Hub explainer: What are Scope 3 emissions, and should you report them under SECR?
Right now, a great many UK companies will be reporting on their Scope 3 greenhouse gas emissions for the first time, under the Government’s new Streamlined Energy and Carbon Reporting Scheme (SECR).
SECR came into force on 1 April 2019, and affects an estimated 11,900 companies in the UK.
A lot of companies will be familiar with reporting on Scope 1 and 2 emissions, but Scope 3 may be new territory. So what are Scope 3 emissions, and what are companies’ obligations under SECR? The Hub is here to help.
What is meant by Scope 3 emissions?
- Official guidance explains that Scope 1 refers to direct business greenhouse gas emissions, like furnaces or equipment you own.
- Scope 2 covers indirect emissions from elements like electricity, which a firm needs, but which come from sources you don’t control, such as a power station.
- Scope 3, the one we are interested in, covers emissions that are a consequence of your actions, which occur at sources which you do not own or control and which are not classed as Scope 2.
More useful examples of Scope 3 emissions are business travel by means you don’t own (like a train journey), energy use and related emissions from business travel in rental cars or employee-owned vehicles, or waste disposal processes which you don’t own or control.
Wikipedia tells us Scope 3 emissions (also known as value chain emissions) often represent the largest source of greenhouse gas emissions and in some cases can account for up to 90% of the total carbon impact of your business.
Do I need to report on Scope 3 emissions under SECR?
Reporting on Scope 3 emissions is voluntary for quoted companies, but strongly encouraged.
For large unquoted companies and LLPs, some Scope 3 emissions are mandatory, and some are not. You must disclose energy use and related emissions from business travel in rental cars or employee-owned vehicles where they are responsible for purchasing the fuel. Reporting other Scope 3 emissions is voluntary, but strongly encouraged where this is a material source of emissions.
Reporting on Scope 1 and 2 emissions is mandatory for all companies affected by SECR (quoted companies must report on global emissions, large unquoted companies/LLPs must report on UK emissions).
What are the benefits of reporting on Scope 3 emissions?
If you report well, you will be able to see where the biggest emissions come from your suppliers. Then, you can tackle this, winning you reputational benefit. You can also highlight where energy is used in your supply chain, or where you might add in energy efficiency to your supply chain, benefiting the environment and saving you money.
You could also help your suppliers with joint sustainability initiatives to use in collective marketing. You can ask your employees to cut their business travel where possible, saving both money and carbon.
All of the above represent solid opportunities to save your business cash and deliver a more sustainable environment.
Better business reputation, better risk management, efficiencies and cost savings can all come from reacting positively to Scope 3 reporting.
For these reasons, acting on Scope 3 looks like a no brainer for positive, progressive UK firms. It may be tricky to initially understand, but it’s there to help your business.
If you’d like more advice on how to report under SECR, get in touch.