Carbon Accounting Challenges for Manufacturers

Scope 3 emissions calculations in one sheet. For many of us in the decarbonization space, Scope 3 represents the “iceberg” of our carbon inventory—often the largest portion of emissions, yet the most difficult to see clearly. Achieving a credible Net Zero pathway requires moving beyond high-level screening estimates toward granular, auditable data. The standard is clear: we must adhere to the principles of Relevance, Completeness, Accuracy, Consistency, and Transparency. Whether you are looking at Upstream Logistics or Downstream Leased Assets, the fundamental relationship remains the same: GHG = Activity Data × Emission Factor Following is a technical breakdown of how we apply this across the value chain: 1️⃣ The Data Hierarchy Matters The biggest pitfall in Scope 3 is relying too heavily on spend-based data (Input-Output models). While useful for screening, the goal is Supplier-Specific Data. Spend-Based: Value ($) × EEIO Factor (High Uncertainty) Supplier-Specific: Units × Supplier Product EF (High Accuracy) 2️⃣ Upstream Complexity (Categories 1–8) Purchased Goods (Cat 1): This is usually the heavyweight. Moving from average data to supplier-specific cradle-to-gate inventories is critical here. Capital Goods (Cat 2): Remember, we account for these in the year of acquisition. No amortization allowed for GHG accounting. Waste (Cat 5): Specificity wins. Differentiating between landfill, incineration, and recycling factors changes the footprint drastically. 3️⃣ Downstream Impact (Categories 9–15) Use of Sold Products (Cat 11): For manufacturers of energy-consuming goods, this is often the dominant category. The calculation must account for the lifetime expected energy use, not just a single year. Investments (Cat 15): For financial institutions, this is the inventory. The methodology requires allocating the investee’s Scope 1 & 2 emissions based on equity share or debt valuation. 4️⃣ The “Missing” Gases A complete inventory isn’t just CO₂. We must aggregate all Kyoto Protocol gases (CH₄, N₂O, HFCs, etc.) using 100-year GWP to reach a true CO₂e figure. Scope 3 is not an estimation exercise; it is a data acquisition challenge. The companies that succeed in decarbonizing their value chain are those that treat carbon data with the same rigor as financial data. #Decarbonization #Scope3 #GHGProtocol #Sustainability #NetZero #ISO14064 #EnergyManagement #CarbonAccounting

🌏The World Economic Forum, in collaboration with Capgemini and Cambridge Industrial Innovation Policy, has just released a crucial white paper: "United for Net Zero: Public-Private Collaboration to Accelerate Industry Decarbonization." This report provides a vital framework for manufacturers and supply chain companies to effectively partner with the public sector in the pursuit of net-zero emissions. Key Takeaways: 1️⃣ Industry decarbonization is lagging, with current efforts far from the 7% annual emissions reduction needed to stay on a 1.5°C pathway. 2️⃣ The report identifies key challenges hindering progress: securing buy-in, accurately calculating emissions, implementing mitigation strategies, and fostering green business growth. 3️⃣ The framework presents actionable opportunities for public-private partnerships, spanning two action levers: leveraging existing mechanisms (funding, standards, etc.) and shaping future policies. Opportunities for Collaboration: 📗 Understanding and leveraging existing public financial incentives (subsidies, carbon pricing, tax mechanisms) and co-developing sector-specific financial solutions. 📗 Facilitating adoption of robust carbon tracking methodologies across the value chain, promoting standardization, and supporting the development of new data collection methods. 📗 Proactively supporting net-zero solutions implementation across the value chain, bridging knowledge gaps, addressing skills shortages, and raising consumer awareness. 📗 Collaborating with governments to design effective policies that incentivize decarbonization, facilitate technology adoption, and create level playing fields. 📗 Co-investing in the development, infrastructure, and market creation for crucial climate technologies. Challenges: ✴️ Companies face the challenge of meeting growth objectives while simultaneously pursuing ambitious emissions reduction targets. ✴️ Lack of harmonized standards, data availability issues, and the complexity of Scope 3 emissions calculations pose significant obstacles. ✴️ High upfront costs, technological immaturity, and uncertain returns on investment hinder the adoption of certain climate technologies. ✴️ Inconsistent regulations, lengthy permitting processes, and a lack of comprehensive incentives can slow down progress. #NetZero #Sustainability #IndustryDecarbonization #Decarbonization #PublicPrivatePartnerships #PPP #ClimateAction #EnergyTransition

