What does Scope 3 reporting mean for the food industry?

It doesn’t matter if your fleet runs on solar energy, everyone’s eating home-grown vegan food for lunch, and you’ve got acres of forest offsetting your few emissions. For Scope 3, your business’s internal actions are almost irrelevant. It’s the emissions of your suppliers and customers that count! 

Scope 3 emissions are a huge part of food industry emissions. One estimate suggests that 90% of food company emissions come from the value chain. Before long, many food companies will be required to report on this emissions data. 

To support sustainability and compliance managers, this article will introduce Scope 3 for businesses working with food and beverages. It will: 

• Explain the meaning of Scope 3 emissions; 
• Indicate what food companies need to report; 
• Show which companies must report on Scope 3; 
• Introduce the major challenges for Scope 3 reporting - and their solutions! 

Scope 3 is rapidly becoming a normal part of corporate sustainability reporting. The EU’s CSRD, for example, will make Scope 3 compulsory for many companies. It’s a great time to make Scope 3 part of your sustainability plans.

What is Scope 3 emissions in the food industry? 

The Greenhouse Gas protocol defines 3 Scopes for emissions reporting.  

• Scope 1 covers all direct emissions related to business activities, emitted by the company (greenhouse gases emitted on the company’s site). 
  
  
• Scope 2 in contrast, includes the indirect emissions from purchased energy used by a business. 
  
  
• Scope 3 emissions are all the other indirect emissions from the rest of the supply chain (not energy). They are not produced by the reporting organization itself, but produced by suppliers, customers, and employees of the reporting organization. 

Although they sound peripheral, Scope 3 standards are an astonishingly significant segment of a Food and Beverage company’s carbon footprint. This simple idea has huge compliance and reporting implications, as explained in the 150-page introduction to the standard from the GHG protocol.  

Scope 3 is valuable for many reasons:  

• Scope 3 Supports comprehensive greenhouse gas reporting - and forces businesses to look at every impact of their operations;  
• Helps business leaders to see the “hot spots” in their supply chains, and make better procurement and logistic choices; 
• Enhances decision-making for overall sustainability strategy;  
• Improves risk management;  
• For companies committed to sustainability, Scope 3 is the reputational “gold standard”. It gives customers clear proof that your business is running sustainability. 

There are some limitations to Scope 3. After all, it’s only for emissions - and not for the “full picture” of sustainability. But for companies that want to seriously assess the climate impact of their business activities, Scope 3 is one of the best measures we have right now. And with the legal landscape changing, it makes sense to get to tackle your Scope 3 reporting as soon as possible.

The Scope 3 emissions food companies need to report

The GHG protocol covers business activities through fifteen categories of Scope 3 emissions. They are as follows: 

Upstream 

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

Downstream

1. Transportation and Distribution of Sold Products 
2. Processing of Sold Products
3. Use of Sold Products
4. End-of-Life Treatment of Sold Products
5. Downstream Leased Assets
6. Franchises 
7. Investments

The source of Scope 3 emissions will be radically different in every industry. The Scope 3 impact of car manufacture is mainly in the long-term use of cars. For mines, Scope 3 happens in processing. And financial services may find that their investments are the big culprit. 

For food and drinks companies, the ingredients are likely to be the major source of emissions (in the Category of “purchased goods”). The upstream and downstream impacts of packaging could also be significant. And the transportation and distribution of sold products will apply to every company.  

Who must report on Scope 3 emissions? 

Scope 3 is a difficult area of data reporting. In the past, it’s no surprise that business engagement has been patchy. In Climate Action’s 2021 Net Zero benchmark, only half of companies committed to net zero included Scope 3 emissions. 

By reporting on the full range of their sustainability impact, such companies are gaining much more credibility for their climate change programmes. 

But now, a time is coming when Scope 3 won’t only be for trend-setters. In many jurisdictions, reporting on Scope 3 emissions will soon be a legally expected standard for some companies. 

• In the European Union, Scope 3 is an important part of the CSRD’s wide-ranging reporting standards. The CSRD only applies to larger companies. But for the 50,000 in-scope businesses, sustainability reporting demands are suddenly going to get a lot heavier. Some smaller companies will be allowed to omit their Scope 3 in the first years of reporting. 
  
