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 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 4 Upstream Transportation and Distribution – The best calculation guidance

Category 4 Upstream Transportation and Distribution

Category description – Category 4 Upstream Transportation and Distribution includes emissions from:

  • Transportation and distribution of products purchased in the reporting year, between a company’s tier 1 suppliers1 and its own operations in vehicles not owned or operated by the reporting company (including multi-modal shipping where multiple carriers are involved in the delivery of a product, but excluding fuel and energy products)   – link to figure 7.3 in the Scope 3 Standard
  • Third-party transportation and distribution services purchased by the reporting company in the reporting year (either directly or through an intermediary), including inbound logistics, outbound logistics (e.g., of sold products), and third-party transportation and distribution between a company’s own facilities.

This guidance page for Category 4 Upstream Transportation and Distribution 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.

Overview – Category 4 Upstream Transportation and Distribution

Category 4 Upstream Transportation and Distribution refer to a specific classification within greenhouse gas (GHG) emissions accounting, focusing on indirect emissions associated with the transportation and distribution of products and materials upstream in the supply chain. These emissions occur outside of a company’s operational boundaries but are essential to the production and delivery of goods and services. Here’s a comprehensive overview:

Definition and Classification:

  1. Scope 1, 2, and 3 Emissions: Greenhouse gas 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 upstream and downstream activities not directly controlled by the company.
  2. Category 4 Emissions: Within Scope 3 emissions, Category 4 specifically focuses on upstream transportation and distribution. These emissions result from the transportation of raw materials, components, and products from suppliers to the company’s facilities or from one stage of production to another.

Characteristics:Category 4 Upstream Transportation and Distribution

  1. Indirect Nature: Category 4 emissions are considered indirect emissions because they occur outside of the company’s direct operational control but are associated with its supply chain activities.
  2. Supply Chain Impact: Transportation and distribution activities are crucial components of the supply chain, influencing the efficiency, cost, and environmental impact of sourcing materials and delivering products to customers.
  3. Global Reach: Upstream transportation and distribution activities often involve complex logistics networks, including road, rail, sea, and air transport, which can span multiple regions and countries.

Examples:

  1. Raw Material Sourcing: Emissions associated with the transportation of raw materials, such as minerals, metals, agricultural products, and lumber, from extraction sites or farms to manufacturing facilities.
  2. Component Transport: Emissions from the transportation of components, parts, and sub-assemblies between suppliers, subcontractors, and assembly plants in the production process.
  3. Product Distribution: Emissions related to the distribution of finished products from manufacturing facilities to warehouses, distribution centers, retailers, or directly to consumers via various modes of transportation.
  4. Reverse Logistics: Emissions from the transportation of returned goods, recycling materials, or waste products back through the supply chain for disposal, recycling, or refurbishment.

Importance:

  1. Supply Chain Efficiency: Managing Category 4 emissions is essential for optimizing supply chain efficiency, reducing transportation costs, and minimizing environmental impact through more sustainable transportation and distribution practices.
  2. Risk Management: Addressing upstream transportation and distribution emissions helps companies mitigate risks associated with volatile fuel prices, regulatory changes, geopolitical instability, and supply chain disruptions.
  3. Carbon Footprint Reduction: By identifying opportunities to reduce emissions in upstream transportation and distribution activities, companies can lower their overall carbon footprint and contribute to climate change mitigation efforts.

Considerations:

  1. Mode Selection: Choosing the most appropriate transportation modes, such as rail, sea, or inland waterways, can help minimize emissions and reduce environmental impact compared to road or air transport.
  2. Route Optimization: Optimizing transportation routes, consolidating shipments, and improving logistics efficiency can reduce fuel consumption, emissions, and transportation costs.
  3. Collaboration with Suppliers: Collaborating with suppliers to implement sustainable transportation and distribution practices, such as using eco-friendly packaging, optimizing load sizes, and leveraging alternative fuels, can help mitigate Category 4 emissions.

Conclusion:

Category 4 Upstream Transportation and Distribution emissions represent a significant aspect of a company’s indirect emissions profile, reflecting the environmental impact associated with the movement of products and materials throughout the supply chain. By addressing these emissions and implementing sustainable transportation and distribution practices, companies can enhance supply chain efficiency, reduce costs, and minimize their environmental footprint, contributing to both environmental stewardship and long-term business sustainability.

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Category 2 Capital Goods Scope 3 emissions – The best calculation guidance

Calculating Scope 3 Emissions GHG Category 2 Capital Goods

Category description – Category 2 Capital Goods includes all upstream (i.e., cradle-to-gate) emissions from the production of capital goods purchased or acquired by the reporting company in the reporting year. Emissions from the use of capital goods by the reporting company are accounted for in either scope 1 (e.g., for fuel use) or scope 2 (e.g., for electricity use), rather than in scope 3.

