Understanding Scope 4 Emissions
The journey through the intricacies of carbon emissions in business reporting feels like navigating through a labyrinth. While Scope 1 and 2 are more straightforward – dealing with direct and indirect emissions from owned activities and purchased energy respectively – it becomes trickier with Scope 3, which measures emissions in a business’s supply chain. Scope 4, a newer voluntary metric, raises the complexity level. As described by the Financial Times and the World Resources Institute, it relates to ‘avoided emissions’ – emission reductions outside a product’s life cycle due to its use.
Seeing the Bigger Picture
Consider an LED company. When their LEDs replace older, inefficient lighting, it results in less energy use – these are ‘avoided emissions’. If a product or service reduces emissions during its use, these can be classified as Scope 4. FTSE 100 tech company Aveva and other firms globally, such as America’s Pacific Gas & Electric, are recognising the value of reporting avoided emissions. This not only strengthens their green credentials but also supports the move towards sustainable business. However, it’s not without its challenges.
A Balanced View on Scope 4
While Scope 4 offers a platform to promote eco-friendly products, it doesn’t verify the carbon-efficiency of their production. Additionally, comparing products becomes challenging due to ever-evolving market offerings and often reliance on industry averages. This can lead to greenwashing, where companies overstate their products’ eco-benefits without comprehensive evaluation.
Towards Transparent Reporting
Scope 4, despite its complexities, aids the net zero transition. For instance, Planet Tracker’s analysis indicates that Pepsico could be underreporting its climate-related risks. Clearer reporting across all Scopes will ensure companies are better aligned with net zero targets. For investors, Scope 4 insights are valuable as they highlight a firm’s contributions to environmental, social, and governance (ESG) goals. While reporting can be daunting, its benefits outweigh the challenges. Embracing Scope 4 is a wise business choice, ensuring future readiness.