What To Learn From Tesla’s Supply Chain Emissions Declarations

The world has been getting more and more serious about reducing carbon emissions. It no longer makes good business sense to lag in one’s sustainability goals. 

A case in point is electric vehicle company Tesla, which, in its recently published 2022 Impact Report, disclosed its supply chain or scope 3 emissions for the first time. The EV maker admitted it has undercounted its supply chain emissions in the past and that “to take steps to significantly reduce our impact, we must understand the true emissions footprint of our supply chain.”

As tighter regulations and stricter penalties take effect across the globe, forward-thinking companies must identify, measure, track and reduce their carbon emissions.

Also read: Inflation Reduction Act: How to Secure Tax Credits for Clean Energy

The Perils of Scope 3 Emissions

The three types of emissions are defined as: Scope 1, which is direct emissions from sources a company owns and operates; Scope 2, which is indirect emissions produced by energy generation; and Scope 3, which is all indirect emissions that occur in a company’s value chain both upstream and downstream.

For many companies, Scope 3 emissions are the greatest percentage of their greenhouse gas emissions, accounting for over 70% of their carbon footprint. And therein lies the challenge: all the required data lies largely outside the control of the reporting organization. 

It’s what Tesla has been grappling with, too. 

Measuring and reporting Scope 3 emissions is tricky for several reasons:

• For large companies, supply chain partners can be across the globe and in thousands. The sheer number of partners makes it a daunting task
• The data needed for calculating Scope 3 emissions has to come from outside the reporting company. Often, a company’s partners are not tracking their own emissions (not even Scope 1 and 2) or not doing so reliably. It leads many organizations to estimate their Scope 3 emissions based on a small, available sample, which may not be truly indicative
• Collecting and evaluating relevant data is a time- and resource-intensive exercise that requires a high level of collaboration and coordination. It also needs technical expertise in carbon measurement, data management, etc., which an enterprise may not necessarily have
• Calculating Scope 3 emissions is a complex process. The lack of a standardized global methodology (should it be supplier-specific or spend-based or hybrid or an average?) adds to the difficulty

Also read: How to Drive ESG Visibility and Traceability Across Your Supply Chain

How to Tame Scope 3 

Whatever be the challenges, enterprises must get on with measuring their Scope 3. While reporting Scope 3 has not been mandatory, organizations are running out of time as many regulations and laws are set to kick in soon that makes it compulsory: For example, the U.S. Securities and Exchange Commission (SEC), European Union’s Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) have all drafted recommendations requiring some disclosure of Scope 3 emissions. 

This activity must necessarily involve your procurement team, not just because it has strong relationships with your key suppliers but also because procurement will be instrumental in selecting suppliers in the future that have the capabilities to gather and report emissions data and be compliant.

A good place to start is by identifying the scope. There are 15 categories in Scope 3 emissions, so determine those that are relevant to your business. 

Here, it’s important to remember that you will most likely not be able to tackle all relevant categories simultaneously – it may be impractical and overwhelming. Within the relevant categories, identify those where emissions can potentially be reduced by factors such as size, risk, influence and effort. As the exercise progresses, you can gradually expand the categories.

Work with your partners to understand the availability of data. Awareness and collaboration are critical here. Once your trading partners understand that measuring and reporting emissions data will be good for their business as well, work together to improve their data and reporting capabilities.

Determine how to calculate emissions. The Greenhouse Gas Protocol outlines three methods to calculate Scope 3 emissions: supplier-specific, spend-based and average-data methods. Many companies adopt a hybrid approach, combining these to get results.

Identify technology that will integrate seamlessly with your existing ERP and other software to manage supplier scoring, emissions data, calculation, reporting using GHG Protocol-supported methodologies, etc. Bolt on niche sustainability tools as and when you need.

Consider external help as your organization may not have all the resources and expertise required to manage Scope 3 emissions. Consult with experts to develop best-in-class strategies and benchmarks, get recommendations on suitable tools, manage carbon accounting and, of course, drive actionable decarbonization efforts. 

Learn how GEP can help your organization monitor and report scope 3 emissions