🔍 Why Precise Emission Factors (EFs) Matter for Manufacturing Materials A lot of companies are still using industry-average emission factors (EFs) for their carbon analysis and accounting for materials like steel, plastics, aluminum, rubber—the list goes on. On the surface, it seems logical, right? A single EF per material type keeps things simple. But this “one-size-fits-all” approach hides the real story behind emissions. Let’s take aluminum as an example. The emissions profile of aluminum varies massively. Aluminum sourced from hydro-powered production in Norway? Much lower carbon footprint. Aluminum from a region where coal powers production like China, Indonesia, or even Poland? Different story altogether. And recycled aluminum? Usually a fraction of the emissions compared to new, primary aluminum. If you’re just using a single EF for all aluminum, you’re missing out on data that could guide emissions reduction decisions. So, where do you start? Look at materials that make up a significant share of your emissions. If a single EF covers more than 3-5% of your emissions, it’s worth a closer look. This is your cue to dig deeper, because precise EFs can reveal where you actually have room to cut emissions. Key Questions to Ask Yourself: - Regional Differences: Are you accounting for variations based on where the material is produced, especially for the carbon content of local grid electricity? - Production Type: If several different ways to produce the same material exist - which one was used (e.g. steel making, BF-BOF route vs. EAF route) - Finishing: Has additive finishing been used (less scrap) or subtractive (more scrap/waste) - Recycling: What’s the split between primary and recycled materials? Switching from generic to supplier- or even batch-specific EFs won’t just make your reporting more accurate. It’ll show you exactly where you can make a real dent in emissions within your supply chain. #Sustainability #Manufacturing #SupplyChainEmissions #CarbonReduction Picture: Talco aluminum smelter complex in Tajikistan. Tajikistan has a lot of hydro-powered electricity generation and only emits about 9 gCO2/kWh (for comparison, Poland emits about 690 gCO2/kWh)

We have 130,000 product carbon footprints (PCFs) available for customers. Problem solved… right? Not exactly. Consider this a PSA for industries with large SKU counts and the platform builders trying to support them: Problem 1️⃣: We can’t share PCFs at scale A single PCF conformant to current standards includes a minimum of 20 data attributes (Yes, really) Several platforms exist today to support PCF sharing beyond suppliers sending excel and PDF files to customers. We’ve tested a couple and given the number of PCF attributes per product, uploading is limited to one at a time. With our portfolio, that's not reasonable. Problem 2️⃣: We don’t speak the same product language Customers and suppliers often use different product IDs for the same item. So when a customer requests a PCF for Part #12345 and the supplier doesn't manufacturer a Part #12345 you end up with a lot of emails. No mapping = no data exchange. Okay - so should we all give up hope? Not yet - there are a few potential solutions: 1️⃣ Integrate into financial transactions (e.g., direction that SAP is working on). Benefit: PCFs can be linked directly to purchases - scalable in theory Challenge: reduces sharing down to a single number (cradle-to-gate); all parties must make compatible ERP enhancements to send and accept the information. 2️⃣ Supplier-driven reporting (e.g., akin to Amazon's Customer Carbon Footprint Tool) Benefit: Suppliers can aggregate and report all purchases Challenge: customer-side integration into carbon accounting system; scalability to receive / process differing supplier reports 3️⃣ Public disclosure at scale (e.g., suppliers publish all PCFs on their website or free bulk-upload friendly platform) Benefit: Customers pull what they need when they need it Challenge: part mapping; customer-side ingestion The concern is until PCFs can be shared easily their impact may stay limited to tenders and on a request basis—regardless of how many we calculate.

We still don't have a scope 3 target. Here is how we will solve it. Let’s get nerdy. For the past two years, we at Cordeel Group calculated our Scope 3 emissions in a spend-based way. Meaning: We know how many euros we spent with a supplier. That supplier sits in an emission category. That category has a generic emission factor. Multiply. Add up. Done. But this is nothing more than a good first indication of your emissions. If a concrete supplier delivers a low-carbon mix, but you apply the same generic factor as for standard concrete, the effort disappears. And if emissions are linked to spend, the only way to “reduce” them is to spend less. For me, this doesn't make sense. So I refused to define a reduction target until now. This year, we changed the approach. In November, I ran a high-level spend analysis. Goal: identify where the real impact sits. We narrowed it down to five categories: Concrete Steel Facades Roofs Timber Not a big surprise to someone working in construction. Together, these represent the bulk of our Scope 3 footprint. Mostly they are linked to primary materials. Where you can get information on quantities. Some suppliers might even analysis on the emissions of their products (LCA’s). So we checked for data availability and readiness. As an example, HVAC is excluded. Big part of the costs. But it’s much easier to ask for m³ concrete delivered and the LCA of it then getting these information on the heat pumps and ventilation systems. From there, we selected around 100 key suppliers. Roughly 20-25% of our spend and an even bigger share of emissions. Last reporting cycle I started reaching out via mail to 50 suppliers. Tbh: I did not get the results I hoped for and I simply did not have enough time with my other work. Now, we teamed up with ClimateCamp, a Belgian carbon accounting startup. They are not just sending surveys. They are calling suppliers. Collecting primary data. Asking the right questions. I join some of those calls. Interesting conversations with the suppliers, great job by Fien Stevens. But I obviously can't have more than 100 calls. They purely focus on this. So they are a huge help! For the remaining suppliers, we still use spend-based approach this year. Next year, we go deeper. End of this year we will take time to define a proper scope 3 target. #buildinginpublic #sustainabilityreport

