Business Sustainability Strategies for Reducing Scope 3 Emissions

New sources of granular data can give companies a more holistic understanding of their environmental impact.

By Gary Wollenhaupt

By Gary Wollenhaupt June 8, 2023

Increasingly, more businesses realize that IT operations account for the majority of their energy costs and are searching for ways to operate more efficiently. When booking business travel, they buy carbon offsets to counter the greenhouse gas emissions from the flight. Before purchasing any product, they consider how much oil was used to manufacture and deliver it. 

Environmentally-conscious companies are entering a new phase of their sustainability journey. They’re looking more broadly to find ways to limit their impact on the planet. To achieve the Paris Climate Agreement’s goal of net-zero operations by 2050, companies are moving beyond Scope 1 and Scope 2 emissions and finding ways to cut Scope 3 emissions.

The GHG Protocol’s Corporate Accounting and Reporting Standard defines each scope as:

  • Scope 1: Direct GHG emissions – These occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned, or fuel burned when operating an organization's fleet of vehicles or to heat facilities.
  • Scope 2: Electricity indirect GHG emissions – This accounts for GHG emissions from the generation of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational boundary of the company. Scope 2 emissions physically occur at the facility where electricity is generated. 
  • Scope 3: Other indirect GHG emissions – this is an optional reporting category that allows for treating all other indirect emissions. Scope 3 emissions are a consequence of the company's activities but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials; transportation of purchased fuels; and use of sold products and services. 

To understand Scope 3 and learn how to reduce them, enterprises are tapping into new data streams and using cloud-based analytics tools to create a more accurate picture of their environmental impact.

What Are Scope 3 Emissions?

Scope 3 emissions are emissions from assets and activities that are outside of a company’s direct control, including those from business travel; employee commuting; the transportation and use of sold products; and the manufacturing, distribution and disposal of purchased goods.

According to the U.S. Environmental Protection Agency (EPA), these emissions often constitute the bulk of an organization’s greenhouse gas emissions. For example, emissions from its vehicles account for 75% of Ford’s Scope 3 emissions.

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HP found that nearly all of its emissions — 99% of them — are Scope 3, with 70% coming from the supply chain and 30% from customers’ use of its products. 

“With our supply chain representing over two-thirds of our emissions, our mandate was clear: To reduce the footprint of our printers, computers and monitors, we had to reduce the footprint of the components, manufacturing, assembly and transportation of those items,” James McCall, HP’s chief sustainability officer, said in a news release.

What qualifies as Scope 3 emissions depends on perspective. For airlines, the emissions from jet engines are Scope 1 — the direct result of their operations. For business travelers on board, however, the same emissions are Scope 3.

Business travel is a good example because even routine activities like flying matter in the drive to reduce greenhouse gas emissions. The implications for even a small company can be overwhelming. Every activity has some cost to the environment. It’s a daunting challenge, but organizations can’t meet their sustainability goals unless they solve it.

Climate change advocates link the business case for managing emissions with the discipline of better financial management to deliver results for the company and the environment.

“Just as value chains can be optimized to increase value to the finished products or services, they can and must be optimized to reduce climate risk and realize opportunities to create and offer new products and services that support a lower emissions future,” Laura Draucker, Ph.D., and Nako Kobayashi wrote in a blog post for sustainability nonprofit Ceres.

Why Scope 3 Emissions are Hard to Manage

Although it’s required in some countries, Scope 3 reporting currently is voluntary in the United States. Organizations like the Center for American Progress are pushing to make it mandatory, but reporting is not an easy task.

Because Scope 3 emissions are the result of actions by third-party individuals and organizations, they’re the most difficult emissions to track and measure. And yet, tracking and measuring is critical. After all, you can’t manage what you don’t measure

Without delving deep into its value chain, it’s impossible for a company to understand the full impact of its operations. Armed with more accurate emissions information, companies can influence the activities that cause emissions and choose suppliers or vendors that do business in a more environmentally responsible fashion.