  
• US companies have no legal obligation to report on their Scope 3 emissions. However, a federal reporting regulation covering Scope 3 is under discussion in 2023. 
  
  
• UK companies do not have a legal mandate to disclose Scope 3 emissions. Nonetheless, many large food and beverage companies choose to do so voluntarily. 
  
  
• At the end of 2022, the International Sustainability Standards Board (ISSB) agreed to include Scope 3 in their reporting standards. Scope 3 is increasingly seen as a key part of sustainability improvements. 

So, we’re still a long way from universal compulsory Scope 3 reporting. All the same, Cynthia Hanawalt argues that we are seeing “global consensus” around legally binding Scope 3 emissions reporting. It’s no surprise Many companies are engaging with Scope 3 without any legal injunction.  

The challenges of reporting Scope 3 in the food industry 

In the past, choosing to report on Scope 3 emissions did not make life easy. Fortunately, in 2023, businesses can now access services that will reduce the burden of Scope 3 reporting dramatically. We’ll talk about those solutions in the next section. Here, we’ll just go over some of the key challenges that Scope 3 reporting involves.

In a wide-ranging literature review from 2021, researchers from Yale and MIT identified some of the key challenges for food companies. Food companies reporting on Scope 3 might encounter the following problems:   

• This is not a mature area of reporting. Businesses do not have tried-and-tested frameworks, experienced personnel, or widely accepted metrics. “Doing Scope 3” is still a new thing! 
  
  
• Obtaining data from suppliers and customers can be challenging, requiring a new set of collaborations across value chains. 
  
  
• There are technical limitations on what some companies can do. They might not have up-to-date software to gather and share data efficiently.   
  
  
• In any sector, data quality can be extremely variable.  The GHG protocol suggests that reporting should take place on  “relevance, completeness, consistency, transparency, and accuracy.” Even with the best of intentions, these will be hard to achieve. 
  
  
• For the food sector in particular, agricultural data is especially hard to standardize. Carbon emissions will vary according to many idiosyncratic characteristics.  
  
  
• Some aspects of Scope 3 disclosure may be qualitative (which is highly variable) 

In addition, companies should have a complete Scope 3 strategy in place. It’s great to report on Scope 3 - but how will you reduce those emissions?  Fortunately, more and more companies are stepping up to this challenge. In the process, they are showing smaller companies how to do it. 

Some solutions for food industry Scope 3 reporting 

Before you know it, Scope 3 reporting will be normal. Every company will do it - and it won’t feel like such a big deal! Fortunately, we can already see the solutions that will help companies to disclose their Scope 3 emissions fully. 

Some of the solutions include the following: 

• When it comes to data availability and quality, companies now have several options. As time goes by, suppliers and clients will collectively offer better data. And in the meantime, accurate databases can support Scope 3 reports effectively and efficiently. The UK’s Albert Bartlett is just one company to successfully use data from different sources to create a full picture of value chain emissions. 
  
  
• Software is now available to support the highest standards of Scope 3 reporting for food companies. Klimato, for example, is tailor-made for the challenges of food reporting. 
  
  
• To make a bigger impact, strategic case studies now show how companies can improve their Scope 3 performance. For example, a 2023 analysis from McKinsey shows how reporting is the first of seven steps to actually decarbonize your business processes.
  
  
• Business leaders can now read a growing bookshelf of industry-specific guidance on reporting. Charitable NGOs, government departments, and sector-specific federations are all starting to offer guidance for Scope 3 reporting in the food industry.

Furthermore, major industry players are finding that collaboration between businesses could be a great way to stay up-to-date. 

Food industry Scope 3: thoughts for the future 

Reporting on Scope 3 emissions means that no one can do your “dirty work” for you. 

However you deal with your suppliers and vendors, the climate data will be written down in their sustainability report. And the results can be astonishing. After all, for many businesses, Scope 3 emissions are larger than Scope 1 and Scope 2 put together. And for the food industry, where the value chain routinely accounts for 90% of overall emissions, Scope 3 is even more important. 

Even though the CSRD hasn’t fully kicked in yet, plenty of EU companies are acting to reduce Scope 3 to a minimum. To prepare for the future, now’s the time to invest in your reporting systems. Software is one tool that can make a dramatic difference. If you’re worried about reliably reporting on your Scope 3 emissions, Klimato may be exactly the tool you need.