combustion, industrial processes, and fugitive emissions.
Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam.
Scope 3 emissions are all other indirect emissions that occur across a company's value chain, from the acquisition of raw materials to the disposal of products at end-of-life.
Scope 3 emissions are typically the most significant emissions category for a company, often exceeding the combined total of Scope 1 and Scope 2 emissions. However, they can also be the most challenging to measure and manage due to their indirect nature and the involvement of external stakeholders.
In the realm of corporate sustainability, a significant portion of a company's carbon footprint often lies beyond its direct operations. These indirect emissions, known as Scope 3 emissions, encompass the entire value chain, from raw material extraction to product disposal. Among these Scope 3 categories, Category 8 stands out as a particularly challenging area to measure and manage: upstream leased assets.
Understanding Scope 3 Category 8
Scope 3 Category 8 refers to the greenhouse gas emissions associated with the operation of assets that a company leases. These assets could be anything from office buildings and warehouses to vehicles and machinery. Essentially, when a company rents or leases a resource, it becomes indirectly responsible for the emissions generated during its use.
Scope 3 Category 8 Emissions: A Frequently Overlooked Source of Climate Impact
While many companies focus on reducing their direct (Scope 1) and indirect (Scope 2) emissions, Scope 3 emissions, particularly Category 8 (upstream leased assets), are often overlooked when assessing an organization's overall climate impact. This oversight can lead to an incomplete understanding of a company's environmental footprint and missed opportunities for emissions reduction.
Scope 3 emissions, which include all indirect emissions that occur in a company's value chain, can account for a significant portion of an organization's total greenhouse gas emissions. Within Scope 3, Category 8 emissions, which encompass the emissions from assets leased by the company, can be a substantial and frequently underestimated source of climate impact.
One of the main reasons Category 8 emissions are often overlooked is their non-intuitive nature. Unlike direct emissions from owned facilities or vehicles, or indirect emissions from purchased electricity, Category 8 emissions are less obvious and can be more challenging to quantify. However, this does not diminish their importance or the need for companies to account for them in their emissions reduction strategies.
By failing to consider Scope 3 Category 8 emissions, companies risk underestimating their overall environmental impact and missing opportunities to drive meaningful change. Leased assets, such as office spaces, warehouses, or equipment, can generate significant emissions through energy consumption, waste generation, and other activities. Ignoring these emissions can lead to an incomplete understanding of a company's carbon footprint and hinder its ability to set accurate reduction targets and implement effective mitigation strategies.
Why is Scope 3 Category 8 Important?
Hidden Impact: Leased assets often represent a substantial portion of a company's operations, yet their emissions are frequently overlooked. By understanding and addressing Scope 3 Category 8, companies can gain a more complete picture of their environmental footprint.
Stakeholder Expectations: Investors, customers, and regulators are increasingly demanding transparency and accountability from businesses regarding their environmental impact. Addressing Scope 3 Category 8 demonstrates a company's commitment to sustainability.
Regulatory Compliance: Many jurisdictions are implementing regulations that require companies to report and reduce their greenhouse gas emissions, including those from leased assets.
Examples of Scope 3 Category 8 Emissions
Retailer Leases Store Space: A clothing retailer leases a store in a shopping mall. The energy consumed to power the lighting, HVAC, and other systems in the store contributes to the retailer's Scope 3 Category 8 emissions.
Manufacturing Company Leases Machinery: A manufacturing company leases heavy machinery for its production processes. The emissions generated during the operation of this machinery, such as those from fuel combustion, are included in the company's Scope 3 Category 8 emissions.
Transportation Company Leases Vehicles: A transportation company leases a fleet of trucks for its delivery operations. The emissions from the fuel used by these trucks contribute to the company's Scope 3 Category 8 emissions.
Industries Most Impacted by Scope 3, Category 8 Emissions
The Energy Sector
The energy sector, particularly oil and gas companies, have a large portion of their scope 3 emissions coming from category 8. These companies often lease assets like drilling rigs, pipelines, and storage facilities, leading to substantial emissions from these leased assets
Manufacturing Sector
Manufacturing companies in industries like metals, cement, and chemicals frequently lease production facilities, warehouses, and transportation equipment. The emissions from operating these leased assets can make up a significant portion of their total scope 3 footprint
Infrastructure Sector
Infrastructure firms constructing and maintaining roads, railways, and other public works often rely on leased equipment like excavators, cranes, and trucks. The emissions from these leased assets are categorized under scope 3, category 8
Services Sector
Service companies, while having lower overall emissions compared to industrial sectors, can still have notable category 8 emissions if they lease office spaces, data centers, or vehicle fleets
In summary, industries with capital-intensive operations that involve leasing a significant amount of equipment and facilities, such as energy, manufacturing, infrastructure, and services, tend to be most impacted by scope 3, category 8 emissions. Accurately measuring and reporting these emissions is an important step for companies in these sectors to manage their full climate impact.
