Category 9 Downstream Transportation and Distribution – The best read

Category 9 Downstream Transportation and Distribution

Category description – Category 9 Downstream Transportation and Distribution includes emissions that occur in the reporting year from transportation and distribution of sold products in vehicles and facilities not owned or controlled by the reporting company.

Overview – Category 9 Downstream Transportation and Distribution

Reporting on Category 9 Downstream Transportation and Distribution involves a comprehensive analysis of the logistical processes and operations involved in transporting goods from production facilities to end consumers. Here’s an executive overview:

  1. Scope and Definition: Category 9 Downstream Transportation and Distribution encompasses the movement of goods from manufacturing plants or warehouses to various distribution centers, retailers, or directly to customers. It involves multiple modes of transportation such as road, rail, sea, and air, as well as associated warehousing and distribution activities.
  2. Key Components:
    • Transportation Modes: Assess the utilization of different transportation modes and their efficiency in terms of cost, speed, and reliability.
    • Distribution Network: Evaluate the design and optimization of distribution networks to ensure timely delivery and minimize costs.
    • Warehousing: Analyze the efficiency of warehousing operations in terms of inventory management, storage capacity, and order fulfillment.
    • Last-Mile Delivery: Focus on the final stage of delivery to customers, addressing challenges and strategies for improving efficiency and customer satisfaction.
  3. Performance Metrics:
    • On-Time Delivery: Measure the percentage of deliveries made according to schedule to assess reliability.
    • Transit Time: Evaluate the average time taken for goods to move through the transportation and distribution network.
    • Cost per Unit: Analyze the cost incurred per unit of goods transported, considering transportation, warehousing, and handling expenses.Category 9 Downstream Transportation and Distribution
    • Inventory Turnover: Assess the rate at which inventory is sold and replaced, indicating efficiency in managing stock levels.
  4. Challenges and Opportunities:
    • Infrastructure: Address challenges related to transportation infrastructure, such as road congestion, port capacity, and airport efficiency.
    • Sustainability: Explore opportunities for reducing the environmental impact of transportation and distribution operations through alternative fuels, route optimization, and packaging innovations.
    • Technology Integration: Highlight the role of technology in optimizing logistics processes, including the use of IoT devices, predictive analytics, and automation to improve efficiency and visibility across the supply chain.
  5. Regulatory and Compliance:
    • Compliance with Regulations: Ensure adherence to regulations governing transportation safety, labor practices, environmental standards, and customs procedures.
    • Trade Policies: Monitor changes in trade policies and tariffs that may impact transportation costs, lead times, and supply chain resilience.
  6. Strategic Recommendations:
    • Network Optimization: Identify opportunities to streamline the transportation and distribution network to reduce costs and improve service levels.
    • Technology Investment: Recommend investments in transportation management systems (TMS), warehouse management systems (WMS), and tracking technologies to enhance visibility and control.
    • Collaboration: Encourage collaboration with transportation partners and suppliers to leverage economies of scale, share resources, and mitigate risks.
  7. Future Outlook:
    • Market Trends: Anticipate emerging trends such as e-commerce growth, omnichannel distribution, and the adoption of electric and autonomous vehicles.
    • Resilience Planning: Prepare for disruptions such as natural disasters, geopolitical tensions, and pandemics by enhancing supply chain resilience and flexibility.

In summary, reporting on Category 9 Downstream Transportation and Distribution involves assessing the efficiency, reliability, and sustainability of logistics operations while identifying opportunities for improvement and strategic investment to meet evolving market demands and challenges.

A worked example – EcoFoods Inc.

For this example, let’s consider a fictional company, “EcoFoods Inc.,” which produces organic food products and distributes them to retailers and customers across the country.

1. Scope and Definition:

EcoFoods Inc. operates a complex downstream transportation and distribution network, involving the movement of perishable organic food products from its manufacturing plants to various distribution centers and ultimately to retail outlets and consumers.

2. Key Components:

a. Transportation Modes:

EcoFoods utilizes a combination of refrigerated trucks for land transportation, as well as partnerships with shipping companies for sea transportation of bulk goods. Additionally, it employs air freight for urgent deliveries of high-value or time-sensitive products.

b. Distribution Network:

The company operates multiple distribution centers strategically located across the country to ensure efficient coverage and timely delivery. These distribution centers are equipped with temperature-controlled storage facilities to maintain the freshness and quality of the organic products.

c. Warehousing:

EcoFoods’ warehousing operations focus on efficient inventory management to minimize storage costs and ensure optimal stock levels. It employs barcode scanning and RFID technology for accurate tracking of inventory movement within its warehouses.

d. Last-Mile Delivery:

The company collaborates with local courier services and offers direct-to-customer delivery options, especially for online orders. It leverages route optimization software to ensure cost-effective and timely last-mile deliveries.

3. Performance Metrics:

a. On-Time Delivery:

EcoFoods consistently achieves an on-time delivery rate of over 95%, ensuring reliability for its retail partners and customers.

b. Transit Time:

The average transit time for products from manufacturing to retail shelves is maintained within industry standards, with continuous efforts to optimize routes and minimize lead times.

c. Cost per Unit:

The company closely monitors the cost per unit transported, including transportation, warehousing, and handling expenses, to ensure competitiveness while maintaining profitability.

d. Inventory Turnover:

EcoFoods maintains a healthy inventory turnover ratio by closely managing stock levels and implementing just-in-time inventory practices to minimize carrying costs.

4. Challenges and Opportunities:

a. Infrastructure:

EcoFoods faces challenges related to infrastructure constraints, particularly road congestion during peak hours and limited capacity at certain ports. The company explores alternative transportation routes and invests in infrastructure improvements where feasible.

b. Sustainability:

Recognizing the importance of sustainability, EcoFoods invests in hybrid and electric vehicles for its transportation fleet and implements packaging innovations to reduce environmental impact.

c. Technology Integration:

The company continuously invests in transportation management systems (TMS) and warehouse management systems (WMS) to optimize logistics operations and enhance visibility across the supply chain.

