Everyday climate change reminds us that our reality is shifting. Most recently, Germany was plunged into flash floods. The EU has to change its climate course. One of the levers it’s pulling is making scope 3 emission reporting mandatory for over 50,000 companies under the CSRD; but why has this got companies scrambling?

Why is scope 3 emissions reporting becoming mandatory?

Being a sustainability lead is tough; being a sustainability lead in the EU is really tough. All because of the CSRD (Corporate Sustainability Reporting Directive). This directive makes scope 3 emissions reporting mandatory.

What is the CSRD?

The CSRD is the most advanced sustainability directive to date. Over 50,000 companies fall under its scope, and that number is climbing. Unlike other climate regulations, the EU CSRD spans the whole of ESG (Environmental, Social, and Governance). 

To comply, companies must first conduct a double materiality assessment. This assessment determines which sustainability impacts, opportunities, and risks should be addressed in the report. In a nutshell: how does my company impact people and the planet, and how does sustainability and climate impact my company? 

The TL;DR: it’s a colossal report with potentially thousands of data points. Oh, and the first reports are due in 2025. And requires audit assurance.

CSRD emission reporting

The European Sustainability Reporting Standards (ESRS) outlines the sustainability matters companies must materially assess to comply with the CSRD. These matters include the GHG (greenhouse gas) emissions created by their entire value chain. 

Because the EU and its member states have pledged to cut 55% of their carbon emissions by 2030 (vs. 1990 levels), it’s almost impossible for companies to deem climate change immaterial. Therefore, all companies affected by the CSRD will likely have to report their value chain emissions. 

This is where the emissions reporting headache becomes a scope 3 migraine.

What are scope 3 emissions?

The GHG Protocol is the leading standard for emission reporting. It is recommended that companies use the protocol as guidance to measure their value chain emissions for CSRD compliance.

The GHG Protocol categorises company emissions into three scopes: 1, 2, and 3. These scopes capture the emissions produced by a company’s entire value chain. And it’s scope 3 that’s giving Sustainability Leads nightmares.

Scope 3 emissions are defined by the GHG protocol as all other indirect emissions that occur in the value chain of a company but aren’t included in scope 2. This scope is vast, complex, and fragmented.

What are the different categories of scope 3 emissions?

The GHG protocol splits scope 3 emissions into upstream and downstream. Overall, there are 15 different categories of scope 3 emissions.

1. Purchased goods and services
2. Capital goods
3. Fuel- and energy-related activities (not included in scope 1 or 2)
4. Upstream transportation and distribution
5. Waste generated in operations
6. Business travel
7. Employee commuting
8. Upstream leased assets
9. Downstream transportation and distribution
10. Processing of sold products
11. Use of sold products
12. End-of-life treatment of sold products
13. Downstream leased assets
14. Franchises
15. Investments

The range of this list only begins to demonstrate the scope 3 enigma. If emissions reporting is a headache, scope 3 emissions reporting is a migraine.

Why do companies need help measuring scope 3 emissions?

The Science-based Target initiative (SBTi) is the gold standard for setting emission reduction targets. Its cohort are climate leaders, and even they are scrambling with scope 3.  

In its recent survey, the SBTi found scope 3 emissions were the biggest barrier to setting net zero targets. Of the 971 companies surveyed, 53.6% cited scope 3 as too challenging. 

Scope 3 emissions are:

• Vast, sometimes making up 90% of total emissions
• Complex, spanning 15 different categories
• Fragmented, they all exist outside a company’s immediate operations, so getting any data — let alone audit-ready data  – seems impossible

The combination of all creates the scope 3 enigma. Impossible to ignore, difficult to charter, and a monumental quest for data. It’s a barrier to CSRD reporting. 

PwC finds companies cite data availability/quality (96%) and value chain complexity (95%) as the biggest obstacles to CSRD implementation. Both characteristics are strongly material to scope 3. 

Value chains are webs woven by partners of all shapes and sizes. To report on scope 3 emissions, 50,000 companies affected by the CSRD must rely on their partners to source high-quality data for reports — and many of their partners are SMEs. 

SMEs that don’t have in-house sustainability experts; SMEs that don’t have the budget for carbon accounting. Yet, their partners are demanding emissions data from them. 

And the price of junk data is high. CSRD reports are subject to audit assurance, meaning there’s no place to hide behind poor data. In Germany non-compliance could cost 5% of annual turnover, while in France it’s director jail time.

Yet, for those who get scope 3 emissions reporting and the rest of their CSRD report right, the rewards are great. One-third of companies believe that CSRD implementation will increase revenue while reducing costs. This is the goal of the CSRD. To effectively reallocate resources so the EU can transition smoothly to a low-carbon economy. 

Unlock scope 3 emission reporting with Lune

Many teams still use monochromatic spreadsheets and expensive consultants to calculate scope 3 emissions. It’s resource-intensive, and most companies don’t have the budget, time, or expertise to do it properly.

Until now. 

Companies are embedding audit-ready scope 3 emissions with Lune. By plugging Lune's API into their platform, they can use spend, activity, or shipment data to seamlessly calculate their client’s scope 3 emissions in real-time. 

The outcome: a new industry-leading emission calculation feature that drives revenue by liberating SMEs, finance, and sustainability teams from scope 3 emission reporting. To learn more about how you can embed emission calculations into your product, request a demo today.