How to calculate Scope 3, Category 8 Emissions
Companies may use one of the following methods to calculate emissions from upstream leased assets:
Asset-specific method, which involves collecting asset-specific (e.g., site-specific) fuel and energy use data and process and fugitive emissions data or scope 1 and scope 2 emissions data from individual leased assets
Lessor-specific method, which involves collecting the scope 1 and scope 2 emissions from lessor(s) and allocating emissions to the relevant leased asset(s)
Average data method, which involves estimating emissions for each leased asset, or groups of leased assets, based on average data, such as average emissions per asset type or floor space
Among these methods, the asset-specific method is generally considered the most accurate. This is because it relies on actual data from the specific leased assets, providing a detailed and precise account of emissions associated with their operation. By using site-specific data, companies can capture variations in energy use and emissions that may not be reflected in average or less specific data, leading to more reliable emissions inventories and better-informed decision-making for emissions reduction strategies.
However, for organizations just starting to measure and report their scope 3 emissions from upstream leased assets, the average data method is generally the easiest approach. The average data method involves estimating emissions for each leased asset or groups of leased assets based on average data, such as average emissions per asset type or floor space. This method requires less detailed data compared to the asset-specific or lessor-specific approaches.
How to reduce your scope 3, category 8 emissions
Energy Efficiency
Upgrade Lighting Systems: Replace traditional lighting with energy-efficient LED fixtures. For example, a retail store could switch from fluorescent lights to LED bulbs, resulting in significant energy savings.
Optimize HVAC Systems: Ensure that HVAC systems are properly maintained and calibrated to operate efficiently. Regular maintenance can improve energy efficiency and reduce emissions.
Install Building Automation Systems: Implement building automation systems to control lighting, heating, and cooling based on occupancy and other factors. This can help to reduce energy consumption and emissions.
Renewable Energy
Solar Panels: Install solar panels on leased buildings to generate clean electricity. Many commercial property owners are now offering solar lease agreements, making it easier for tenants to benefit from renewable energy.
Wind Power: If the leased asset is located in a suitable location, explore the possibility of using wind power to generate electricity.
Sustainable Procurement
Green Leases: When negotiating lease agreements, include sustainability clauses that require the lessor to adhere to certain environmental standards. These clauses could include commitments to energy efficiency, renewable energy, or waste reduction.
Sustainable Suppliers: Work with suppliers who prioritize sustainability in their operations. For example, when leasing vehicles, choose a supplier that offers electric or hybrid options.
Asset Optimization
Consolidate Operations: If multiple leased assets are being used for similar purposes, consider consolidating operations into a single location to reduce energy consumption and emissions.
Downsize Facilities: If a leased asset is underutilized, explore options for downsizing to a more appropriate size. This can help to reduce energy consumption and operating costs.
Replace Inefficient Assets: Regularly review the performance of leased assets to identify opportunities for replacement with more efficient models. For example, if a leased vehicle is outdated and inefficient, consider replacing it with a newer, more fuel-efficient model.
Reducing Scope 3 Category 8 emissions requires a multifaceted approach that involves collaboration between businesses, lessors, and suppliers. By implementing strategies such as energy efficiency, renewable energy, sustainable procurement, and asset optimization, companies can significantly reduce their environmental footprint and contribute to a more sustainable future.
Managing Scope 3 Category 8 emissions can be a complex and time-consuming process. Gathering data from lessors, calculating emissions accurately, and identifying reduction strategies all require significant effort. This is where StepChange.earth's ESG Accelerator can be a valuable asset.
Streamlining Scope 3 Category 8 Management with StepChange's ESG Accelerator
The ESG Accelerator is a comprehensive software platform designed to simplify and streamline environmental, social, and governance (ESG) management for businesses. It offers a suite of features specifically tailored to address the challenges of Scope 3 Category 8 emissions:
Data Integration: The platform seamlessly integrates with various data sources, allowing you to collect and consolidate information from lessors on energy consumption, fuel usage, and other relevant metrics. This eliminates the need for manual data entry and ensures data accuracy.
Emission Calculation Tools: The ESG Accelerator provides robust emission calculation tools aligned with international standards like the Greenhouse Gas Protocol. These tools help you accurately assess the emissions associated with your leased assets, taking into account factors like location, asset type, and utilization.
Benchmarking and Reporting: The platform enables you to benchmark your Scope 3 Category 8 emissions against industry averages and best practices. This valuable insight allows you to identify areas for improvement and track your progress over time.
Scenario Modeling: Explore different emission reduction strategies and their potential impact through the platform's scenario modeling capabilities. This empowers you to make informed decisions about resource allocation and investment in sustainability initiatives.
By leveraging StepChange.earth's ESG Accelerator, businesses can gain a holistic understanding of their Scope 3 Category 8 emissions, identify cost-effective reduction strategies, and enhance their overall sustainability performance. With the platform's user-friendly interface and expert support, companies can take control of their indirect emissions and contribute to a greener future.