5. Regulatory and Compliance:

EcoFoods ensures compliance with food safety regulations, transportation safety standards, and environmental regulations governing its operations. It maintains robust procedures for quality control and traceability throughout the supply chain.

6. Strategic Recommendations:

a. Network Optimization:

Continuously assess and optimize the distribution network to minimize transportation costs and improve delivery efficiency, considering factors such as customer demand patterns and geographic distribution.

b. Technology Investment:

Further invest in advanced tracking and monitoring technologies to enhance real-time visibility into the supply chain, enabling proactive management of logistics operations and quicker response to disruptions.

c. Collaboration:

Strengthen partnerships with transportation providers, suppliers, and retailers to foster collaboration and streamline end-to-end supply chain processes.

7. Future Outlook:

a. Market Trends:

Anticipate and adapt to emerging market trends such as increasing demand for organic products, growth in e-commerce sales, and advancements in sustainable transportation technologies.

b. Resilience Planning:

Develop robust contingency plans to mitigate risks posed by potential disruptions, including natural disasters, geopolitical tensions, and supply chain disruptions.

By conducting comprehensive reporting and analysis across these key components, EcoFoods Inc. can effectively manage its downstream transportation and distribution operations, ensuring reliable and sustainable delivery of organic food products to its customers nationwide.

 

This category also includes emissions from retail and storage. Outbound transportation and distribution services that are purchased by the reporting company are excluded from category 9 and included in category 4 (Upstream transportation and distribution) because the reporting company purchases the service. Category 9 includes only emissions from transportation and distribution of products after the point of sale. See table 5.7 in the Scope 3 Standard for guidance in accounting for emissions from transportation and distribution in the value chain.

Emissions from downstream transportation and distribution can arise from transportation/storage of sold products in vehicles/facilities not owned by the reporting company. For example:

  • Warehouses and distribution centers
  • Retail facilities
  • Air transport
  • Rail transport
  • Road transport
  • Marine transport.

In this category, companies may include emissions from customers traveling to and from retail stores, which can be significant for companies that own or operate retail facilities. See chapter 5.6 of the Scope 3 Standard for guidance on the applicability of category 9 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from downstream transportation and distribution include the scope 1 and scope 2 emissions of transportation companies, distribution companies, retailers, and (optionally) customers.

If the reporting company sells an intermediate product, the company should report emissions from transportation and distribution of this intermediate product between the point of sale by the reporting company and either (1) the end consumer (if the eventual end use of the intermediate product is known) or (2) business customers (if the eventual end use of the intermediate product is unknown).

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Category 8 Upstream Leased Assets – The best calculation guidance

Category 8 Upstream Leased Assets

Category description – Category 8 Upstream Leased Assets includes emissions from the operation of assets that are leased by the reporting company in the reporting year and not already included in the reporting company’s scope 1 or scope 2 inventories. This category is applicable only to companies that operate leased assets (i.e., lessees). For companies that own and lease assets to others (i.e., lessors), see category 13 (Downstream leased assets).

Overview – Category 8 Upstream Leased Assets

Reporting on emissions for Category 8 Upstream Leased Assets involves documenting and disclosing the greenhouse gas (GHG) emissions associated with activities related to upstream oil and gas operations that are conducted through leased assets. This category typically includes activities such as exploration, extraction, and production of oil and gas resources.

Here’s an overview of reporting on emissions for Category 8 Upstream Leased Assets:Upstream Leased Assets

Purpose of Reporting:

The purpose of reporting emissions in Category 8 Upstream Leased Assets serves several important functions:

  1. Transparency and Accountability: Reporting on emissions provides transparency into the environmental impact of upstream oil and gas operations conducted through leased assets. This transparency fosters accountability by allowing stakeholders, including investors, regulators, and communities, to understand the emissions profile of companies and hold them accountable for their environmental performance.
  2. Risk Management: Emissions reporting helps companies identify and manage climate-related risks associated with upstream leased assets. By quantifying emissions and assessing associated risks, companies can better understand potential regulatory changes, physical impacts of climate change (such as extreme weather events), and shifts in market demand for fossil fuels. This enables proactive risk mitigation strategies and enhances long-term resilience.
  3. Performance Tracking: Reporting enables companies to track trends in emissions over time and assess the effectiveness of emission reduction measures. Performance metrics such as emissions intensity (emissions per unit of production) and reduction targets allow companies to benchmark their performance against industry peers and evaluate progress toward sustainability goals.
  4. Investor and Stakeholder Confidence: Comprehensive reporting builds investor and stakeholder confidence by demonstrating a company’s commitment to environmental stewardship and sustainability. Transparent disclosure of emissions data, methodologies, and performance metrics helps investors make informed decisions about the environmental risks and opportunities associated with their investments.
  5. Regulatory Compliance: Reporting on emissions helps companies comply with regulatory requirements related to greenhouse gas emissions. Many jurisdictions have reporting obligations or emission reduction targets that companies must meet, and accurate emissions reporting is essential for demonstrating compliance with these regulations.
  6. Market Differentiation: Companies that proactively report on emissions and demonstrate a commitment to reducing their carbon footprint may gain a competitive advantage in the market. Increasingly, investors, customers, and other stakeholders are placing value on companies with strong environmental performance and may preferentially support businesses that prioritize sustainability.
  7. Driving Innovation and Efficiency: Emissions reporting can drive innovation and efficiency by identifying opportunities for emission reduction and operational optimization. By quantifying emissions and analyzing emission sources, companies can identify areas for improvement, invest in cleaner technologies, and implement best practices to minimize environmental impact and enhance operational efficiency.

