Organisational boundary From FY2020, BHP has developed Scope 1 and Scope 2 . Steel demand is projected to rise 30% by 2050. However, Julian Kettle, vice-chairman of metals and mining at consultancy. A detailed Scope 3 estimation model can help fill in the gaps in companies carbon-emission reporting, while avoiding the pitfalls of possible double counting when applied across a portfolio. 2017 - Thu Nov 03 23:31:04 UTC 2022 PwC. Please click here to see any active alerts. There are potential partnership opportunities . Notes: Applied CO 2 Emission Factors were obtained from EPA or derived from API calculations; where applicable emission factors for specific fuel products were applied. In 2020, Vale's activities resulted in 491.1MTCO 2 e, more than 97% of which was attributed to indirect scope 3 emissions. This challenge is driven by three key developments that go beyond the . With businesses, governments and investors increasingly focused on a net-zero transition, Scope 3 investment risks are mounting. But depending on your industry, other categories may also play a role. 1 These factors are applicable to all transportation; upstream or downstream, product-related or not. Data from IHS Markit shows that Scope 3 emissions in 2019 accounted for an average of about 88% of the total value chain carbon footprint from the oil and gas sector (Clean Energy News, 2021). (pdf) The emissions . A company's Scope 3 carbon emissions include everything beyond its direct operations and electricity use, including supply-chain operations and end-product usage by customers. At the press call on the company's third-quarter results, Kerkhoff said that some are only . One gap in their knowledge is how to tackle emissions from the value chain of the companies in which they invest. 3 Emission intensity includes scope 1 and 2 emissions; 4 Other energy . Steel companies are not doing enough to address Scope 3 CO2 emissions, which will be the biggest challenge for the steel supply chain in energy transition, Guido Kerkhoff, CEO of German steel stockholder Kloeckner, said Nov. 3. Scope 3 emissions represent all the emissions associated not with a company itself, but the emissions that a company is indirectly responsible for up and down its value chain . Calculating Scope 3 emissions requires using purchasing volumes, not based on financial data, but physical attributes such as weight, size, number of pieces, etc. Scope 3 emissions cover all other indirect emissions that are not covered in Scope 2. In addition, because scope 3 emission sources may represent the majority of an organizations GHG emissions, they often offer emissions reduction opportunities. In some cases, you might look to create a lower-carbon, or green, version of a product while also continuing to produce the higher-emissions original. Leaders in scope 3 reduction. Scope 3 emissions data; a copy of EY's independent assurance statement can be found in our Annual Report 2020. . As a result, the oil and gas industry has remained wary of reporting scope 3 emissions, and targets for cutting them have remained relatively weak. Those that are upstream include emissions produced by the external parties that source, produce and transport the raw materials and components you use. Sempra Energy ensured investors Nov. 3 that hydrogen is "going to play a larger role" in the Premier global deepwater driller Transocean sees "sustained strength" in offshore drilling as demand Steel companies not doing enough to address Scope 3 emissions: Kloeckner CEO. Official websites use .gov Direct emissions from integrated BOF plants typically amount to 1.8-3.0 tonnes CO2 per tonne of steel produced. Besides China, most regions, particularly India, Africa and South-East Asia, will see an increase in demand. The organisation has projected a 30% reduction in total Scope 3 emissions by 2035. is another example of a miner taking the initiative on scope 3. Iron and Steel (7.2%): energy-related emissions from the manufacturing of iron and steel. However, BHPs new goals have drawn immediate. As of March 2020, only 18% of constituents of the MSCI ACWI IMI reported Scope 3 emissions. e for aluminium, the second-highest polluter. Despite the difficulties, Glencore and Vale have set precise scope three goals. A lock (LockA locked padlock) or https:// means youve safely connected to the .gov website. Tick the boxes of the newsletters you would like to receive. Corporate reporting on Scope 3 emissions remains sparse, incomplete and at times highly volatile, posing challenges for institutional investors who aim to consider broader value-chain climate risks in their climate-related risk management and portfolio-construction practices. The steel sector is one of the biggest polluters in China. The state of Scope 3 reporting is poor. Which of our products offer the greatest revenue opportunities for creating lower-carbon versions? | How can we