Sustainability reporting has become a critical aspect of corporate responsibility, with companies around the world being expected to disclose their environmental, social, and governance (ESG) efforts. The most widely recognized frameworks for sustainability reporting—such as the GHG Protocol—focus on three main “scopes” to track greenhouse gas (GHG) emissions. But what about scope 4? All is explained here:
Scope 1 – Direct emissions from owned or controlled sources (e.g., fuel used by company vehicles).
Scope 2 – Indirect emissions from the generation of purchased electricity consumed by the company.
Scope 3 – Indirect emissions from activities across the value chain, including both upstream and downstream emissions, everything from business travel to waste disposal and the lifecycle of products.
But in recent years, an emerging concept “Scope 4 Reporting” has been making waves in sustainability circles. Scope 4 reporting goes beyond these traditional boundaries to capture the positive impact of products, services, or activities that contribute to reducing emissions in the wider economy.
So, what is Scope 4 reporting, can your organization do it, should you do it, and how hard is it? Let’s explore.
What is scope 4 reporting?
Scope 4 refers to the emission reductions enabled by a company’s products, services, or activities that lead to a positive environmental impact outside of the direct operations of the company. It is a concept that extends the idea of carbon emissions reporting out into broader society. It typically refers to avoided emissions — the emissions that are avoided or reduced due to the products or services a company provides.
In other words, it’s the positive environmental impact your business might have by offering sustainable products or services that help others reduce their own emissions.
For example:
– A company that produces solar panels would not only account for the emissions in its own operations (Scope 1, 2, 3) but may report the emissions avoided by their customers using renewable energy instead of fossil fuels.
– A public transportation provider might report the reduced emissions from people switching from private car use to mass transit, or reductions from its employee cycle to work scheme.
– A green building materials supplier could highlight the emissions saved from using their eco-friendly materials in construction projects that lower energy consumption in buildings.
– A clothing reseller could calculate the amount of carbon prevented by the customers purchasing preloved items instead of the manufacturing and shipping costs of buying new.
Scope 4 is all about quantifying the avoided emissions and the positive impact that a company’s products, services and solutions have in addressing global challenges like climate change.
Can you do Scope 4 reporting?
The short answer is: Yes, but with challenges.
The ability to do Scope 4 reporting depends on the nature of your products or services and your ability to accurately quantify the emissions reductions or avoided emissions. Here are some key considerations:
1. Clear value proposition: Your company needs to have products, services, or activities that actively contribute to reducing emissions outside your direct operations. This could be anything from renewable energy technologies, energy-efficient products, or waste reduction solutions.
2. Data availability: To report Scope 4, you need robust data on how your products or services are being used by customers and the actual impact they have on emissions. For example, if you produce electric vehicles, you would need to track how much carbon dioxide is saved by customers driving your cars instead of gasoline-powered ones.
3. Methodology: Unlike Scope 1, 2, and 3 emissions, Scope 4 isn’t yet governed by a standardized global methodology. This means you may have to develop internal processes or use third-party experts to calculate and report the avoided emissions. There’s some flexibility, but also complexity in getting it right.
4. Estimates vs. direct measurement: Often, Scope 4 reporting involves estimating the potential impact of your product or service. This can involve using lifecycle analysis (LCA) tools, emission factors, and assumptions about customer behavior—methods that aren’t always precise, but they can give you an educated estimate.
Should you do Scope 4 reporting?
Whether or not you should engage in Scope 4 reporting depends on your business’s sustainability strategy, goals, and the expectations of your stakeholders.
Here are some reasons you might want to consider doing Scope 4 reporting:
1. Demonstrating Leadership in Sustainability: Reporting avoided emissions highlights your company’s proactive role in the global fight against climate change. It shows that you’re not just minimizing your own emissions but are actively enabling others to reduce their environmental impact.