Components of Reporting:

Reporting on emissions for Category 8 Upstream Leased Assets involves several key components to provide comprehensive and transparent information about the greenhouse gas (GHG) emissions associated with oil and gas operations conducted through leased assets. Here are the main components:

  1. Emission Sources Identification:
    • Identify and categorize the various sources of GHG emissions associated with upstream oil and gas operations conducted through leased assets. This includes sources such as combustion of fossil fuels in equipment, flaring and venting of associated gas, methane emissions from leaks, and other sources of emissions.
  2. Data Collection and Measurement:
    • Collect relevant data on activities and operations that contribute to GHG emissions from upstream leased assets. This may include data on fuel consumption, production volumes, equipment operation hours, and other relevant parameters.
    • Utilize appropriate measurement techniques, such as direct monitoring using sensors and meters, as well as estimation methods based on engineering calculations and emission factors, to quantify emissions accurately.
  3. Emission Factors and Calculations:
    • Use established emission factors and calculation methodologies to convert activity data into CO2-equivalent emissions for each emission source. These factors may vary depending on factors such as the type of equipment, fuel type, operating conditions, and efficiency.
    • Perform calculations to determine the total GHG emissions associated with upstream leased assets, broken down by emission source and emission type (e.g., CO2, methane).
  4. Reporting Boundaries and Scopes:
    • Define the reporting boundaries and scopes in alignment with internationally recognized standards such as the Greenhouse Gas Protocol. Determine which emissions fall under Scope 1 (direct emissions from owned or controlled sources) and Scope 2 (indirect emissions from purchased electricity, heat, or steam).
    • Consider including Scope 3 emissions (indirect emissions from sources not owned or controlled by the reporting entity but associated with its activities) if relevant and feasible.
  5. Verification and Assurance:
    • Undergo third-party verification or assurance processes to validate the accuracy and completeness of emissions data. Independent auditors may assess data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
    • Disclose information about the verification or assurance process and the qualifications of the verifying entity.
  6. Performance Metrics and Targets:
    • Define performance metrics such as emissions intensity (e.g., emissions per unit of production), energy efficiency indicators, and emission reduction targets to track progress over time and benchmark performance against industry peers.
    • Provide context for performance metrics by comparing current performance to historical data and explaining factors influencing emissions trends.
  7. Disclosure and Transparency:
    • Prepare a comprehensive emissions inventory report detailing the methodologies used, emission sources identified, emission calculations, and resulting emissions data.
    • Disclose emissions data and related information in annual sustainability reports, financial filings, or dedicated emissions inventories published on company websites.
    • Provide transparent explanations of data uncertainties, limitations, and assumptions used in emissions calculations to facilitate understanding and interpretation by stakeholders.
  8. Risk Assessment and Mitigation Strategies:
    • Conduct a risk assessment to identify climate-related risks associated with GHG emissions from upstream leased assets, such as regulatory changes, physical impacts of climate change, and market shifts.
    • Develop and implement mitigation strategies to address identified risks, including investments in cleaner technologies, operational improvements, and adaptation measures to enhance resilience.

Reporting on emissions for Category 8 Upstream Leased Assets

  1. Scope of Reporting:
  2. Data Collection and Measurement:
    • Gathering data on emissions involves tracking various sources of GHG emissions within the upstream leased assets, including but not limited to:
      • Combustion of fossil fuels in equipment such as drilling rigs, pumps, compressors, and generators.
      • Flaring and venting of associated gas during oil production.
      • Methane emissions from leaks in equipment and infrastructure.
    • Measurement methodologies may include direct monitoring of emissions using sensors and meters, as well as estimation techniques based on engineering calculations and emission factors.
  3. Emission Factors and Calculations:
    • Emission factors are used to convert activity data (e.g., fuel consumption, production volumes) into CO2-equivalent emissions.
    • These factors may be specific to the type of equipment or process, taking into account factors such as fuel type, operating conditions, and efficiency.
    • Calculation of emissions involves multiplying activity data (e.g., fuel consumption in liters or cubic meters) by the corresponding emission factor to derive CO2-equivalent emissions.
  4. Reporting Standards and Frameworks:
    • Reporting on emissions for Category 8 Upstream Leased Assets often aligns with internationally recognized standards and frameworks, such as the Greenhouse Gas Protocol, the Carbon Disclosure Project (CDP), or jurisdiction-specific reporting requirements.
    • Companies may also voluntarily disclose emissions data through initiatives like the Task Force on Climate-related Financial Disclosures (TCFD) to provide investors and stakeholders with a comprehensive view of their climate-related risks and opportunities.
  5. Verification and Assurance:
    • Many companies undergo third-party verification or assurance processes to validate the accuracy and completeness of their emissions data.
    • Verification may involve independent auditors assessing data collection methodologies, emission calculations, and reporting practices to provide stakeholders with confidence in the reported emissions figures.
  6. Trends and Performance Analysis:
    • Reporting on emissions allows companies to track trends in their emissions over time and assess the effectiveness of emission reduction measures.
    • Performance metrics such as emissions intensity (e.g., emissions per unit of production) and reduction targets help companies set goals and benchmark their performance against industry peers.
  7. Disclosure and Transparency:
    • Transparent disclosure of emissions data, methodologies, and performance metrics is essential for building trust with stakeholders, including investors, regulators, communities, and civil society organizations.
    • Comprehensive reporting may include detailed disclosures in annual sustainability reports, financial filings, and dedicated emissions inventories published on company websites.
  8. Risk Management and Mitigation:
    • Understanding and reporting on emissions from upstream leased assets enables companies to identify climate-related risks, such as regulatory changes, physical impacts of climate change, and shifts in market demand for fossil fuels.
    • By quantifying emissions and assessing associated risks, companies can develop mitigation strategies, invest in cleaner technologies, and transition towards low-carbon energy sources to reduce their carbon footprint and enhance long-term resilience.