This guidance page for Category 2 Capital Goods 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.

Overview – Category 2 Capital Goods

Category 2 Capital Goods refer to a specific classification within capital goods, a broad category encompassing durable assets used by businesses to produce goods or services. These goods are essential for the operation and expansion of a business, serving as long-term investments rather than short-term expenses. Category 2 Capital Goods typically include machinery, equipment, vehicles, and other tangible assets that facilitate production processes but have a shorter lifespan compared to Category 1 Capital Goods.

Here’s an overview of Category 2 Capital Goods:

Definition and Classification:

  1. Capital Goods: Capital goods are tangible assets used by businesses to produce goods or services. They are distinguished from consumable goods by their longevity and role in the production process.
  2. Category 2 Classification: Capital goods are often categorized based on their lifespan, with Category 2 referring to assets that have a medium-term lifespan compared to Category 1, which includes long-term assets like buildings and land.

Characteristics:

  1. Durability: Category 2 Capital Goods are durable assets designed to withstand regular use over an extended period but typically have a shorter lifespan compared to Category 1 assets.Category 2 Capital Goods
  2. Utility in Production: These goods are essential for the production process, directly contributing to the creation of goods or services by a business.
  3. Depreciation: Like all capital assets, Category 2 Capital Goods undergo depreciation, losing value over time due to wear and tear, technological obsolescence, or market fluctuations.
  4. Investment: They represent significant investments for businesses, requiring substantial financial outlay upfront but offering long-term returns through increased productivity and efficiency.

Examples:

  1. Machinery and Equipment: This includes manufacturing machinery, assembly line equipment, packaging machines, and other industrial tools necessary for production processes.
  2. Vehicles: Trucks, vans, forklifts, and other vehicles used for transporting raw materials, finished goods, or employees within the production facility or to external locations.
  3. Tools and Instruments: Hand tools, power tools, precision instruments, and other equipment used by workers to perform tasks related to production, maintenance, or quality control.
  4. Technology and Software: Computer systems, software applications, and technological infrastructure used to automate processes, manage operations, or analyze data for decision-making purposes.

Importance:

  1. Enhanced Productivity: Category 2 Capital Goods play a crucial role in enhancing productivity and efficiency within a business, allowing for faster production cycles and higher output levels.
  2. Competitive Advantage: Investing in modern, efficient capital goods can provide a competitive edge by reducing costs, improving quality, and enabling innovation in products or processes.
  3. Capacity Expansion: These assets enable businesses to expand their production capacity, meet growing demand, or enter new markets by investing in additional machinery, equipment, or technology.
  4. Risk Management: Upgrading or replacing Category 2 Capital Goods can mitigate risks associated with equipment breakdowns, technological obsolescence, or changes in market demand.

Considerations:

  1. Cost-Benefit Analysis: Businesses must conduct thorough cost-benefit analyses before investing in Category 2 Capital Goods to ensure that the benefits in terms of increased productivity or cost savings outweigh the initial investment and ongoing operational costs.
  2. Maintenance and Upkeep: Proper maintenance and timely upgrades are essential to prolong the lifespan and optimize the performance of Category 2 Capital Goods, reducing the risk of downtime and costly repairs.
  3. Technological Advancements: Rapid advancements in technology may render certain capital goods obsolete sooner than expected, necessitating careful consideration of the asset’s lifespan and future market trends.
  4. Regulatory Compliance: Businesses must comply with regulations and standards governing the use of capital goods, particularly regarding safety, environmental impact, and industry-specific requirements.

Conclusion:

Category 2 Capital Goods form a vital component of business investment, facilitating production processes, enhancing productivity, and driving economic growth. By understanding their characteristics, importance, and considerations, businesses can make informed decisions regarding the acquisition, maintenance, and utilization of these essential assets to achieve long-term success and competitiveness in the marketplace.

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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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IFRS 15 Retail – the finest perfect examples

IFRS 15 Retail revenue – finest perfect examples

Retail is the process of selling consumer goods or services to customers through multiple channels of distribution to earn a profit. Retailers satisfy demand identified through a supply chain. The term “retailer” is typically applied where a service provider fills the small orders of many individuals, who are end-users, rather than large orders of a small number of wholesale, corporate or government clientele. (Source: Wikipedia)

So what is the IFRS 15 guidance for retail?

Here are the cases covering the most significant accounting topics for retail in IFRS 15.


Case – Customer incentives Buy three, get coupon for one free

Death By Chocolate Ltd, a high street chain, is offering a promotion whereby a customer who purchases three boxes of chocolates at €20 per box in a single transaction in a store receives an offer for one free box of chocolates if the customer fills out a request form and mails it to them before a set expiration date.

Death By Chocolate estimates, based on recent experience with similar promotions, that 80% of the customers will complete the mail in rebate required to receive the free box of chocolates.