Some companies calculate Scope 3 emissions using the peanut butter method — taking an average number and spread it around. Consider a winter jacket from Guess, with suppliers in more than 30 countries. The cloth comes from a factory in one company, the zippers from another and the elastic trim from a third. The components are shipped to another country for assembly, then distributed worldwide. It’s difficult to calculate that jacket’s actual carbon footprint.

“The suppliers may spread the emissions calculations across all their products and come up with an average, called a spend factor,” said Ted Grozier, chief sustainability officer at environmental, social and governance (ESG) consultancy Good.Lab.

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If a company spends a given amount on air freight, it assigns each shipment an average emissions number. But that number is likely way off. Did the air freight carrier have to circle a while before landing, or use more fuel than average fighting a headwind? It all adds up.

Some Scope 3 sources, such as employee commuting and transportation, are relatively easy to capture. But think about the emissions from making steel, concrete and other carbon-intensive commodities that go into products and buildings. Steel production emits nearly 3 kilograms of carbon dioxide to produce 1 kilogram of steel. Some commodities like aluminum are even higher. Embedded emissions data from raw materials and manufacturing must also be factored in.

Because one company’s Scope 1 emissions are another company’s Scope 3, there could be double or more counting of carbon outputs. Perhaps some value chains are not actually responsible for as much carbon as we think. Some might be responsible for more. It takes diligent data collection and analysis to get closer to reality.

How to Reduce Scope 3 Emissions

Sustainability data providers are helping companies move beyond the peanut butter spread to calculate emissions at an individual product level, from a concrete culvert to a tin of spices to a data center server.

A life cycle assessment can uncover hidden sources of emissions and guide the way to improvements. For example, a light bulb assembled in China uses raw materials from around the world and is shipped to the United States for sale. Each component has embodied emissions as well as emissions from manufacturing and transportation. Going forward, the light bulb manufacturer could specify recycled steel instead of virgin steel to reduce overall carbon emissions.

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Online auction giant eBay is working to calculate the environmental impact of its circular economy, where consumers buy used items instead of new ones. It’s not a direct 1:1 offset, but eBay’s reselling of existing goods cuts emissions and landfill waste by 20% to 40%, Chief Sustainability Officer Renee Morin told Politico. Ebay has tackled its Scope 3 emissions by reducing shipping and transportation of auction items and plans to use truck fleets with electric vehicles.

Wireless carrier T-Mobile is targeting emissions from users who charge their devices as well as suppliers that manufacture and ship devices and products the company sells. Scope 3 emissions represent 71% of the carrier’s carbon footprint. T-Mobile reduced emissions from transportation by the equivalent of 833 trucks and 313 vans by making better use of space and switching to lower-emissions vehicles, Caroline Milanesi wrote at Forbes.com.

Capturing Cloud Carbon Data

Thanks to the growing role of technology and digital transformation in modern enterprises, IT operations are an especially important focus for companies that want to reduce Scope 3 emissions.

In particular, companies that rely on cloud services and data centers need to know how much carbon their compute load in the cloud generates. The peanut butter method has flaws. If you spread the average energy use for a server to every customer, you could be wildly overcounting carbon emissions.

“We’re seeing 30% to 60% errors with that approach,” said Shawn Novak, chief sales officer for environmental data provider nZero.

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“This will bring in a wider range of thought to problem-solving and investigation,” shared System Architect Katie Baynes in an interview about her role in NASA’s cloud computing initiative. “We’ll realize that collaboration across great distances and across scientific disciplines is possible in unique and exciting ways.”

Pursuing Partnerships

NASA’s partnerships are an integral part of their goal of utilizing open data to further the progress of earth science. 

The aforementioned NASA initiative to migrate data to the cloud has been enhanced by their partnership with Amazon Web Services to make the NASA Video and Images Library more user-friendly across platforms and devices, increasing ease of accessibility for the general public.

The Forecast reported on NASA’s partnership with aviation industry leaders to create safer skies by creating a drone traffic management system that would update real-time to alert pilots with updates on changing weather and air traffic conditions as well as potential hazards.