In summary, reporting on emissions for Category 8 Upstream Leased Assets involves comprehensive data collection, measurement, and disclosure of GHG emissions associated with oil and gas operations conducted through leased assets. This reporting supports transparency, risk management, and the transition to a low-carbon economy in alignment with global climate goals.

Leased assets may be included in a company’s scope 1 or scope 2 inventory depending on the type of lease and the consolidation approach the company uses to define its organizational boundaries (see section 5.2 of the Scope 3 Standard).

If the reporting company leases an asset for only part of the reporting year, it should account for emissions for the portion of the year that the asset was leased. A reporting company’s scope 3 emissions from upstream leased assets include the scope 1 and scope 2 emissions of lessors (depending on the lessor’s consolidation approach).

See Appendix A of the Scope 3 Standard for more information on accounting for emissions from leased assets.

Category 8 Upstream Leased Assets – Calculating emissions from leased assets

Figure 8.1 (below) shows a decision tree for selecting a calculation method for emissions from upstream leased assets.

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Category 5 Waste Generated in Operations – The best calculation guidance

Category 5 Waste Generated in Operations

Category description – Category 5 Waste Generated in Operations includes emissions from third-party disposal and treatment of waste generated in the reporting company’s owned or controlled operations in the reporting year. This category includes emissions from disposal of both solid waste and wastewater.

This guidance page for Category 5 Waste Generated in Operations serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Only waste treatment in facilities owned or operated by third parties is included in scope 3. Waste treatment at facilities owned or controlled by the reporting company is accounted for in scope 1 and scope 2. Treatment of waste generated in operations is categorized as an upstream scope 3 category because waste management services are purchased by the reporting company.

This category includes all future emissions that result from waste generated in the reporting year. (See chapter 5.4 of the Scope 3 Standard for more information on the time boundary of scope 3 categories.)

Overview – Category 5 Waste Generated in Operations

Category 5 Waste Generated in Operations refers to a specific classification within greenhouse gas (GHG) emissions accounting, focusing on emissions resulting from waste generated during a company’s operational activities. These emissions include both direct emissions from waste management processes, such as landfilling and incineration, as well as indirect emissions associated with the production and disposal of waste materials.

Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: GHG emissions are categorized into three scopes by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources owned or controlled by the company, while Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions, including those associated with waste management.
  2. Category 5 Emissions: Within Scope 3 emissions, Category 5 specifically focuses on waste generated in operations. These emissions include both direct emissions from waste disposal methods and indirect emissions associated with the production, treatment, and disposal of waste materials.

Characteristics:

  1. Variety of Waste Types: Waste generated in operations can include various types of materials, such as solid waste, wastewater, hazardous waste, and electronic waste (e-waste), depending on the nature of the company’s activities.
  2. Lifecycle Impact: Waste management processes, from production to disposal, contribute to GHG emissions at various stages of the waste lifecycle, including extraction of raw materials, manufacturing, transportation, treatment, and final disposal.
  3. Regulatory Compliance: Companies may be subject to regulations and reporting requirements related to waste management and emissions, requiring them to monitor, report, and reduce their environmental impact from waste generation.

Examples:

  1. Solid Waste: Emissions associated with the disposal of non-hazardous solid waste, such as packaging materials, office waste, and construction debris, through landfilling or incineration.
  2. Wastewater Treatment: Emissions resulting from the treatment of wastewater generated during manufacturing processes, including biological treatment, chemical treatment, and energy-intensive treatment methods.
  3. Hazardous Waste: Emissions from the handling, treatment, and disposal of hazardous waste materials, such as chemicals, solvents, and heavy metals, which require specialized management to prevent environmental contamination.
  4. E-waste: Emissions associated with the disposal of electronic waste, including computers, mobile phones, and other electronic devices, which contain hazardous substances and require proper recycling or disposal methods.Category 5 Waste Generated in Operations

Importance:

  1. Environmental Impact: Waste generated in operations contributes to environmental pollution, resource depletion, and habitat destruction, highlighting the importance of implementing sustainable waste management practices to minimize these impacts.
  2. Resource Efficiency: Efficient waste management practices, such as recycling, reuse, and waste-to-energy technologies, can help conserve natural resources, reduce energy consumption, and lower GHG emissions associated with waste disposal.
  3. Regulatory Compliance: Compliance with waste management regulations and emissions reporting requirements is essential for avoiding penalties, maintaining corporate reputation, and demonstrating environmental responsibility to stakeholders.

Considerations:

  1. Waste Reduction: Implementing waste reduction strategies, such as source reduction, material substitution, and process optimization, can help minimize waste generation and associated emissions at the source.
  2. Waste-to-Energy: Utilizing waste-to-energy technologies, such as anaerobic digestion, incineration with energy recovery, and landfill gas capture, can help mitigate emissions from waste disposal while generating renewable energy.
  3. Circular Economy: Transitioning towards a circular economy model, where waste is viewed as a resource and recycled or reused to create new products or materials, can help minimize waste generation and reduce environmental impact.

Conclusion:

Category 5 Waste Generated in Operations represents a significant aspect of a company’s environmental impact, reflecting emissions associated with waste management processes throughout the operational lifecycle.

By addressing these emissions and implementing sustainable waste management practices, companies can minimize their environmental footprint, conserve resources, and contribute to a more sustainable and circular economy.

Waste treatment activities may include:

  • Disposal in a landfill
  • Disposal in a landfill with landfill-gas-to-energy (LFGTE) – that is, combustion of landfill gas to generate electricity
  • Recovery for recycling
  • Incineration
  • Composting
  • Waste-to-energy (WTE) or energy-from-waste (EfW) – that is, combustion of municipal solid waste (MSW) to generate electricity
  • Wastewater treatment.