accelerate Scope 3 activities to more quickly meet our decarbonization targets? Here are five steps to take as you begin shaping your companys Scope 3 strategy. You need accurate Scope 3 emissions data for everything you purchase, and youre ultimately hoping to reduce the carbon footprint of those goods. Sep 17, 2020 They intend to achieve this by lowering operating emissions; reducing coal production; increasing investment in low-carbon metals such as copper, cobalt, nickel and zinc; and supporting the deployment of low emission technologies. This data will typically come from your accounting team, who can export it from your company's accounting system. Insurance ESG Research The goal of the work is thus to capture the potential agency different sectors have over supply chain emissions, rather allocating emissions between production and consumption. Ben & Jerry's has supported projects that lower emissions on farms that supply them with milk . This is much higher than both Scope 1 (emissions directly generated by . BHP has also signalled goals to lower its indirect carbon footprint by requiring other participants in its value chain to achieve net zero. As part of the SBTis Net Zero Standard framework, companies commit to halving emissions by 2030 and getting close to zero emissions by 2050. Here's what each covers: Near-term science-based targets must be met within a 5- to 10-year period and must address 95% of Scope 1 and 2 emissions. Their inability to influence these affairs has led these companies to make vague commitments towards focusing on technological advancements and energy efficiency, rather than setting specific target reductions for scope 3 emissions. These include both financial and nonfinancial measures and apply to all stages of supplier engagement. Between 1995 and 2015, global scopes 1, 2, and 3 emissions grew by 47%, 78%, and 84%, to 32, 10, and 45 Pg CO 2, respectively. A company's Scope 3 carbon emissions include everything beyond its direct operations and electricity use, including supply-chain operations and end-product usage by customers. A big enough dataset makes it possible to alleviate concerns about possible double counting of emissions across an investment portfolio. Scope 1 covers direct emissions from owned or controlled sources, while scope 2 includes indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company.Scope 3 includes all other indirect emissions from a company's value chain. A companys Scope 3 carbon emissions include everything beyond its direct operations and electricity use, including supply-chain operations and end-product usage by customers. Fortescue to tackle scope 3 emissions. Measurement. Steel companies are not doing enough to address Scope 3 CO2 emissions, which will be the biggest challenge for the steel supply chain in energy transition, Guido Kerkhoff, CEO of German steel stockholder Kloeckner, said Nov. 3. If both the oil and gas company and mining company were in the same portfolio, a comprehensive carbon footprint might count these emissions twice, thereby overstating the carbon footprint of the entire portfolio. Scope 1 emissions are direct emissions from owned or controlled sources, such as the combustion of diesel in mining vehicles. E in 2020, set a target of at least a 30% reduction from 2030 in conjunction with the development of breakthrough technology with the potential to deliver carbon-neutral steelmaking processes by 2050. These data points then have to be connected with high-quality emission factors on the material level, such as LCIA databases with annually updated real-industry data selected by . This presents two significant challenges for the food and beverage industry: measurement and emissions reductions. DRI-based EAF plants emit approx . These emissions physically occur at the facility where electricity, steam, and cooling or heating are generated. In this blog post, we explain what these emissions are, why they are so important and what action investors can take to manage such risks. Investors seeking to measure their exposure to Scope 3 emissions face a big challenge: data is scarce and inconsistent. Scope 3 emissions -- created when customers such as Chinese steel mills use commodities dug up by miners like BHP -- are a big issue for miners as they seek to reassure investors that they can become greener. SE, 2018) and industry actors (API, 2016; BHP, 2019),9 as well as commercial data providers (Busch et al, 2018). Do we have the data and capabilities to measure the GhG in our products, in meeting customer needs and in complying with regulatory requirements? electricity, heat, steam (scope 2). 