Scope 3 is broken... and other things you're afraid to tell your CEO Scope 3 emissions account for 75%-99% of corporate carbon footprints, mostly from upstream supply chains. Our current Scope 3 EIO methods were built for check-the-box compliance reporting, not driving reductions. EIO models are calculated by multiplying your supplier spend times a global or regional industry-wide average emission factor. That cannot account for any actual decarbonization action your supplier takes, not even in theory. Put another way, if a large chunk of your suppliers lowered their corporate emissions by 10% this year, your Scope 3 emissions _would not decrease_. At all. Let that sink in. Deep down, we all know this, that's just the part we never say out loud, and we carry on in collective cognitive dissonance, with vague murmurings about "data challenges". We need to flip Scope 3 on its head. Embodied carbon at the product level should be treated as an objectively measured product specification; so that carbon performance is treated just like other critical product specs; like weight, size, delivery volumes, speed, cost, etc. Imagine if we treated any other performance spec like this... you go to buy a laptop, and when you ask how much storage the laptop has, the seller advises you to build your own science team to _estimate_ the laptop's storage based on global industry averages. Does this sound bonkers to you? It is. But we've all been doing this for so long that we’ve managed to persuade ourselves that it’s completely normal. And we wonder why we've made virtually no global progress reducing the Scope of emissions that dwarfs all others. OK, so how do we change this? How about we start treating embodied carbon as a performance spec that the _seller_ is responsible for calculating and eliminating? That's exactly how every other performance spec works. We have a data standard in ISO 14067, and an emergent standardized methodology in the WBCSD – World Business Council for Sustainable Development PACT framework. And there are a wide and growing variety of Product Carbon Footprint (PCF) providers that use #AI and process-based input data for manufacturing and transportation, to calculate PCFs rapidly, cost-effectively, and at scale. This approach eliminates the need for theoretical abatement cost curves, because now your suppliers can price carbon for you directly when they quote you $X change in price for Y-kg carbon reduction per unit. Procurement can do what it does best, negotiate based on objective performance criteria; and suppliers can do what they do best, engineer products and services objectively optimized to what their buyers want. We all know it's time to fix Scope 3. What specific actions can we take today to ensure our Scope 3 emissions reduction efforts lead to actual decarbonization? Image credit: DeepAI . . . #SustainabilityLeader #Scope3 #GHGemissions #supplychain #energytransition

Emissions reporting under the GHG Protocol 🌎 Scope 3 emissions, which account for 70-90% of a company’s carbon footprint, are increasingly recognized as a critical focus in achieving climate goals. These emissions are produced indirectly, outside of an organization’s direct control, spanning 15 categories from upstream suppliers to downstream logistics, product use, and disposal. Their significance cannot be understated in the broader context of carbon accountability. Unlike Scope 1 and Scope 2 emissions, Scope 3 emissions present unique challenges. They require detailed engagement with external stakeholders, including suppliers and partners, to gather accurate data. This process is often time-consuming and resource-intensive, making it difficult for organizations to efficiently manage. Even with data in hand, consistency and accuracy remain significant hurdles. Robust internal systems are necessary to support effective data capture and reporting processes. Without these systems, the data collected may not provide the reliable insights needed for comprehensive decarbonization efforts. Visibility into extended supply chains adds another layer of complexity. Large organizations often struggle with limited transparency in their supply networks, particularly when it comes to secondary and tertiary suppliers. This lack of visibility can impede efforts to accurately measure and report Scope 3 emissions. The quality of primary data from suppliers is also a key factor in the accuracy of Scope 3 reporting. Organizations rely heavily on the availability and reliability of this data, which can vary significantly across different suppliers and regions. Ensuring this data is both consistent and accurate is essential for effective climate strategies. Allocating sufficient resources to manage, validate, and analyze Scope 3 emissions data remains a significant challenge. The process demands specialized skills and a commitment to maintaining high standards of data integrity. Despite these challenges, focusing on Scope 3 emissions is essential for any organization committed to achieving substantial and lasting reductions in their carbon footprint. Source: KPMG #sustainability #sustainable #business #esg #climatechange #climateaction #Scope3 #emissions