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  • Writer's pictureCargoful Team

There is no Planet B: the roadmap to reduce CO2 emissions and get to Net Zero

Updated: Jul 30, 2022

Climate change is one of the hot discussion topics of the current public debate: governments, companies and citizens are called to correct their habits towards sustainability, developing environmental-friendly programs with a pragmatic approach (i.e., making sustainability "sustainable") to control and fight global warming.

The first milestone in this direction was laid in 2015, when 195 states signed the Paris Agreement, pledging to keep the global average temperature rise well below 2 °C compared to pre-industrial levels, with the ambition of limiting this increase to 1.5 ° C. Furthermore, the European Union has committed to reducing its CO2 emissions by at least 55% compared to 1990 levels by 2030 and to reaching net zero (i.e. a perfect balance between CO2 emission and absorption) by 2050.

To achieve this goal, the EU has since then introduced structured actions aimed at ensuring the implementation of targeted actions, such as imposing an emission reduction target on each member country, establishing the ETS (Emission Trading System, i.e. a trade system on CO2 emissions quotas where a progressively lower limit is placed on emission rights and in which companies that respect this threshold have the possibility of selling their excess emission rights, those who exceed it can instead purchase them) and encourage the development of renewable energy sources and technologies with low CO2 emissions also through direct financing.

From 2018, companies with particular characteristics in terms of size and turnover in the EU are obliged to communicate ESG performance and to report on the emissions produced. It is expected that this first pilot on a restricted set of companies will then be expanded to scale in the course of 2026, allowing to expand the emissions calculation and reporting obligation to approximately 55,000 SMEs (Corporate Sustainability Reporting Directive, CSRD). These are important news for the logistics sector, the third most polluting after industry and construction, and, at the same time, they are also not easy to fully understand and apply.

In the next sections, we will deepen the issue, starting from the methodology to use when calculating the emissions to the implementation of the development plan. But let's start from the beginning.

What is carbon accounting?

Carbon accounting (or Greenhouse Gas - GHG - accounting) is the approach and the set of processes used to measure how much CO2-equivalent is produced by a specific organization, both by the company's core activities and by its supply chain.

Since 2001, the World Resources Institute (WRI) and the World Business Council for Sustainable Development (WBCSD) have classified the types of carbon emissions related to business activity into three different Scopes, contained in the Greenhouse Gas (GHG) Protocol. For every company:

  • Scope 1: it includes direct emissions from assets owned or controlled directly by the company. For example, emissions from the ignition and operation of machinery or vehicles usually fall within this scope.

  • Scope 2: it includes indirect emissions deriving from the production and distribution of electricity, heat and steam used in the logistics and production sites. For example, electricity or energy for heating and air conditioning of industrial buildings usually fall into this purpose.

  • Scope 3: it includes all indirect emissions from the supply chain linked to the reporting company. For example, the emissions related to the transport of goods from the supplier to the company, the emissions from the last mile delivery transport or the emissions from the transfer of goods between facilities.

The elephant in the room: Scope 3. Scope 1 and 2 are quite simple to calculate for companies, as they require as an input information which is usually already in the possession of the company or easily retrievable. For these two scopes, it is also possible to introduce net zero targets, using renewable energy or electric vehicles, as the company has substantial control over decision-making and reduction levers.

The situation is different for Scope 3, which can be worth up to 70% of company emissions according to Deloitte. Measuring this impact on the supply chain is critical to:

  • Know your actual overall environmental impact, resulting in an increase of accuracy of your calculations and of the company's credibility towards external stakeholders;

  • Analyze in details your own production chain and the relative levels of sustainability, adopting a holistic approach;

  • Integrate emission reduction targets in compensation plans, identifying and holding people within the organization accountable for reducing emissions and adopt energy-efficient policies along the entire production chain.

Unfortunately, despite the fact that Scope 3 is, as we have seen, of critical importance for the company's sustainability metrics, it is difficult to control and therefore to calculate. In fact, it depends on suppliers, customers, and in general third parties that gravitate in the company's supply chain. This can generate multiple frictions in the measurement process, where the company has to interact with various external actors and their proprietary information, which is not uniform, non-standardized and often quite difficult to access. All this leads to various problems: let's understand what they are and how to overcome them.

Scope 3: Difficulties in measuring

As previously mentioned, the EU requires certain companies to communicate their environmental impact. Of these, 100% report the direct or indirect emissions produced within the company (Scope 1 and 2) while only 76% also include those contained in Scope 3. This is mainly linked to the complexity of emissions measurement and the long lead times necessary to carry out this calculation, issues that discourage the reporting of these emissions, creating damage to the society and to the companies themselves. In particular, according to a study by McKinsey, there are 5 main difficulties related to measuring if the Scope 3:

  1. Lack of the foundations of carbon accounting: McKinsey argues that adequate and cutting-edge carbon accounting tools, that allow companies to calculate emissions in a more reliable and realistic way, are not yet widespread.