11x How much more emissions a companys supply chain produces compared to its operations. Which of our customers are most receptive to lower-carbon products? Japan is actively researching carbon intensity reduction in its iron and steel industry by introducing hydrogen into the blast furnace. The Scope 3 Evaluator tool to help organizations screen scope 3 emissions categories to identify focus areas. The company has committed to a range of actions. These are emissions that organizations don't directly control but happen as a result of their operations. We find even lower percentages of Scope 3 reporting when we look at the individual Scope 3 categories.1, Scope 3 emissions contain 15 categories, to cover specific upstream and downstream value-chain activities. As with most ESG areas, Scope 3 requires the attention of the full leadership team. Scope 3 includes all other indirect emissions that occur in a company's value chain. Other upstream categories include business travel and employee commuting as well as emissions from waste generated and assets leased. For example, assume your organization produces electronic equipment. Spend ($, , ) * Emission Factor = Spend-Based Scope 3. Thus, in a way, Scope 2 emissions are a special kind of Scope 3 . A detailed estimation model can help highlight potential climate-transition . Developing a Scope 3 strategy starts with understanding the implications for your specific business. Within mining, scope 1 and 2 emissions account for 4%-7% of global greenhouse gas emissions. This would significantly reduce the reliance on metallurgical coke. Within the mining industry, there are three scopes of emissions: scope 1 covers direct emissions from operations; scope 2 covers indirect emissions from power generation; and scope 3 covers all other indirect emissions. The steel industry is responsible for about 7% of all manmade carbon emissions, . The main problem for these miners is that the heavy industries that turn iron ore into iron and steel are largely located overseas, in Chinese state-owned steel mills. Reporting This rises to 28% of global emissions however when accounting for scope 3, according to January estimates from McKinsey & Co. Overall, shipments were down 4.2% year on year at 1.19 million mt. But they are very much in the minority of miners, especially those invested in iron and steel production. Overview of GHG Protocol scopes and emissions across the value chain. The GHG protocol describes Scope 3 emissions as 'all indirect emissions that occur in the value chain of the reporting company, including both upstream and downstream.' According to the IPCC, many organizations report . But as a user of the energy, the consuming party is still responsible . Referencing 2018 as its baseline year, Vale registered 586MTCO2e from their value chain. Regulators are increasingly focusing on Scope 3. 2022 by S&P Global Inc. All rights reserved. 1. In April 2020, Shell announced "we aim to be a net-zero emissions energy business by 2050 or sooner". The exhibit below highlights the exposure of each sectorGlobal Industry Classification Standard (GICS2) sector to each category of Scope 3 emissions, providing insights into the potential risks facing each sector and the location of these risks within their upstream or downstream value chain. Asset Owners For companies selling an inherently polluting product, scope 3 emissions are unavoidable. Scope 3 Emissions. The GHG protocols apply to the direct and indirect emissions of carbon dioxide, methane, and other GHG gasses produced through the full cycle of a business's activities. The industry needs to do much more, he said. Scope 2 accounts for Greenhouse Gas Emissions from the generation of purchase d electricity, steam, and heating/cooling. Notes relating to indicators 1 & 2: Indicators 1 and 2 are calculated using route-specific energy . around 10%-20% of carbon emissions in the country, with production only ramping up. Scope 3 emissions have outsized importance to overall emission reduction. First, by choosing a progressive offset provider such as NativeEnergy, you can invest in a bespoke project that works directly with your supply chain to cut emissions. This lack of control has resulted in spiralling scope 3 emissions for several major miners. Disclosure of Scope 3 emissions, which make up the largest slice of corporations' carbon footprint, is patchy at best. Over a three year period: 2,300 participants were involved from 55 countries; 96 members participated in technical working groups to draft the standard, and; 34 companies from various industries road tested the standard in 2010. These emissions can come from a variety of sources, such as the production and transportation of materials, waste disposal, employee commuting, and the use of company-owned vehicles. Reducing the 2.8 billion tons of emissions from the steel industry will . Some miners have made an argument, such as Fortescue Metals Group, which recently announced intentions to reduce scope 3 emissions, that they resisted until they had a concrete plan that could help its customers decarbonise. Scope 3 emissions cover upstream and downstream emissions indirectly