A reporting company’s scope 3 emissions from waste generated in operations derive from the scope 1 and scope 2 emissions of solid waste and wastewater management companies. Companies may optionally include emissions from transportation of waste in vehicles operated by a third party.

Category 5 Waste Generated in Operations – Calculating emissions from waste generated in operations

Different types of waste generate different types and quantities of greenhouse gases. Depending on the type of waste, the following greenhouse gases may be generated:

  • CO2 (from degradation of both fossil and biogenic carbon contained in waste)
  • CH4 (principally from decomposition of biogenic materials in landfill or WTE technologies)
  • HFCs (from the disposal of refrigeration and air conditioning units).

Companies may use any one of the following methods to calculate emissions from waste generated in their operations, but managed by third parties:

  • Supplier-specific method, which involves collecting waste-specific scope 1 and scope 2 emissions data directly from waste treatment companies (e.g., for incineration, recovery for recycling)
  • Waste-type-specific method, which involves using emission factors for specific waste types and waste treatment methods
  • Average-data method, which involves estimating emissions based on total waste going to each disposal method (e.g., landfill) and average emission factors for each disposal method.

To optionally report emissions from the transportation of waste, refer to category 4 (Upstream transportation and distribution) for calculation methodologies.

Figure 5.2 gives a decision tree for selecting a calculation method for emissions from waste generated in operations.

Category 5 Waste Generated in OperationsSupplier-specific method

In certain cases, third party waste-treatment companies may be able to provide waste-specific scope 1 and scope 2 emissions data directly to customers (e.g., for incineration, recovery for recycling).

Activity data needed

Companies should collect:

Emission factors needed

If using the supplier-specific method, the reporting company collects emissions data from waste treatment companies, so no emission factors are required (the company would have already used emission factors to calculate the emissions).

Calculation formula [5.1] Supplier-specific method

CO2e emissions from waste generated in operations =

sum across waste treatment providers:

Σ allocated scope 1 and scope 2 emissions of waste treatment company

Waste-type-specific method

Emissions from waste depend on the type of waste being disposed of, and the waste diversion method. Therefore, companies should try to differentiate waste based on its type (e.g., cardboard, food-waste, wastewater) and the waste treatment method (e.g., incinerated, landfilled, recycled, wastewater).

Activity data needed

Companies should collect:

  • Waste produced (e.g., tonne/ cubic meter) and type of waste generated in operations
  • For each waste type, specific waste treatment method applied (e.g., landfilled, incinerated, recycled).

Because many waste operators charge for waste disposal by the method used, disposal methods may be identified on utility bills. The information may also be stored on internal IT systems. Companies with leased facilities may have difficulty obtaining primary data. Guidance on improving data collection can be found in chapter 7 of the Scope 3 Standard.

Emission factors needed

Companies should collect:

  • Waste type-specific and waste treatment-specific emission factors. The emission factors should include end-of-life processes only. Emission factors may include emissions from transportation of waste.

Data collection guidance

Data sources for emission factors include:

  • Calculated emission factors using IPCC Guidelines (2006 IPCC Guidelines for National Greenhouse Gas Inventories Volume 5), available at http://www.ipcc-nggip.iges.or.jp/public/2006gl/vol5.html
  • Life cycle databases
  • Industry associations.

Calculation formula [5.2] Waste-type-specific method

CO2e emissions from waste generated in operations =

sum across waste types:

Σ (waste produced (tonnes or m3) × waste type and waste treatment specific emission factor

(kg CO2e/tonne or m3))

..

Example [5.1] Calculating emissions from waste generated in operations using the waste-type-specific method

Company A manufactures plastic components and produces solid waste as well as a high volume of wastewater in the manufacturing process. The company collects data on the different types of waste produced, and how this waste is treated. Emission factors are then sourced for each of the waste types.

Category 5 Waste Generated in Operations

sum for each waste type:

Σ (waste produced (tonnes)

× waste type and waste treatment specific emission factor (kg CO2e/tonne or m3))

= (2,000 × 40) + (5,000 × 2) + (4,000 × 10) + (5,000 × 0.5) = 132,500 kg CO2e

Average-data method

Companies using the average-data method should collect data based on the total waste diversion rates from the reporting organization. This is often preferable where the type of waste produced is unknown. However, this method has a higher degree of uncertainty than the waste-type-specific method.

Activity data needed

Companies should collect:

  • Total mass of waste generated in operations
  • Proportion of this waste being treated by different methods (e.g., percent landfilled, incinerated, recycled).

Because many waste operators charge for waste by disposal method, this data may be collected from utility bills. The information may also be stored on internal IT systems.

Emission factors needed

Companies should collect:

  • Average waste treatment specific emission factors based on all waste disposal types. The emission factors should include end-of-life processes only.

Data collection guidance

Data sources for emission factors include:

Calculation formula [5.3] Average-data method

CO2e emissions from waste generated in operations =

sum across waste treatment methods:

Σ (total mass of waste (tonnes) × proportion of total waste being treated by waste treatment method

× emission factor of waste treatment method (kg CO2e/tonne))

..

Example [5.2] Calculating emissions from waste generated in operations using the average-data method

Company A is a telesales center. The company does not have sufficient information to allow the waste-type specific data method. Company A, therefore, collects data on the total waste collected, the proportion of waste treated by various methods, and average emission factors for waste diversion methods:

Category 5 Waste Generated in Operations

Σ (total mass of waste (tonnes)

× proportion of total waste being treated by waste treatment method

× emission factor of waste treatment method (kg CO2e/tonne))

= (40 × 0.25 × 300) + (40 × 0.05 × 0) + (40 × 0.3 × 0) + (40 × 0.2 × 10) + (40 × 0.2 × 30)

= 3,320 kg CO2e

Category 5 Waste Generated in Operations – Accounting for emissions from recycling

Emission reductions associated with recycling are due to two factors:

  • The difference in emissions between extracting and processing virgin material versus preparing recycled material for reuse
  • A reduction in emissions that would otherwise have occurred if the waste had been sent to a landfill or other waste treatment method.

