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Could “Scope 4” emissions reporting be on the horizon?

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 6 minute read

Natalie Runyon  Director / ESG content & Advisory Services / Thomson Reuters Institute

· 6 minute read

Scope 4 emissions is an emerging category that is slowly gaining some traction as companies are just beginning to understand what they represent across their value chains and how to measure them

In the realm of sustainability, the effort to measure and mitigate greenhouse gas (GHG) emissions is critical in combating climate change. Traditionally, businesses focus on Scope 1, 2, and 3 emissions, which cover direct and indirect emissions sources, including those from the organizations’ upstream and downstream suppliers. However, a new category, known as Scope 4 emissions, is gaining attention for its role in capturing the broader impact of a company’s activities that fall outside the conventional three other Scope categories.

Defining Scope 4 emissions

First, it is important to note that although the term Scope 4 is utilized, it is an unofficial term and is not recognized within the GHG Protocol Standard, which is the most widely recognized carbon accounting methodology. Generally speaking, Scope 4 captures emissions related to a company’s products or services that can be avoided, facilitated, advertised, or advised. They are industry-agnostic and can apply to any business whose products or services can generate emissions throughout their life cycle. A few companies already are reporting some aspects of their Scope 4 emissions.

For more companies to comply, however, they need to better understand the components of Scope 4 emissions, such as:

Avoided emissions — This component of Scope 4 emissions is the most common and is calculated based on the environmental impact in the production of a product or service across its lifecycle. For example, avoided emissions are found in the production of reusable water bottles, as compared to single-use plastic bottles. In this way, Scope 4 considers the full life cycle of each product — in this case, reusable bottles, which despite requiring more resources initially, can lead to fewer emissions over time as they displace the need for producing and disposing of multiple single-use bottles.

Facilitated emissions — This is related to avoided emissions and occurs in cases in which professional services firms work with their clients to increase or decrease those emissions. For example, an engineering firm’s design of a new building development can facilitate avoided emissions by reducing operational emissions and lower those emissions that occur during the production and transportation of goods, often referred to as embodied emissions. The design firm also can base the design on innovative low-carbon materials thereby further reducing the embodied emissions associated with the building’s construction phase.

Advised emissions — The concept of advised emissions captures those created by professional services firms when they are working with external clients in pursuing projects that increase or reduce a client’s GHG footprint. Law firms, for example, often provide services that can indirectly affect GHG emissions. A firm that supports permitting and litigation matters for companies involved in fossil fuel projects is an example of increasing advised emissions, while legal support for regulatory compliance work on a renewable energy project is an example of a reduction in advised emissions.

Advertised emissions — This group of emissions arises from sales growth in response to an advertisement campaign. Advertising agencies can indirectly influence emissions through campaigns that increase the sales and production of consumer goods. A successful advertisement that boosts the demand for a high-emission product can lead to an increase in Scope 4 emissions due to the additional production required to meet consumer demand. Conversely, a campaign that helps to increase consumption of products that lower emissions can be classified under this category as well.

Scope 4 emissions reporting unlikely to emerge from periphery

Despite their overall positive intent, Scope 4 emissions are likely to remain on the periphery for some time into the future, according to Helena Walsh, a sustainability expert and managing partner at Agendi, a boutique climate and sustainability consulting firm. First, calculations are laborious. “A credible calculation requires careful consideration to include the full boundary of emissions impacts,” Walsh states, adding that for example, helping clients account for their avoided emissions that are associated with their products, services, or decisions for credible integration into public reporting need to include many factors.

First, a baseline of emissions has to be established for the traditional activity or product that is being replaced along with an evaluation of any additional stakeholder that may share the claim. Second, a comparative lifecycle assessment has to be used to assess all stages of the environmental impact of a product or action throughout its lifecycle. Then, a comparison of the client’s product or service to the baseline has to be conducted to quantify the avoided emissions.

Scope 4
Helena Walsh of Agendi

“A credible calculation requires careful consideration to include the full boundary of emissions impacts… [that contains a holistic analysis] “to consider potential contributing factors and unintended consequences that might arise.”

With the calculation of avoided emissions complete, Walsh explains, a holistic analysis is then undertaken to “consider potential contributing factors and unintended consequences that might arise.” Finally, strategic guidance is provided on how to incorporate these results into public reports with credibility as well as to ensure transparency on the methodologies used to quantify the reported emissions.

Clearly, the decision to undertake Scope 4 emissions requires accuracy and transparency and entails some risk, such as greenwashing accusations. For companies that are looking to voluntarily report on avoided, facilitated, advised, or advertised emissions, Walsh recommends that they ensure their calculations are based on a consequential accounting approach (such as such as the Guidance on Avoided Emissions by the World Business Council for Sustainable Development; the Avoided Emissions Framework developed by Net Zero Compatible Innovation Network; and the World Resource Institute’s working paper Estimating and Reporting the Comparative Emissions Impacts of Products.)

These works consider all unintended consequences while explicitly providing transparency in the methodologies and assumptions in an accompanying document or statement. “We always recommend our clients be fully transparent in terms of the methodology used and disclose all assumptions used throughout the calculations to further build stakeholder trust,” Walsh says.

Looking forward, Walsh says that she believes that detailed sector-based methodologies are necessary for credible Scope 4 emissions reporting, but that they are not likely to become commonplace within the next few years. Indeed, many companies are only just coming to grips with their traditional three-Scope emissions inventories and are not ready to expand to non-traditional emissions or accounting boundaries.

Yet, Welsh adds that she is hopeful. “Scope 4 emissions do have a place in demonstrating organizations’ transition plans as part of details of climate-related solutions” and in their current use, are meant “as a means to show positive contribution to solutions for the future.”

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