Beyond Scope 1: taking a holistic view of company carbon footprints
On average, a company’s Scope 1 emissions only account for around 3.9% of their total emissions, but this varies considerably across industry groups.
Since its publication in 2001, the Greenhouse Gas Protocol (“GHG Protocol”) has been a guiding force for companies around the world when it comes to measuring, managing and reporting carbon emissions* and has been followed by further recommendations in 2015 by the Science Based Targets initiative (SBTi) on best practice in emissions reductions and net-zero targets. One of the GHG Protocol’s most significant attributes is its standardisation of carbon emissions into three “Scopes” according to their source, which has since been widely accepted.
Scope 1, by definition, is the category for emissions originating from sources that are owned or controlled by the company. These emissions arise primarily from industrial processes, fuel combustion for generating electricity or heat, company-owned vehicle use, etc., otherwise known as direct emissions. To report them, companies should identify all possible sources and decide how they will be calculated. The Intergovernmental Panel on Climate Change (IPCC) provides guidelines on the hierarchy of calculation approaches and techniques, ranging from the preferred method of direct monitoring to the use of generic emissions factors whereby data can accurately estimated from data on fuel use.
*”Carbon emissions”, or “emissions” refer to carbon dioxide emissions and all equivalent greenhouse gases.
Some industries have larger Scope 1 emissions by nature
In an analysis of Scope 1 emissions data from over 1900 public companies’, Carbonary found that they account for around 3.9% of total emissions, on average, per company. Although this may not seem significant overall, this varies considerably across different industry groups.
Left: Scope 1 % of total emissions, on average per industry group.
The Transportation and Utilities industries emerge as those with the highest percentage of Scope 1 emissions. This outcome is somewhat unsurprising given that companies in these industries tend to own or control a significant number of vehicles, machinery, engaging in long industrial processes, and/or burning fuels for energy generation. Following closely behind are the Semiconductors & Semiconductor Equipment, Energy, and Commercial & Professional Services industries, which share similar characteristics in that the manufacturing processes involved require significant amounts of energy. Despite having the highest absolute value of Scope 1 emissions, the Energy industry is not at the top of the table as its Scopes 2 and 3 are so disproportionately high that they render the percentage of Scope 1 emissions much smaller.
Generally, industries providing services with substantial office-based operations tend to have lower Scope 1 emissions, both in terms of absolute values as well as the percentage of total emissions. Examples of such industries include Software & Services, Financial Services, Telecommunication Services, Consumer Services, and Banks. However, this is not an absolute rule as, once again, the Scope 1 percentage can be significantly influenced by the other scopes - Capital Goods and Technology Hardware & Equipment industries have the lowest Scope 1 percentage due to the enormity of their Scopes 2 and 3.
Focusing on Scope 1 alone provides a narrow perspective
Although Scope 1 is directly related to companies' operations, it is now widely accepted that the true extent of emissions extends beyond this and should also include both indirect emissions and emissions along the value chain. By itself, Scope 1 presents an incomplete view of a company’s carbon footprint. In addition, companies' emissions will inevitably vary depending on the nature of the business, and this is particularly true of Scope 1 emissions. The Energy industry, for example, by its very nature emits a large amount of GHG through its direct processes. However, this cannot be drastically changed in a short amount of time - we cannot simply eliminate these industries or rapidly replace them with less pollutant alternatives overnight if we wish to have all our current energy needs met - this requires significant research and development overtime and an enormous amount of funding.
Therefore, focusing intently on companies' direct emissions arguably does not provide actionable solutions to climate challenges and retains a narrow view that punishes heavy polluters even when they have taken significant steps to improve. Instead, Carbonary takes a more comprehensive approach to rating carbon performance. We consider the transparency of companies’ carbon disclosure and the concrete actions they have taken to reduce and offset GHG emissions, as per their financial ability. This holistic view allows us to assess and benchmark companies' overall carbon performance according to what they could have done so far according to their income. It distinguishes between genuine effort and mere greenwashing or empty promises. Moreover, this approach does not penalize companies for their default business production and acknowledges that some industries will inherently emit more GHGs than others, but what’s important is the progress that we make. By adopting this methodology, Carbonary aims to provide actionable insights and encourage real progress towards a sustainable future.