Sustainable Insights

April 2023

Understanding carbon emissions: Have you heard of Scopes 1, 2, and 3?

This month’s newsletter aims at our efforts to deal with GHG by monitoring Scopes 1, 2, and 3.

Many businesses that have carbon responsibilities understand the scope of these obligations. For those who may be hearing this for the first time, it is vital to know the importance of Scope 3.

Before we understand what Scopes 1, 2 and 3 are, we must understand why.

Recent announcements from GAFA and other major companies show how significant their carbon footprints have become for businesses. Apple, for example, has committed to

making its supply chain carbon-neutral by 2030. Nine other huge companies (including Starbucks, Microsoft, Unilever and Nike) are founders of Transform to Net Zero, with the mission to accelerate the transition to a net-zero carbon economy.

The fact is, carbon emissions are responsible for 81% of overall GHG emissions, and businesses are responsible for a lot of them. The rest of the GHG emissions are methane (10%), nitrous oxide (7%), and fluorinated gases (3%). Businesses must monitor and report their CO2 emissions, which is the key first step in reducing them. To do so, companies must classify their carbon footprint into three categories.

By Definition: Scopes 1, 2, and 3 are a way of categorising the different kinds of carbon emissions a company creates in its own operations, and in its wider value chain

The term first appeared in the Green House Gas Protocol of 2001, and today, scopes are the basis for mandatory GHG reporting in the UK.

Scope 1 emissions: This one covers the GHG emissions that a company makes directly, for example, while running its boilers and vehicles.
Scope 2 emissions: These are the emissions that a company causes indirectly when the energy it purchases and uses is produced, like for electric fleet vehicles that the company may own and use.
Scope 3 emissions: In this category, go all the emissions associated not with the company itself but that the organization is indirectly responsible for up and down its value chain. For example, it benefits from buying products from its suppliers and from its products when customers use them. Emissions wise, Scope 3 is nearly always the biggest.

But factoring in the importance of Scope 3, it may be imminent that we are heading for a carbon bubble.

What everyone is talking about: ‘Is the Carbon Bubble the next financial crisis?

Experts believe that plunging prices for renewable energy and rapidly increasing investment in low-carbon technologies could leave fossil fuel companies with trillions in stranded assets and spark a global financial crisis.

A sudden drop in demand for fossil fuels before 2035 is likely, according to the study, given the current global investments and economic advantages of a low-carbon transition. The existence of a “carbon bubble”-assets in fossil fuels that are currently overvalued because, in the medium- and long-term, the world will have to drastically reduce greenhouse gas emissions—has long been proposed by academics, activists, and investors. The new study, published in the journal Nature Climate Change, shows that a sharp slump in the value of fossil fuels would cause this bubble to burst and posits that such a slump is likely before 2035 based on current patterns of energy use. This means an economic crisis. So, is supporting GHG contributing to a financial crisis?

Crucially, other findings suggest that a rapid decline in fossil fuel demand is no longer dependent on stronger policies and actions from governments around the world. Instead, it is found that the demand drop would take place even if major nations undertake no new climate policies or reverse some previous commitments. That is because advances in technologies for energy efficiency and renewable power and the accompanying drop in their prices, have made low-carbon energy much more economically and technically attractive.

Analysts assume that investors with high exposure to fossil fuels will lose money if the bubble bursts. If the oil price goes bust, then the prices will drop to a new low, which will hurt the economy in the long run.

So do we continue if the “carbon bubble” holds true? The answer is an absolute yes. This is what we stand for: Sustainability.

Trivia about climate change

The climate change scenario was much more stable before the industrial revolution and has been rapidly changing since then. Today, the reality is that climate change is going to get worse than yesterday.

The Earth had its second-warmest March on record, with the Antarctic Sea ice shrinking to its second-lowest extent, the EU’s climate monitoring agency said on April 6, 2023.

“The month was jointly the second warmest March globally,” said a report from the Copernicus Climate Change Service. The report is based on computer-generated analyses using billions of measurements from satellites, ships, aircraft, and weather stations around the world. It said temperatures were above average over southern and central Europe and below average over most of northern Europe. This is reality today but was dismissed by scientists about 130 years ago.

In 1896, the Swedish scientist Svante Arrhenius published a new idea. As humanity burned fossil fuels such as coal, which added carbon dioxide gas to the Earth’s atmosphere, the planet’s average temperature rose. This “greenhouse effect” was only one of many speculations about climate change, however, and not the most plausible. Scientists found technical reasons to argue that our emissions could not change the climate. In the 1930s, people realized that the United States and the North Atlantic region had warmed significantly during the previous half century. Scientists supposed this was just a phase of some mild natural cycle, with unknown causes. Only one lone voice, the amateur G. S. Callendar, insisted that greenhouse warming was on the way. In the 1950s, Callendar’s claims provoked a few scientists to look into the question with improved techniques and calculations. The new studies showed that, contrary to earlier crude estimates, carbon dioxide could indeed build up in the atmosphere and cause warming.

In recent years, over 70 countries have committed to achieving net-zero carbon emissions, aiming to become carbon neutral by the middle of the century. The 2015 Paris Agreement aimed to keep global warming below 2 degrees Celsius and ideally limit it to 1.5 degrees above pre-industrial levels. Despite global efforts, emissions are still rising, and achieving the 1.5-degree goal has become increasingly difficult.

Moving on the right track

Rather than looking at short-term economic benefits, let’s focus on the long-term socio-cultural lineage that the Earth and humanity stand for. Protecting resources is how we benefit from them. What we need is a multi-stakeholder partnership of businesses, non-governmental organizations (NGOs), governments, and others, which we already have. Reducing GHG is not difficult, and here’s why the three scopes are important.

Measuring all 3 emissions scopes allows you to:

Identify partners and suppliers who are not performing well regarding sustainable indicators.
Underline potential useless expenses and risks in your supply chain (functionally and commercially).
Highlight cost reduction and improvement opportunities.
Measuring your all 3 emissions scopes allows you to:
Define and implement an action plan to decrease your carbon footprint.
Engage customers, employees, investors, and partners in a sustainable approach and gather them around both your name and a common goal.

Anticipate legal evolutions in companies’ obligations toward sustainable development.
Contribute to national efforts toward Net Zero

Scientists believe that by 2030, climate change may be irreversible, and this is why you must start measuring your scopes today. Companies of all sizes and in all industries need to reduce their carbon emissions and address sustainability issues within their operations to become net-zero businesses. Companies that succeed in reporting all three scopes stand to gain a competitive edge over others in the long run.