Businesses are under growing pressure to lower their carbon footprint and support world sustainability initiatives in the current environmental crisis. Scope 4 emissions, also known as avoided emissions, are emerging as a crucial aspect of corporate sustainability strategies. These emissions represent the potential greenhouse gas reductions that result from a company’s products or services when compared to conventional alternatives. As organizations strive to achieve net-zero goals, understanding and reporting scope 4 emissions has become essential to paint a comprehensive picture of a company’s environmental impact.

The concept of scope 4 emissions goes beyond traditional carbon accounting methods, offering a more nuanced approach to assessing a company’s climate strategy. By quantifying avoided emissions, businesses can showcase their positive contributions to climate change mitigation and demonstrate their commitment to sustainable business practices. The evolution of emissions reporting is investigated in the present piece, together with the key benefits of incorporating scope 4 emissions in sustainability reports and best practices for using such emissions reporting.

Understanding these aspects is central for companies to align their operations with global climate goals and to drive meaningful environmental responsibility initiatives.

The Evolution of Emissions Reporting

Brief overview of Scope 1, 2, and 3

The journey of emissions reporting has seen significant advancements over the years. To understand the current landscape, it is critical to grasp the concept of scope emissions. The Greenhouse Gas (GHG) Protocol Corporate Standard categorizes emissions into three scopes: Scope 1, Scope 2, and Scope 3.

Scope 1 emissions encompass direct emissions from sources owned or controlled by a company. These include on-site energy consumption, refrigerants, and emissions from company-owned vehicles. Scope 2 emissions, on the other hand, are indirect emissions resulting from purchased or acquired energy, such as electricity, steam, heat, or cooling. Scope 3 emissions are the most comprehensive, covering all indirect emissions occurring in a company’s value chain.

Introduction of Scope 4 concept

As the field of emissions reporting evolves, a new category has emerged: Scope 4 emissions. The World Resources Institute introduced this idea, which refers to avoided emissions that happen outside of a product’s life cycle or value chain but result from its use. Scope 4 emissions are distinct from Scopes 1, 2, and 3 as they represent emissions that are not being created in the first place due to business choices and technological advancements.

Growing interest from stakeholders

The concept of Scope 4 emissions is gaining traction among companies and stakeholders. Some organizations have already begun incorporating avoided emissions into their reporting. For instance, Aveva, a FTSE 100 tech company, plans to develop a baseline and target for customer-saved and avoided emissions by 2025. Similarly, Pacific Gas & Electric Company, Telefonica, and Renew Energy Global have disclosed specific figures for avoided emissions.

Investors are also showing increased interest in Scope 4 reporting. ISS, a proxy adviser, allows investors and companies to assess the potential avoided emissions of investments covering more than 250 companies. Some investment firms, such as Schroders, include avoided emissions in their investment analysis.

However, it is important to note that reporting on Scope 4 emissions should be approached with caution. Experts warn that focusing more on avoided emissions than Scopes 1, 2, and 3 emissions may risk greenwashing. The World Resources Institute recommends that companies first calculate and report Scopes 1, 2, and 3 emissions before disclosing Scope 4 figures.

Key Benefits of Reporting Scope 4 Emissions

Reporting Scope 4 emissions offers several advantages for businesses striving to enhance their sustainability efforts and reduce their environmental impact. As this emerging category gains traction, companies are beginning to understand its significance across their value chains.

Showcasing environmental impact

Scope 4 emissions reporting allows organizations to demonstrate their positive contributions to climate change mitigation. By quantifying avoided emissions, businesses can highlight how their products or services lead to greenhouse gas reductions compared to conventional alternatives . This approach provides a more comprehensive view of a company’s environmental impact, going beyond traditional carbon accounting methods.

Attracting environmentally conscious customers

In today’s market, consumers are increasingly making environmentally friendly purchasing decisions based on accurate data. Scope 4 reporting helps clients and consumers navigate to the right information, enabling them to make better-informed decisions about their purchases. This transparency can strengthen relationships between consumers and brands, as companies clearly provide the information needed for active and informed decisions regarding environmental impact.

