RICS in London - Scope 3: Too open to abuse, to be reliable?

As the UK considers the mandatory disclosure of Scope 3 emissions, Philip Atkinson, a Director of Grundon and member of RICS London Region Board, asks whether our desire for a simplified expression of value chain emissions is focusing our attention in the wrong areas?

As a company, we have been reliably reporting our carbon emissions for the last twenty-four years.

We published our first Corporate Environmental Report in 2000, quantifying the greenhouse gas emissions (emissions) associated with our business.

We have reported our emissions every year since then, in line with evolving best practice.

This approach led to us commissioning two independent reports in 2023 with the intention of quantifying our Scope 1, 2 & 3 emissions[1], offering us an insight into how we have performed over the previous 22 year period.

It was good news. These reports confirmed that we have achieved:

•  A 77% reduction in absolute Scope 1 & 2 emissions compared to 2000;
• An 83.5% reduction in Scope 1 & 2 emissions per tonne of waste handled, compared to 2000[2];

To put that into context, the Grundon business managed 60% more waste in 2022 than in 2000 but emitted less than a quarter of the CO_2eq.

So far, so good.

However, the 2022 evaluation included Scope 3 emissions for the first time and the scale of the challenge for us, our customers and suppliers in accurately reporting on and achieving year-on-year reductions, is now becoming apparent.

What follows, when the low hanging fruit has been picked?

Our success over the past 24 years has been largely due to big wins in obvious areas, mostly supported by a clear financial imperative including moving from landfill to energy recovery; by purchasing more efficient, and then zero emission, vehicles and, most recently; by developing our own renewable and low-carbon energy generation schemes for use in our own operations.

However, there comes a point at which every light fitting is controlled by PIR, every ICE vehicle is replaced for electric, and every rooftop hosts a solar array.

The challenge we are facing is that to achieve future year-on-year carbon reductions, alongside maintaining business growth, we will have to become increasingly bold and creative, which means risk, which leads to cost.

Kicking carbon emissions down the supply chain

Grundon is an integrated environmental services company, which means we own all the assets necessary to manage waste on our customer’s behalf.  From bin trucks to treatment plants, through to the sale of processed recycled commodities.

We control every stage of the waste life cycle.  This brings benefits to the producers of waste – visibility of where the waste will go, efficiency in how it is processed and comfort from knowing the waste will be handled in an unbroken chain of custody.

Compare that to a home-office based waste broker, with a phone and a laptop.

In this example, the broker will notionally manage the customers waste, but it will end up on a bin truck and in a treatment facility which is not controlled by the broker.

Importantly, the imposition of an intervening corporate tier means that the waste broker is one step removed from the big carbon generating activity and thus, will generate negligible Scope 1 & 2 emissions compared to an integrated provider; and in the fog of accounting, that will equate to lower Scope 3 emissions for the waste producer.

Unfortunately, the current established methodologies of carbon accounting favour a fragmented supply chain – in practice, owing to complexity, emissions are only passed up to the one corporate tier above - which means many producers who are more focused on reporting than environmental outcomes might be tempted to choose a waste service based on a provider’s declared emissions without examining in detail the whole value chain beyond their immediate contract.

How do we grow, whilst achieving year-on-year reductions?

Grundon is currently constructing a new hazardous waste treatment facility in Avonmouth. This will be the first in the next generation of integrated hazardous facilities treating a range of controlled waste streams.

This development will deliver a three-fold increase in our company’s hazardous waste processing capacity.

Once operational, we will receive a large proportion of the UKs hazardous waste currently being exported to Europe under the Trans-Frontier Shipment (TFS) arrangements.

This new development will result in overall emissions savings through reduced transport distances and process efficiencies.

However, by bringing this capability in-house, rather than exporting to third parties overseas, our absolute Scope 1 and 2 emissions will rise.

We are unable, under current methodologies, to access some of the 500tonnes/annum of carbon savings associated with transport and shipping [nb. avoided emissions can be considered under the emerging voluntary Scope 4, but accreditation schemes, including Science Based Targets Initiative (SBTi) do not allow these to be offset].

Overall, our new processing facility will reduce emissions and deliver better environmental outcomes, but our Scope 1 & 2 will rise, which presents a major problem if we want to achieve year-on-year savings.

Fortunately, most major accreditation schemes, including SBTi, allow for quantum-based calculations (for us, it is CO_2eq /tonne handled) but this doesn’t get away from the fact that producers of waste, keen to minimize their Scope 3 emissions might decide they would have been better off under the old, and more opaque, carbon intensive value chain.

Is Scope 3 a reliable measure of emissions?

The more we have explored Scope 3, the more we, as a business, have seen potential for inaccurate reporting and ‘washing’ of emission calculations.

We are not alone in this.  FTSE Russell in its recent report ‘Scope for improvement – Solving the Scope 3 conundrum’[3] argued that “Scope 3 emissions present one of the most vexing problems in climate finance”.  They elaborate: “…. practical integration in portfolio analysis and investment decisions is often hobbled by the complexity of Scope 3 accounting, low disclosure rates, variable data quality, high volatility, and poor comparability.”

Mandatory disclosure of Scope 3 emissions is mooted in the UK and elsewhere.  A wave of client, investor and public scrutiny of emissions is starting to influence behaviour in the resource management sector.

Our concern is that, whilst data on Scope 1 & 2 emissions is reasonably easy to obtain and should be accurate, data on Scope 3 is much more complex with an element of subjectivity which can lead to abuse.

FTSE Russell shares the same view: ‘Given their complex and heterogenous nature, estimating them does not follow a straightforward, highly standardised procedure as is seen for Scope 2 emissions.

‘Instead, current standards still give Scope 3 reporters leeway over key aspects of the data estimation and curation process. This allows for significant discretion in determining what emissions should be reported, how they are classified across the different Scope 3 categories, and what methods and data sources are being used to estimate the emissions’

Responsible businesses will want to portray - as far as is possible – an accurate picture of their emissions, in comparison to similar businesses; but they risk being disadvantaged if compared to businesses with a more ‘flexible’ approach to accurate reporting.

Ultimately, purchasing managers undertaking assessments of emissions reporting by a business, and therefore judging businesses on the same, need to take a wider perspective than simply relying on the Scope 1,2 & 3 numbers in corporate reports.

Caveat emptor.