Companies may encounter recycling in three circumstances, each of which is relevant to a different scope 3 category (see table 5.1 and figure 5.1).

Table [5.1] Accounting for emissions from recycling across different scope 3 categories

Circumstance

Relevant scope 3 category

A Company purchases material with recycled content

Category 1 (Purchased goods and services), or Category 2 (Capital goods)

B Company generates waste from its operations that is sent for recycling

Category 5 (Waste generated in operations)

C Company sells products with recyclable content

Category 12 (End-of-life treatment of sold products)

Under circumstance A (table 5.1), if a company purchases a product or material that contains recycled content, the upstream emissions of the recycling processes are built into the cradle-to-gate emission factor for that product and would, therefore, be reflected in category 1 (Purchased goods and services).

If a company purchases a recycled material that has lower upstream emissions than the equivalent virgin material then this would register as lower emissions in category 1. Under circumstance B, a company may recycle some of its “operational waste”.

These emissions are reported under category 5 (Waste generated in operations). Under circumstance C, products with recyclable content eventually become waste, which could be recycled. Emissions generated in this process are reported as category 12 (End-of-life treatment of sold products). (See figure 5.1.)

Category 5 Waste Generated in Operations

Because one company may both purchase recycled materials and sell recyclable products, methodologies have been established to keep the emissions from being double counted. To allocate the emissions from the recycling process between the disposer of the waste and the user of the recycled material, the recommended allocation method is the “recycled content method.”

This method allocates the emissions to the company that uses the recycled material (reported as category 1).

If there is doubt about which processes are allocated to the recycled material (circumstance A), it may be helpful to look at which processes are included in the cradle-to-gate emission factor for the material when it is used as an input. Any processes not included in that factor, but applicable to the company’s supply chain, should be included in category 5 or category 12 because they have not been allocated to the recycled material.

The recycled content method is recommended for scope 3 inventories because it is easy to use and generally consistent with secondary emission factors available for recycled material inputs. However, companies may use other methods if they are more applicable to specific materials in their supply chain.

For example, the “closed loop approximation method” may be applicable when a recycled material output has the same inherent properties as virgin material input into the same supply chain.

This method, also defined in more detail in section 9.3.6 of the Product Standard, accounts for the impact that end-of-life recycling has on the net virgin acquisition of a material.

If there is uncertainty about which recycling method is appropriate for a given material or if the supply chain is complex, the recycled content method is the recommended choice to avoid double counting or miscounting of emissions.

Reporting negative or avoided emissions from recycling

Claims of negative or avoided emissions associated with recycling are claims beyond a reduction in processing emissions (as described in circumstance A above) and beyond a reduction in waste treatment emissions in categories 5 or 12 (as described in circumstances B and C above). Negative or avoided emissions claims refer to a comparison of the emissions from processing the recycled material relative to the emissions from producing the equivalent virgin material.

Any claims of avoided emissions associated with recycling should not be included in, or deducted from, the scope 3 inventory, but may instead be reported separately from scope 1, scope 2, and scope 3 emissions.

Companies that report avoided emissions should also provide data to support the claim that emissions were avoided (e.g., that recycled materials are collected, recycled, and used) and report the methodology, data sources, system boundary, time period, and other assumptions used to calculate avoided emissions.

For more information on avoided emissions, see section 9.5 of the Scope 3 Standard (see also “Reporting additional metrics for recycling and waste-to-energy,” below).

Accounting for emissions from incineration with energy recovery (waste-to-energy)

Attributing emissions from waste-to-energy is similar to the approach taken for recycling. Companies may both generate waste that is incinerated with energy recovery (waste-to-energy) and consume energy that is generated by waste-to-energy processes. If a company purchases energy from the same facility that it sends its waste to, then accounting for emissions from the waste-to-energy combustion process both upstream and downstream would double count the emissions.

To avoid double counting, a company should account for upstream emissions from purchased energy generated from waste in scope 2. (In most cases, the emissions associated with combustion of waste to produce energy will be included in the grid average emission factor).

Companies should account for emissions from preparing and transporting waste that will be combusted in a waste-to-energy facility in category 5, but should not account for emissions from the waste-to-energy combustion process itself. These emissions should be included in scope 2 by the consumers of energy generated from waste.

If waste from operations is incinerated and used for energy on-site and under operational or financial control, the emissions associated with the incineration are included as scope 1 (and scope 2 would decrease as a result of a reduction in purchased energy). Companies should not report negative or avoided emissions associated with waste-to-energy in the inventory.

This guidance does not apply to accounting for emissions from waste that is incinerated without energy recovery. All emissions from combusting waste without energy recovery are reported by the company generating the waste under scope 3, category 5 (Waste generated in operations).

Reporting additional information for recycling and waste-to-energy

Under the accounting methodology described above, emissions from recycling and waste-to-energy both appear to have a similar effect on the reporting company’s scope 3 category 5 emissions (i.e., emissions from both will be reported as close to zero) based on the scope 3 boundary definition.

It is, therefore, suggested that companies separately report additional information to help identify the full GHG impacts within and outside their inventory boundary and make informed decisions about the best options for waste treatment (e.g. recycling compared to waste-to-energy).

If electricity is generated from waste-to-energy, companies may report separately the emissions per unit of net electrical generation from the combustion stage of waste-to-energy relative to the local grid average electricity emission factor (tonnes CO2e per kWh). For example incinerating plastic waste is likely to be more carbon-intensive per kWh of electricity generated than the grid average.

Reporting this metric would help companies understand whether sending their waste to a waste-to-energy facility is leading to more- or less-carbon-intensive electricity for the region.