generated by a reporting organization throughout its value chain. EMEAI Fortescue's approach to reducing Scope 3 emissions . The fashion industry has significantly reduced Scope 1 and Scope 2 emissions However, 90% of the industry's emissions are from indirect (Scope 3) sources. Various processes and sources are divided into 3 scopes, simply named Scope 1, Scope 2, and Scope 3 of carbon emissions. Fortescue Metals Group has announced what it says is an industry-leading target to achieve net zero Scope 3 emissions by 2040, addressing emissions across Fortescue's entire global value chain, including crude steel manufacturing which accounts for 98% of the company's Scope 3 emissions. While direct GHG emissions from blast furnace, boilers and vehicles and other alike sources owned or controlled by an . Miners including Glencore, Newmont, BHP, Vale, and Rio Tinto have all committed to carbon neutrality by 2050. In terms of the current short-term outlook, Kloeckner sees the steel price environment improving, backed by an expected increase in real steel demand in 2022 in the US by 8%-12% and Europe by 4%-8% in the construction and mechanical engineering industries in both regions. | : One of the biggest emitters of carbon in the iron making value chain is the use of metallurgical coke in the blast furnace, and the simplest way we can influence how that is reduced is by upgrading the material before shipping it overseas. He added there are opportunities in construction and the carbon fiber space to use more steel. the importance of reducing its scope 3 emissions. Addressing these Scope 3 emissions is a critical issue in aviation, as they constitute the majority of emissions for most airports. The GHG Protocol also provides the following scope 3 resources: EPA has developed the following scope 3 resources: Depending on the source, scope 3 emissions can be quantified using either primary data specific to the activity within a companys value chain, or by using secondary data such as industry averages, proxy data, or other generic data. Scope 3 Emissions which are associated with the extraction, preparation and transport of ores and the subsequent production and transport of ferro-alloys including the electricity needed for these processes. In 2020, Vales activities resulted in 491.1MTCO. ESG Research What should our board know and understand about Scope 3 and our business? The steel industry generates about 7% of all man-made emissions -it is the largest emitting manufacturing sector. Scope 3 emissions: how the freight industry will transition to net zero. A Scope 3 emission is any indirect emission that results from activities related to a company or organization. Scope 1 and 2 carbon emissions will sit within your organization, while Scope 3 GHG emissions tend to be out of your control. How can we build a scalable and secure emissions data model for our complete value chain? Sign up below to receive the latest updates and news from MSCI. The webinar will explain what is meant by Scope 3 emissions, how you can identify your relevant emission sources and how you can approach the calculation of your Scope 3 carbon footprint. An official website of the United States government. Scope 3. PwC can help you understand what the rule says and what to do next. The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard presents details on all scope 3 categories and requirements and guidance on reporting scope 3 emissions. What will it cost the business to calculate and manage our Scope 3 emissions for each category, for each product and what resources should we deliver? | For some businesses, that could mean hundreds or thousands of stock-keeping units (SKUs). Scope 3 includes emissions that result from the production of purchased goods or raw materials, from upstream transportation of raw materials, from distribution as well as from the use and end-of . Scope 3 Carbon Emissions: Seeing the Full Picture. Kloeckner signed a distribution deal with Swedish fossil-free steel venture H2 Green Steel in October this year to distribute up to 250,000 mt/year of green steel from 2025. Some miners have made an argument, such as. that Rios new emission reduction targets were a step in the right direction, but more was needed. Adding 18 billion of value to the UK economy, the Chemical industry is fundamental to modern society, underpinning global manufacturing supply chains, providing materials and products into a range of sectors from aerospace to pharmaceuticals, construction to consumer goods. Source: MSCI ESG Research LLC. Most diversified miners have focused on the reduction of their scope 1 and 2 emissions through various methods. Globally, the industry sector was most . Kerkhoff said Kloeckner is going to be the biggest customer of the H2 Green Steel venture once it starts production and the steel volume acquired from Kloeckner would address 10% of the