Tackling Scope 3: Data Quality

In today's business landscape, carbon accounting has moved from being a niche concern to a mainstream necessity. Among the various scopes of emissions, Scope 3 often proves to be the most complex to measure and manage. This article aims to shed light on the various methods of gathering Scope 3 data and the impact these methods have on data quality. 

The Importance of Data Quality in Scope 3 Reporting 

Data quality is the cornerstone of any robust sustainability strategy. Inaccurate or incomplete data can lead to misleading reports, poor decision-making, and even regulatory penalties. High-quality data, on the other hand, enables businesses to identify areas for improvement, allocate resources more efficiently, and build credibility with stakeholders. 

As regulations around carbon emissions become more stringent, the quality of your data can be the difference between compliance and non-compliance. Accurate Scope 3 data is essential for fulfilling mandatory reporting requirements and avoiding penalties. 

The Risks of Poor Data Quality 

• Regulatory Risks: Inaccurate reporting can result in non-compliance with environmental regulations, leading to fines and legal repercussions. 
• Reputational Risks: Poor data quality can undermine stakeholder trust and tarnish a company's public image. 
• Operational Risks: Without accurate data, companies may invest in ineffective sustainability initiatives, wasting time and resources. 

The Benefits of High-Quality Data 

• Strategic Decision-Making: Accurate data allows companies to make informed decisions, prioritize initiatives, and allocate resources effectively. 
• Stakeholder Engagement: High-quality data enhances transparency, building trust with shareholders, customers, and the community. 
• Competitive Advantage: Companies that effectively measure, manage, and report their Scope 3 emissions are better positioned to lead in the marketplace. 

The Importance of Data Granularity 

The level of detail in your data—often referred to as data granularity—can significantly impact how meaningful it is. Having both a high level organisational view as well as the ability to drill down into individual sites, departments, or even individuals, can be highly insightful.  

However, while high granularity allows for more precise calculations and insights but may require more resources to collect and analyse. Companies must find a balance that suits their specific needs and capabilities. 

The Three Main Approaches to Gathering Scope 3 Data 

When it comes to gathering Scope 3 data, businesses generally have three primary methods to choose from: Activity-based, Production-based, and Spend-based.  

Keep in mind that it’s rare for a company to use a single method to calculate the entirety of its footprint, so an organisation may mix and match based on specific circumstances around an emissions source. 

Read more: Tackling Scope 3: Supplier Engagement 

Activity-Based Method 

Activity-based emission factors measure the emissions associated with specific activities. For example, if your company operates a fleet of delivery trucks, you would gather data on the number of miles each truck drives and the type of fuel used. This data is then used to calculate the emissions produced. 

Advantages: 

• High level of accuracy. 
• Enables targeted emission reduction strategies. 

Disadvantages: 

• Time-consuming data collection. 
• May require specialized software or expertise. 

Real-World Examples 

• A delivery business uses activity-based emission factors to measure the emissions of its delivery fleet. This data helps the business optimize routes and improve fuel efficiency. 
• A furniture company uses this method to identify emission-intensive parts of its supply chain, allowing for targeted improvements like shifting to renewable energy sources. 

Production-Based Method 

Production-based emission factors focus on the emissions produced during the manufacturing, transportation, and disposal of goods and services. For instance, if you're in the textile industry, you would measure the emissions produced during the entire lifecycle of a garment, from raw material to consumer use and disposal. 

Advantages: 

• Simpler to implement. 
• Provides an overview of industry-specific emissions. 

Disadvantages: 

• May not capture emissions from other parts of the supply chain. 

• Less accurate for complex, multi-step processes. 

Real-World Examples 

• An electronic producer uses production-based accounting to track emissions from its supply chain and manufacturing processes. 
• A food and beverage company uses this method to monitor emissions from its operations, including manufacturing and transportation. 

Spend-Based Method 

Spend-based emission factors estimate emissions based on the monetary value of goods and services purchased. For example, if your company used a taxi service regularly, you could take the invoice from that service and apply an industry average emissions factor for transport to calculate the emissions. This is as opposed to asking the drivers how far your company’s users travelled (activity-based) or for a readout from the fuel gauge (production based). 

Read more: Should you use the Spend-Based Method for emissions? 

Advantages: 

• Easier and quicker to implement. 
• Useful for companies with complex supply chains. 

Disadvantages: 

• Less accurate, as it assumes uniform emissions intensity across all goods and services. 
• May not capture all emissions, especially those that are not directly tied to spending. 

Real-World Examples 

• A retailer with many small suppliers uses spend-based emission factors to estimate these suppliers’ Scope 3 emissions. 
• A diverse business that invests in several supporting services uses spend-based factors to estimate emissions from sources without easy access to activity or production-based data, such as consultants, accommodation or taxi spend.
  

Comparative Analysis of Different Reporting Methods on Data Quality 

Factors to Consider When Choosing an Emission Calculation Method 

When selecting an emission calculation method, consider the following: 

• Data Requirements: What kind of data can you realistically gather? 
• Complexity: Do you have the resources to implement a complex method? 
• Applicability: Which method aligns best with your business activities?
• Accuracy: How precise do you need the data to be?

For organisations just starting their carbon reporting journey, it’s imperative that they aren’t scared away by the possibility of generating “low quality” data.  

The spend-based methodology, for example, is a particularly popular method to record Scope 3 emissions, as this is an arena where there are significant gaps in supplier-provided emissions reporting. Rather than avoiding reporting to this scope altogether, organisations should accept the use of spend-based emissions reporting, at the very least as a way of getting the data they need to report comprehensively – an opposed to putting Scope 3 in the “too hard” basket and ignoring it altogether. 

It’s imperative to recognise that starting out with lower quality data is perfectly acceptable to begin with, as it allows a business to create an initial baseline, identify opportunities for improvement, and thus evolve and refine over time. You can never improve what you never start. 

Summary & Key Takeaways 

1. Critical Importance of Data Quality: High-quality data is essential for accurate sustainability reporting and compliance with increasingly stringent regulations. Poor data quality can lead to regulatory penalties, reputational damage, and ineffective sustainability initiatives. 
2. Three Main Approaches to Scope 3 Data Collection: There are three primary methods for gathering Scope 3 emissions data: Activity-Based, Production-Based, and Spend-Based. Each method has its advantages and disadvantages, affecting the quality and applicability of the data collected. 
3. Real-World Applications: Different business across different industries could use these methods to optimize their sustainability efforts. 
4. Factors for Method Selection: There are several factors to consider when choosing an emission calculation method, such as data requirements, complexity, applicability, and accuracy. These factors help businesses align their sustainability goals with the most suitable data collection method. 
5. Don't Avoid Scope 3 Reporting: Don’t shy away from Scope 3 emissions due to the complexity or perceived data quality issues. Even if the data isn't perfect, it's better to start gathering it, particularly using simpler methods like the Spend-Based approach, rather than avoiding Scope 3 reporting altogether. 

Choosing the right method for Scope 3 emissions accounting is a complex but crucial task. Each method has its strengths and limitations, and the choice will significantly impact the quality of your data and, consequently, your sustainability reporting. 

Data quality isn’t only determined by the methods used to gather it. Assurance and audit demands transparent and comprehensive data management too. Discover how ESP’s CSR software can help your business effectively gather, manage, measure and reduce your carbon emissions across your entire organisation on a single platform. Book a demo with our team today to find out more.