Improving investor relations

Impact investors, who seek positive social or environmental outcomes from their investments, often include avoided emissions as a metric when determining a company’s value. Leading fund managers, particularly those focused on environmental solutions, are increasingly incorporating the quantification of positive environmental impact into their strategies. This involves calculating avoided emissions, such as Scope 4, which can give companies a competitive advantage if they can show that their goods or services are the most environmentally friendly.

Reporting on Scope 4 emissions can also help businesses identify risk factors and provide valuable data for ESG reporting. It guides future product development and innovation toward low-carbon or carbon-free solutions, ensuring transparency and responding to changing consumer behavior and demands. However, it is crucial to note that experts recommend reporting avoided emissions separately and not using them to adjust Scopes 1, 2, or 3 emissions. Additionally, avoided emissions should not count towards near-term or long-term emission reduction targets, according to the Science-Based Targets Initiative.

Best Practices for Scope 4 Emissions Reporting

As organizations navigate the complexities of Scope 4 emissions reporting, several best practices have emerged to ensure accuracy, transparency, and credibility. These practices help companies showcase their environmental impact while avoiding potential pitfalls.

Transparent methodology

To establish a robust Scope 4 emissions reporting process, companies should prioritize transparency in their methodologies. This involves setting a clear baseline for comparison, which serves as a benchmark for measuring emissions reductions attributable to the company’s products or services. A detailed life Cycle Assessment (LCA) is necessary, assessing a product’s environmental impacts from raw material extraction to disposal. This comprehensive approach allows for a more accurate comparison with less efficient alternatives.

Separate reporting from other scopes

It is essential to report Scope 4 emissions separately from Scopes 1, 2, and 3. Experts recommend that avoided emissions should not be used to adjust other scope emissions. The Science-Based Targets Initiative (SBTi) emphasizes that Scope 4 emissions should not count towards near-term or long-term emission reduction targets and should be excluded from net-zero reporting . This separation ensures clarity and prevents potential misinterpretation of a company’s overall emissions profile.

Regular updates and audits

The dynamic nature of markets and technology necessitates ongoing monitoring and updating of Scope 4 emissions calculations. Regular reviews help assess technological changes, market penetration, and shifts in consumer behaviour. This approach ensures that calculations remain relevant and accurate as circumstances evolve. Additionally, seeking third-party verification enhances the credibility of Scope 4 emissions reporting. Independent auditing provides stakeholders with confidence that the inventory is accurate, reliable, and prepared in accordance with recognized reporting standards.

By adhering to these best practices, companies can effectively report on Scope 4 emissions while maintaining transparency and accuracy. However, it is necessary to note that experts recommend prioritizing the measurement and management of Scopes 1, 2, and 3 emissions over focusing on Scope 4, given the current lack of standardization and complexities involved in accurately measuring avoided emissions.

The growing emphasis on Scope 4 emissions reporting marks a significant shift in how companies approach sustainability and environmental responsibility. By quantifying avoided emissions, businesses can showcase their positive contributions to climate change mitigation and gain a competitive edge in an increasingly eco-conscious market. This new approach to emissions reporting has far-reaching implications for corporate strategy, investor relations, and customer engagement, pushing companies to innovate and develop more sustainable products and services.

The continuous evolution of the Scope 4 emissions concept necessitates that organizations acquire the right knowledge, embrace transparent approaches, implement separate reporting procedures, and conduct regular audits to guarantee credibility and precision. By focusing on these aspects, sustainability advocates can gain valuable insights into the evolving landscape of emissions reporting but also advocate for the inclusion of Scope 4 in corporate sustainability practices.

Looking ahead, the integration of Scope 4 emissions reporting into broader sustainability strategies will likely play a key role in driving meaningful environmental change and helping businesses align more closely with global net-zero goals.