stockholder's Scope 3 emissions. Additionally, the International Sustainability Standards Board (ISSB) and the US Electronic Subcontracting Reporting System (eSRS) have also drafted recommendations requiring some disclosure of Scope 3 emissions with the ISSB also requiring qualitative information to explain how reported emissions were calculated. Rio Tinto, whose scope 3 emissions measured at 491MTCO2E in 2020, set a target of at least a 30% reduction from 2030 in conjunction with the development of breakthrough technology with the potential to deliver carbon-neutral steelmaking processes by 2050. Below is a list of emission sources and the location of the factors in the GHG Emission Factors Hub.. Purchased electricity, heat and steam. Major miners have committed to focus on the investment into technology to reduce the carbon intensity of steelmaking. In short, Scope 3 emissions have largely been neglected until now. But as they fall out of the companys direct control, many companies avoid making direct statements on their reduction. How can we improve the quality of our data to better manage our emissions? The most ambitious scope 3 targets are set using a science-based targets setting method. 285.9 million metric tons of iron ore in 2020. If you're like most people, you're probably also wondering what exactly. However, some laggards, such as Rustic Norilsk Nickel, Southern Copper Corp, and Freeport-McMoRan, lack any net-zero target. In many businesses, this cross-company understanding and collaboration is only just beginning. However, more organizations are reaching into their value chain to understand the full GHG impact of their operations. Scope 3 carbon emissions are harder to track: Unlike Scope 1 and 2 emissions, Scope 3 emissions are not easily ring fenced and much more difficult to track accurately.With Scope 1 and 2, a company will normally have the source data needed to convert direct purchases of gas and electricity into a value in tonnes of GHGs. As a supplier, where do you even begin? Learn more about how energy tech company Baker Hughes is working towards net zero at scale. Understanding Scope 3 emissions is more complex than comprehending Scope 1 and 2. Vicky Murray, Sustainability Manager, Pukka Herbs. Some foreword thinking . The auto industry is expected to see some easing of the semiconductor shortage in 2022 as well, Kerkhoff said. The Sectoral Decarbonization Approach provides sector-based emission reduction pathways for corporate activities. He said steel would be able to replace other materials to achieve a greener supply chain and that the company is working on this with one customer. Vales CEO has stated in response that, after an initial estimate, Vale will be able to account for up to 25% of the total scope 3 reduction target through its portfolio, which sets the company apart from global competitors. . For some companies and industries, Scope 3 emissions dominate the overall carbon footprint. Direct emissions generated by assets owned or operated by the company (scope 1) Indirect emissions are generated from the purchase of energy; e.g. This goal extends across scope 1 emissions (direct emissions from sources owned or controlled by Yale, including emissions from our fleet of vehicles and our power plants) and scope 2 emissions . A new SEC rule requires all registrants to disclose information on climate risks. Some scope 3 categories do not require specific emission factors, because the emissions-generating activities have associated scope 1 and scope 2 factors already available in the GHG Emission Factors Hub. Within mining, scope 1 and 2 emissions account for 4%-7% of global greenhouse gas emissions. The Corporate Value Chain (Scope 3) Standard has been created through a broad, inclusive, multi-stakeholder process. The semiconductor shortage did have an impact on Q3 volumes. Its free and easy to do. The energy industry is expected to grow as well but mostly in the US, it added. This has led to significant skepticism being levied on these lofty claims of breakthrough tech and efficacy improvements that belie any concrete commitment. A .gov website belongs to an official government organization in the United States. A roadmap has been drawn up to help companies engage with suppliers to cut scope three supply chain emissions. To tackle the Scope 3 disclosure challenge, we developed a model to estimate these emissions across each of the 15 categories using a combination of revenue estimates and production data. To perform a spend-based emissions calculation you need three data sources: your purchases, your suppliers, and the corresponding emission factors. Primary data must often be collected directly from suppliers through a questionnaire or similar format. How can we most effectively align, engage and educate everyone in the C-suite to holistically address Scope 3? 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