Similarly in the case of recycling, it is suggested that companies report separately the recycling emissions relative to the emissions from producing the equivalent virgin material. This number will often be a negative emissions figure (as recycled material inputs generally have lower upstream emissions than virgin materials). If reported, this figure must be reported separately to the scope 3 inventory.

Accounting for emissions from wastewater

Emissions from wastewater are highly variable depending on how much processing is needed to treat the water (determined by biological oxygen demand [BOD] and/or chemical oxygen demand [COD]).

The following industries often have higher emissions from wastewater (where wastewater is not treated onsite): starch refining; alcohol refining; pulp and paper; vegetables, fruits, and juices; and food processing.

Companies in these industries should calculate emissions from wastewater using methods provided in the 2006 IPCC Guidelines for National Greenhouse Gas Inventories Volume 5 Waste, available at http://www.ipcc-nggip.iges.or.jp/public/2006gl/vol5.html.

Category 5 Waste Generated in Operations

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Category 3 Fuel and Energy Related Activities – The best calculation guidance

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category description – Category 3 Fuel and Energy Related Activities includes emissions related to the production of fuels and energy purchased and consumed by the reporting company in the reporting year that are not included in scope 1 or scope 2.

This guidance page for Category 3 Fuel and Energy Related Activities serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 3 excludes emissions from the combustion of fuels or electricity consumed by the reporting company because they are already included in scope 1 or scope 2. Scope 1 includes emissions from the combustion of fuels by sources owned or controlled by the reporting company. Scope 2 includes the emissions from the combustion of fuels to generate electricity, steam, heating, and cooling purchased and consumed by the reporting company.

Overview – Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 (often abbreviated as Category 3 emissions) refer to indirect emissions associated with a company’s value chain, which are not directly controlled or owned by the organization but result from its activities. These emissions primarily stem from sources such as upstream and downstream activities, including extraction, production, and distribution of fuels and energy that a company utilizes but does not directly manage. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: The categorization of greenhouse gas (GHG) emissions is defined by the Greenhouse Gas Protocol. Scope 1 emissions are direct emissions from sources that are owned or controlled by the company, such as onsite fuel combustion. Scope 2 emissions are indirect emissions from purchased electricity, heat, or steam. Scope 3 emissions encompass all other indirect emissions along the value chain, including both upstream and downstream activities.
  2. Category 3 Emissions: Within Scope 3 emissions, Category 3 specifically focuses on fuel and energy-related activities that are not included in Scopes 1 or 2. These emissions arise from sources outside the company’s direct control but are associated with the company’s activities, such as the extraction, production, and transportation of fuels and energy sources used by the organization.

Characteristics:

  1. Indirect Nature: Category 3 emissions are indirect emissions, meaning they result from activities associated with the company’s value chain but occur outside of the company’s operational boundaries.
  2. Complexity: Assessing and managing Category 3 emissions can be challenging due to the complexity of tracing emissions throughout the supply chain, as well as the diverse range of activities involved in fuel extraction, production, and distribution.
  3. Scope and Coverage: Category 3 emissions cover a broad spectrum of activities, including but not limited to upstream activities such as extraction and processing of raw materials, transportation of fuels, and downstream activities like refining and distribution.

Examples:Category 3 Fuel and Energy Related Activities

  1. Upstream Activities: Emissions associated with the extraction of fossil fuels such as oil, natural gas, and coal, including drilling, mining, and processing.
  2. Transportation: Emissions from the transportation of fuels and energy sources, including shipping, pipeline transport, and road transport of crude oil, refined products, and natural gas.
  3. Refining and Processing: Emissions generated during the refining and processing of crude oil and natural gas into usable fuels and energy products, such as gasoline, diesel, and electricity.
  4. Distribution: Emissions related to the distribution of fuels and energy sources to end-users, including storage, handling, and transportation to retail outlets or industrial consumers.

Importance:

  1. Comprehensive Emissions Accounting: Addressing Category 3 emissions allows companies to achieve a more comprehensive understanding of their carbon footprint and environmental impact, enabling better-informed decision-making and targeted emission reduction efforts.
  2. Supply Chain Management: Managing Category 3 emissions necessitates collaboration and engagement with suppliers and partners throughout the value chain, promoting sustainability and environmental stewardship across the entire supply network.
  3. Risk Mitigation: Understanding and mitigating Category 3 emissions can help companies reduce their exposure to regulatory, market, and reputational risks associated with climate change and carbon-intensive activities.

Considerations:

  1. Data Availability and Accuracy: Assessing Category 3 emissions requires access to reliable data on emissions factors, energy consumption, and supply chain activities, which may pose challenges due to data availability and accuracy issues.
  2. Supply Chain Engagement: Engaging with suppliers and partners to address Category 3 emissions requires collaboration, transparency, and alignment of goals and objectives, which may necessitate developing partnerships and implementing supply chain sustainability initiatives.
  3. Lifecycle Analysis: Conducting lifecycle assessments of products and services can help identify hotspots and opportunities for emissions reductions across the entire value chain, including Category 3 activities.

Conclusion:

Category 3 Fuel and Energy Related Activities Not Included in Scope 1 or Scope 2 represent a significant component of a company’s indirect emissions profile, reflecting the environmental impact associated with the extraction, production, and distribution of fuels and energy sources used in its operations. By comprehensively addressing Category 3 emissions and integrating sustainability principles into supply chain management practices, companies can enhance their environmental performance, mitigate risks, and contribute to global efforts to combat climate change.

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Category 1 Purchased Goods and Services – The best calculation guidance

Calculating Scope 3 Emissions GHG Category 1 Purchased Goods and Services

Category description – Category 1 Purchased Goods and Services includes all upstream (i.e., cradle-to-gate) emissions from the production of products purchased or acquired by the reporting company in the reporting year. Products include both goods (tangible products) and services (intangible products).