2. Attracting Investors and Customers: Sustainability is increasingly important to both investors and consumers. Companies that can demonstrate meaningful environmental impact through their products may stand out as leaders in their industry. Scope 4 reporting provides a way to communicate the broader value your company brings to sustainability.
3. Enhancing Credibility: As sustainability reporting becomes more sophisticated, consumers and investors are looking for more than just a reduction in Scope 1, 2, and 3 emissions. Scope 4 can show that your business is part of the solution, not just managing its internal footprint.
4. Aligning with Regulatory Trends: While Scope 4 is not yet a formal part of most reporting frameworks, it could become more mainstream as the demand for transparency around avoided emissions grows. Proactively adopting Scope 4 reporting can position your company well ahead of regulatory trends.
There are challenges though
1. Lack of Standardisation: As mentioned, Scope 4 is not yet widely standardized. You’ll need to invest in developing methodologies for your reports, and this could be resource-intensive, especially if your company operates in a sector with complex supply chains or customer use cases.
2. Difficulties in Measurement: Accurately quantifying avoided emissions can be tricky, especially when indirect or secondary impacts are hard to measure. Your estimates might be based on assumptions, which could reduce the credibility of the report if not done carefully.
3. Stakeholder Skepticism: Because Scope 4 is an emerging concept, some stakeholders might question the validity of your claims or the accuracy of your estimates. Without a universally accepted methodology, there’s a risk of being perceived as overstating the environmental benefits of your products.
How hard is Scope 4 reporting?
The difficulty of Scope 4 reporting varies depending on your business and the sophistication of your sustainability practices. Here’s a breakdown:
1. Data Collection: The hardest part might be collecting accurate data. You’ll need information on how customers are using your products, what behaviors are being changed, and the broader environmental effects. This can involve tracking customer behavior (e.g., how many people switched from petrol to electric cars), which might require external partnerships or customer surveys.
2. Calculation Complexity: Once you’ve gathered data, calculating avoided emissions can be complex. It often requires sophisticated life-cycle analysis or emissions factors to estimate how much GHG is reduced. This can be difficult without experts in carbon accounting or sustainability.
3. Resources and Expertise: Depending on the size of your company and its sustainability maturity, you may need to invest in specialized tools, systems, or external consultants to do Scope 4 reporting accurately. Larger companies with dedicated sustainability teams may find it easier, while smaller companies may struggle to allocate resources unless they can find a simple matrix for calculation.
4. Communication: Lastly, communicating Scope 4 emissions clearly and transparently is crucial. It’s important to provide context for stakeholders to understand how you arrived at your estimates and ensure that your claims are substantiated by reliable data and methodologies.
Despite these hurdles, many companies are increasingly interested in Scope 4 reporting because it can highlight the positive climate impact of their products and their brand, demonstrating leadership in the sustainability space.
Conclusion
Scope 4 reporting represents the next frontier in sustainability, focusing on avoided emissions and the positive environmental impact your company’s products or services have in the broader economy. While it’s a valuable tool for showcasing leadership in sustainability, it also comes with its challenges, such as the lack of standard methodologies and the complexity of accurate measurement.
If your company offers solutions that can help reduce emissions in the wider world—whether through green technologies, energy efficiency, or sustainable products—Scope 4 reporting can be a great way to show your contribution to solving global environmental challenges. However, it’s important to weigh the resource investment required and ensure that you have the data, expertise, and systems in place to report accurately.
In the future, Scope 4 may become a mainstream element of corporate sustainability reporting, and early adoption could provide your company with a compelling competitive edge. But as with any emerging concept, it requires careful planning and consideration.
Rumage offers an easy start into reporting prevented emissions through brand activity. Utilising the “plug and play” circular economy solution, quantifiable data on customer acquisitions is delivered in a regular reporting format.
Images by;
Marta Longas, Black ice, Cristiana Raluca Recha Oktaviani
Furher reading – Why sustainable reporting matters even if it is not legally required