Most recently, NASA has partnered with the European Space Agency (ESA) and the Japan Aerospace Exploration Agency to create the NASA COVID-19 Dashboard, which tracks environmental changes happening as a result of the worldwide response to the pandemic.

Each of these projects have a common thread: increasing data accessibility to accomplish a common-good goal.

Crowdsourcing Innovation

In an ongoing way, NASA’s open data encourages innovative solutions from researchers and scientific minds around the world.

NASA Earthdata takes an even more intentional step toward this end through their Competitive Programs, which offer funding for solutions and technology advancements that can improve systems and add new knowledge and insights.

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Without very granular data, no one knows how many users are consuming energy from a given server at a given time. This lack of insight could be costly.

“People may be buying carbon offsets, but they’re buying much more than they need,” Novak said.

Cloud service providers like Amazon AWS and Google are working to reduce the carbon load of their data centers. However, as demand for cloud services grows, so do the carbon emissions that power the cloud. For Microsoft, Scope 3 emissions account for 98% of its carbon footprint, with increasing demand for cloud services for business and gaming.

Google’s 24/7 Carbon Free program shifts compute loads among data centers worldwide to take advantage of renewable energy. When wind turbines are turning in Denmark, more compute load is shifted there to take advantage of low-carbon energy. As the wind dies down, the load is shifted to other data centers to follow green energy production. Google monitors the use of renewable energy on an hourly basis.

Amazon AWS offers a customer carbon footprint tool to show users how carbon emissions will fall as Amazon achieves its net-zero carbon target by 2040, with increased use of renewable energy.

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Architecting Sustainable Data Centers

Rather than using static grid factors or industry averages, Nutanix works with nZero to help measure emissions by using the actual grid mix of energy at the time of consumption. nZero, which Time Magazine’s Best Invention in 2022, provides insights from 24/7 monitoring that can inform strategies for reducing emissions.

“The first step is to accurately measure and report emissions,” said Andrea Osika, who manages the greenhouse gas (GHG) inventory that’s disclosed in the annual ESG Report for Nutanix.

“Scope 3 is the easiest to explain but the hardest to measure since you're at the mercy of your value chain.”

She said most models for measuring Scope 3 emissions today are spend based, like the one provided by the EPA. There’s no standard mandate for which of the 15 Scope 3 categories should be reported.

“Instead, reporting companies should develop their own significance threshold based on their business goals,” she said, pointing to GHG Protocol.

Business travel is often looked at first, maybe because it's easiest to measure, Osika said. Choosing economy over business class flights can equate to less space used on the flight.

Businesses could also buy less stuff. Osika said IT teams often buy hardware to meet future needs, but over-provisioning is wasteful.

She said Nutanix enables IT teams to buy only what they need, then they can spin up computing resources quickly when needed and back down when needs subside. Instead of having separate hardware for storage, computing and networking, a hyperconverged infrastructure (HCI) uses one platform that can help reduce a company’s IT footprint. This can make a significant impact by lowering emissions from sourcing, assembling, packaging and shipping of equipment that is not or underutilized.

Osika pointed out that running IT operations on Nutanix technology can enable up to 35% less energy consumption than 3-tier architectures.

Eventually, data center customers will know their true carbon footprint on an hourly basis. However, data is not exactly real-time. It has to be trued up or reconciled based on the utility’s actual consumption and emissions. Perhaps there were a few cloudy days, so less renewable energy was used, raising the carbon footprint from using more fossil fuel energy than anticipated.

Managing the flood of data from Scope 3 activities will improve as the motivation to meet emissions goals continues to develop. Although it’s not an easy task, it’s a necessary one.

“I think Scope 3 emissions is the challenge of our time,” said Good.Lab’s Grozier. “It’s the hardest thing to solve for, but it’s the most important.”

Editor’s note: learn about efforts to manage emissions in Nutanix’s ESG report.

Gary Wollenhaupt is an award-winning writer, editor and photographer based in Phoenix, Arizona. Connect with him on Twitter or LinkedIn.

© 2023 Nutanix, Inc. All rights reserved. For additional legal information, please go here.

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