This guidance page for Category 1 Purchased Goods and Services serves as a companion to the Scope 3 Standard to offer companies practical guidance on calculating their scope 3 emissions. It provides information not contained in the Scope 3 Standard, such as methods for calculating GHG emissions for each of the 15 scope 3 categories, data sources, and worked examples.

Category 1 includes emissions from all purchased goods and services not otherwise included in the other categories of upstream scope 3 emissions (i.e., category 2 through category 8). Specific categories of upstream emissions are separately reported in category 2 through category 8 to enhance the transparency and consistency of scope 3 reports.

Emissions from the transportation of purchased products from a tier one (direct) supplier to the reporting company (in vehicles not owned or controlled by the reporting company) are accounted for in category 4 (Upstream transportation and distribution).

Companies may find it useful to differentiate between purchases of production-related products (e.g., materials, components, and parts) and non-production-related products (e.g., office furniture, office supplies, and IT support). This distinction may be aligned with procurement practices and therefore may be a useful way to more efficiently organize and collect data (see box 5.2 of the Scope 3 Standard).

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Category 11 Use of Sold Products – Best read

Category 11 Use of Sold Products

Category description – Category 11 Use of Sold Products includes emissions from the use of goods and services sold by the reporting company in the reporting year. A reporting company’s scope 3 emissions from use of sold products include the scope 1 and scope 2 emissions of end users. End users include both consumers and business customers that use final products.

The Scope 3 Standard divides emissions from the use of sold products into two types (see also table 11.1):

Category 11 Use of Sold Products

In category 11, companies are required to include direct use-phase emissions of sold products. Companies may also account for indirect use-phase emissions of sold products, and should do so when indirect use-phase emissions are expected to be significant. See table 11.1 for descriptions and examples of direct and indirect use-phase emissions.

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Category 10 Processing of Sold Products – One Better read

Category 10 Processing of Sold Products

Category description – Category 10 Processing of Sold Products includes emissions from processing of sold intermediate products by third parties (e.g., manufacturers) subsequent to sale by the reporting company. Intermediate products are products that require further processing, transformation, or inclusion in another product before use (see box 5.3 of the Scope 3 Standard), and therefore result in emissions from processing subsequent to sale by the reporting company and before use by the end consumer. Emissions from processing should be allocated to the intermediate product.

In certain cases, the eventual end use of sold intermediate products may be unknown. For example, a company that produces an intermediate product with many potential downstream applications, each of which has a different GHG emissions profile, may be unable to reasonably estimate the downstream emissions associated with these various end uses. See section 6.4 of the Scope 3 Standard for guidance in cases where downstream emissions associated with sold intermediate products are unknown.

See section 5.5 of the Scope 3 Standard for guidance on the applicability of category 10 to final products and intermediate products sold by the reporting company. A reporting company’s scope 3 emissions from processing of sold intermediate products include the scope 1 and scope 2 emissions of downstream value chain partners (e.g., manufacturers).

Calculating emissions from processing of sold products

Figure 10.1 gives a decision tree for selecting a calculation method for calculating scope 3 emissions from processing of sold products. Companies may use either of two methods:

decision tree for selecting a calculation method for calculating scope 3 emissions from processing of sold products

  • Site-specific method, which involves determining the amount of fuel and electricity used and the amount of waste generated from processing of sold intermediate products by the third party and applying the appropriate emission factors
  • Average-data method, which involves estimating emissions for processing of sold intermediate products based on average secondary data, such as average emissions per process or per product.

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Cloud based software in IFRS 15 Revenue

Cloud based software

Historically, companies acquiring IT and other infrastructure have only faced one decision – buy or lease? From a financial perspective, the choice was simple: lease, because it didn’t require up-front capital and potentially allowed assets to be kept off balance sheet under the old accounting rules. A buy decision meant an up-front investment of capital and a depreciating asset on the balance sheet.

However, with the evolution of technology, a new choice has emerged – cloud services, which can be obtained without Cloud based softwarebuying or leasing. Instead of expensive data centres and IT software licenses, users can choose to simply have a provider host all of their infrastructure and services. No upfront investment is required, just a simple monthly series of payments that can be scaled up, scaled back or cancelled as needed. But what does all of this mean for income statements – and your company’s balance sheet?

Cloud accounting – a different business model

Historically, any company purchasing its IT infrastructure would capitalise the costs and amortise them over time. Under the new leases standard, a company using a lease or hire purchase arrangement to access IT infrastructure would end up with a similar capitalised asset and amortisation charge over time. However, the cloud alternative represents a fundamentally different business model, one where, unlike the legacy purchase model, a user of cloud services does not ever own the underlying assets.

While this isn’t yet another article about the leases standard, it’s useful to step through some of the sensitivities in financial metrics under the leasing standard. While cloud services are likely to result in a differing accounting treatment, the all too familiar concerns in lease accounting are still relevant.

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Valuation techniques Market approach

Valuation techniques Market approach uses prices and other relevant information generated by market transactions involving identical or comparable items

Calculating the value of an acquisition – How 2 complete it best

Calculating the value of an acquisition – This is a detailed example of calculating the fair value of an acquisition, using a logical step by step approach and realistic assumptions and determinations based on transaction and market data. Identifying and valuing intangible asset(s) is a broad endeavor and requires careful consideration of; factors specific to each business, the transaction structure, identifying the primary income generating asset, determining the discount rates, estimating the useful lives for identified intangibles. Examples of such intangibles include customer contracts, trademarks, brands, etc.

 

The Deal Fortune, Inc. acquired M&P Company on January 1, 2017. Consideration was $30 million cash plus additional contingent consideration, as follows:

EBITDA

  • Below 1 million: Nil Calculating the value of
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