  2. Dependence on secondary data: the difficulty in finding primary data (i.e. actual transport data) often pushes companies to make emissions calculations based only on approximate data, sector averages and other secondary data, painting a image which is substantially different from reality.

  3. High costs related to the calculation process: mainly related to personnel, data acquisition and expertise. In general, investments are required in the medium-long term and not all companies are willing to make them.

  4. Need for complex collaboration with the other players in the supply chain: surrounding oneself with reliable suppliers and customers, who act transparently and adopt proven methods to calculate emissions are necessary conditions and very often this structure is not taken for granted.

  5. Need for adequate HR policies: personnel requires training on the basics of climate change, on the specifics of accounting and on the management of emissions. Furthermore, being this topic a rapidly evolving area, it is important to invest in the constant updating of employees' knowledge.

What are the consequences of all this? First of all, many companies, even in face of having to deal with the critical issues expressed, consciously choose not to calculate Scope 3 emissions on the basis of a cost-benefit analysis.

Those who, despite everything, decide to calculate them end up obtaining over- or under-estimated data due to the use of sectoral averages and other aggregate secondary data. Each of these cases, in addition to being fundamentally incorrect, can give rise to both opportunistic attitudes of companies (such as the exploitation of underestimated emissions data to practice green-washing - Havard Business Review), or cause an unfair deterioration of the company image in case of overestimation (for example, a study by IKEA Supply Chain Operations and Girteka, which showed that wheel-to-wheel emissions calculated using primary data are on average 5% lower than those calculated using sector averages).

Carbon accounting related to Scope 3 presents undeniable complexity. How is it possible to navigate in this context and report concrete and reliable data?

What to do? Guides for calculating CO2 emissions

Aware of the difficulty of measuring Scope 3, the WRI and the WBCSD have drawn up and published the Corporate Value Chain (Scope 3) Accounting and Reporting Standard, a supplement to the GHG Protocol, the purpose of which is to guide companies in the reporting of emissions concerning the supply chain. This standard protocol is aimed at all companies and entities, both public and private, operating in any sector. In particular, the document is useful because:

  • It establishes standardized approaches and principles for measuring emissions related to Scope 3;

  • It helps companies develop effective strategies to manage and reduce their emissions by understanding supply-chain emissions;

  • It supports consistent and transparent public reporting of Scope 3 emissions.

Despite the great utility of the Corporate Value Chain (Scope 3) Accounting and Reporting Standard at the general regulatory level, more specific standards have been drawn up for some sectors. With regard to logistics, the Global Logistics Emissions Council (GLEC) Framework was disseminated. The Framework is aimed at shippers, carriers and logistics service providers and addresses the issue of calculating the global impact of the company, also taking into consideration Scope 1 and 2. As what concerns the Scope 3 specifically, different measurement methods are envisaged depending on the available data: primary, programmed, modeled data or default/predefined data. In all cases, the basic calculation unit is km/tons, which considers both the distance traveled and the weight transported. The document obviously specifies how the accuracy of the calculation depends on the type of data used: the accuracy is decreasing starting from the primary data and ending with the default data.

However, the framework does not stop only at the calculation, as the second part of the document is dedicated to reporting methods and tools for interpreting and using the results obtained for strategic purposes.

In short, thanks to GLEC, logistics companies have in their hands the key information necessary to develop a solid measurement and accurate reporting of the emissions produced. However, some problems remain unsolved: where to find the resources to put into practice what is stated in the documents? What happens if suppliers do not cooperate and the company is forced to use secondary data of reduced accuracy? How to make the process simple, scalable and adaptable to an evolving context?

In the following paragraph, we will explore how carbon accounting and reporting tools that reflect the GLEC methodology can help you calculate, report and track the evolution of your Scope 3 impact over time with very low implementation times and very low costs.

Who can help with the Carbon accounting task?

As seen, companies very often find it difficult to build a reporting system for their Scope 3, from the point of view of time, cost and bargaining power towards suppliers to ensure sharing of data and documents on their environmental impact.

Many of these frictions can be resolved by leveraging the latest generation of technological solutions such as Cargoful. The mission is to streamline, digitize and automate the arduous process of carbon accounting, focusing on Scope 3 emissions. Through a dedicated calculation procedure aligned with GLEC standards, Cargoful is able to calculate the company's Scope 3 emissions, making available a technology that correctly estimates the kilometers/ton or directly calculates the impact through primary data obtained from the integration with hauliers. Scope 3 emissions can therefore be aggregated and reduced, analyzing their evolution over time.

Once transparency has been established, it is possible to build a business plan that suggests potential targets, also based on the company's ambition. Defined the goals, the platform suggests and tracks potential levers for the path toward Net Zero: from offset tools to operational reduction through improved planning. This tool allows managers not only to understand where the company is positioned with respect to its targets, but also what levers are available to ensure their achievement.

Finally, the solution allows you to generate company compliance reports with national and international regulations and obligations. If you want to find out more, visit our website and book a session with our consultants!

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