Scope 3 of the carbon footprint: is it mandatory?
Summary
Scope 3 of the carbon footprint, encompassing indirect greenhouse gas (GHG) emissions, represents a significant proportion of organizations' overall emissions. Although its measurement is not always mandatory under national regulations, more and more countries are requiring its inclusion in the carbon footprint of large companies.
Non-compliance can lead to financial penalties, damage reputations and restrict business opportunities.
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Introduction
According to ADEME, Scope 3 emissions account for nearly 75% of global emissions. The calculation of Scope 3 is therefore a major challenge for all organizations. In this article, find out when Scope 3 is mandatory for companies and the benefits for an organization of taking Scope 3 emissions into account in its carbon footprint.
Understanding Scope 3 of the carbon footprint
Scope 3 refers to indirect greenhouse gas (GHG) emissions related to an organization's operations, which come from sources that are not directly owned or controlled by the organization. There are 15 distinct categories under Scope 3, hence its complexity. This diversity of emission sources makes it much more difficult to quantify than that of Scopes 1 and 2. Each category requires a specific methodology, data, and sometimes skills to be properly evaluated.
Typically, Scope 3 emissions account for a significant or even majority share of an organization's total carbon footprint. By neglecting them, a company substantially underestimates its real contribution to climate change. Controlling Scope 3 emissions therefore allows a company to identify potential risks, but also opportunities. Scope 3 can thus act as a strategic lever for companies that wish to be part of a global responsibility approach in the face of the challenges of climate change.
"Measuring Scope 3 of the carbon footprint: not only a necessity, but also a strategic imperative."
Is Scope 3 mandatory?
Currently, regulatory requirements for reporting Scope 3 emissions vary from country to country and often depend on the size and nature of the company.
Several international regulations, such as the Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP) guidelines, encourage reporting of Scope 3 emissions, but do not make it strictly mandatory for all companies. However, these standards are widely recognized and often serve as a reference for companies wishing to demonstrate their commitment to sustainable development.
In addition, some countries have introduced stricter requirements, especially for listed companies or those above a certain threshold of turnover or headcount. In France, since January 1, 2023, Decree No. 2022-982 requires companies with more than 500 employees to include Scope 3 in their carbon footprint. In the United Kingdom, Streamlined Energy and Carbon Reporting (SECR) requires certain large companies to report their GHG emissions, including Scope 3 emissions.
Growing awareness of climate issues is pushing more and more countries to tighten their carbon reporting requirements. Even if Scope 3 is not always explicitly mentioned, the trend is to increase transparency requirements, especially for large companies and those with a significant carbon impact on the environment. New regulatory frameworks, such as the Paris Climate Agreement, are encouraging signatory countries to strengthen their national legislation.
Non-compliance of the carbon footprint: what are the consequences?
Financial Penalties
Many countries impose financial penalties on companies that fail to comply with carbon reporting obligations. Non-compliance can result in fines, the amount of which varies depending on the jurisdiction, the size of the business, and the severity of the non-compliance.
Reputational impact
Increasingly, shareholders, customers, suppliers and other stakeholders are demanding transparency and accountability from companies regarding their carbon footprint. Non-compliance can lead to a loss of trust and affect business relationships.
Operational Implications
Some customers, especially in the public sector or large companies, may impose strict carbon footprint requirements on their suppliers. Non-compliance can therefore exclude a company from certain contracts or tenders.
In addition, financial institutions and investors are increasingly concerned about the risks associated with climate change. A company that does not comply with its carbon footprint obligations may find it difficult to obtain financing.
Legal Risks
Beyond administrative fines, companies may be exposed to legal action, particularly if the non-compliance is found to be intentional or negligent.
Finally, in some countries, regulations are moving towards an extended responsibility of business leaders for environmental impact. Thus, in the event of serious breaches, the company’s C-level can be held personally liable.
The Benefits of Measuring Scope 3 Emissions
Although calculating Scope 3 is not always a regulatory requirement, taking these emissions into account offers multiple benefits for an organization.
Better understanding of the total carbon footprint
Measuring Scope 3 emissions provides companies with a complete and transparent picture of their real impact on the environment. In most cases, Scope 3 emissions account for the vast majority of an organization's total carbon footprint. This helps identify specific activities or partnerships that contribute the most to the carbon footprint. With a better understanding of emissions, companies can effectively target their reduction efforts, focusing on high-impact areas
Meeting Stakeholder Expectations
A transparent and voluntary approach to carbon footprint can strengthen relationships with the organization's various partners, such as its investors and suppliers. In addition, customers are increasingly attentive to companies' ecological approaches.
Competitive Advantage
Companies that measure and communicate their carbon footprint, including Scope 3, position themselves as forerunners and leaders in their industry. They inspire confidence. Thus, in competitive sectors, taking Scope 3 into account can be a real differentiator, showing customers and partners a deep commitment to sustainability.
Finally, even if Scope 3 reporting is not yet mandatory everywhere, there is a global trend towards stricter regulations. Companies that anticipate these changes are better prepared for future challenges.
Measuring and reporting Scope 3 emissions, although not mandatory for all organizations, is part of a strategic approach for companies wishing to anticipate future environmental challenges.
By calculating their Scope 3 emissions with our carbon accounting software can be a valuable tool in this process., companies ensure their long-term resilience and competitiveness in the face of climate change challenges.