How is a ‘buy three, get one free’ transaction accounted for and presented by Death By Chocolate?

The rules

IFRS 15.22 states: “At contract inception, an entity shall assess the goods or services promised in a contract with a customer and shall identify as a performance obligation each promise to transfer to the customer either:IFRS 15 Retail

  1. a good or service (or a bundle of goods or services) that is distinct; or
  2. a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer (see paragraph 23).”

IFRS 15.26 provides examples of distinct goods and services, including “granting options to purchase additional goods or services (when those options provide a customer with a material right, as described in paragraphs B39-B43)”.

IFRS 15.B40: “If , in a contract, an entity grants a customer the option to acquire additional goods or services, that option gives rise to a performance obligation in the contract only if the option provides a material right to the customer that it would not receive without entering into that contract (for example, a discount that is incremental to the range of discounts typically given for those goods or services to that class of customer in that geographical area or market).

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IFRS 15 Real estate Revenue complete and accurate recognition

IFRS 15 Real estate

Under IFRS 15 real estate entities recognize revenue over the construction period if certain conditions are met.

Key points

  • An entity must judge whether the different elements of a contract can be separated from each other based on the distinct criteria. A more complex judgment exists for real estate developers that provide services or deliver common properties or amenities in addition to the property being sold.
  • Contract modifications are common in the real estate development industry. Contract modifications might needIFRS 15 Real estate to be accounted for as a new contract, or combined and accounted for together with an existing contract.
  • Real estate managers may structure their arrangements such that services and fees are in different contracts. These contracts may meet the requirements to be accounted for as a combined contract when applying IFRS 15.
  • Real estate management entities are often entitled to several different fees. IFRS 15 will require a manager to consider whether the services should be viewed as a single performance obligation, or whether some of these services are ‘distinct’ and should therefore be treated as separate performance obligations.
  • Variable consideration for entities in the real estate industry may come in the form of claims, awards and incentive payments, discounts, rebates, refunds, credits, price concessions, performance bonuses, penalties or other similar items.
  • Real estate developers will need to consider whether they meet any of the three criteria necessary for recognition of revenue over time.

IFRS 15 core principle

The core principle of IFRS 15 is that revenue reflects the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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Example accounting policies

Example accounting policies

Get the requirements for properly disclosing the accounting policies to provide the users of your financial statements with useful financial data, in the common language prescribed in the world’s most widely used standards for financial reporting, the IFRS Standards. First there is a section providing guidance on what the requirements are, followed by a comprehensive example, easy to tailor to the specific needs of your company.Example accounting policies

Example accounting policies guidance

Whether to disclose an accounting policy

1. In deciding whether a particular accounting policy should be disclosed, management considers whether disclosure would assist users in understanding how transactions, other events and conditions are reflected in the reported financial performance and financial position. Disclosure of particular accounting policies is especially useful to users where those policies are selected from alternatives allowed in IFRS. [IAS 1.119]

2. Some IFRSs specifically require disclosure of particular accounting policies, including choices made by management between different policies they allow. For example, IAS 16 Property, Plant and Equipment requires disclosure of the measurement bases used for classes of property, plant and equipment and IFRS 3 Business Combinations requires disclosure of the measurement basis used for non-controlling interest acquired during the period.

3. In this guidance, policies are disclosed that are specific to the entity and relevant for an understanding of individual line items in the financial statements, together with the notes for those line items. Other, more general policies are disclosed in the note 25 in the example below. Where permitted by local requirements, entities could consider moving these non-entity-specific policies into an Appendix.

Change in accounting policy – new and revised accounting standards

4. Where an entity has changed any of its accounting policies, either as a result of a new or revised accounting standard or voluntarily, it must explain the change in its notes. Additional disclosures are required where a policy is changed retrospectively, see note 26 for further information. [IAS 8.28]

5. New or revised accounting standards and interpretations only need to be disclosed if they resulted in a change in accounting policy which had an impact in the current year or could impact on future periods. There is no need to disclose pronouncements that did not have any impact on the entity’s accounting policies and amounts recognised in the financial statements. [IAS 8.28]

6. For the purpose of this edition, it is assumed that RePort Co. PLC did not have to make any changes to its accounting policies, as it is not affected by the interest rate benchmark reforms, and the other amendments summarised in Appendix D are only clarifications that did not require any changes. However, this assumption will not necessarily apply to all entities. Where there has been a change in policy, this will need to be explained, see note 26 for further information.

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The Statement of Cash Flows

Statement of Cash Flows

IAS 7.10 requires an entity to analyse its cash inflows and outflows into three categories:

  • Operating;
  • Investing; and
  • Financing.

IAS 7.6 defines these as follows:

Operating activities are the principal revenue producing activities of the entity and other activities that are not investing or financing activities.’

Investing activities are the acquisition and disposal of long-term assets and other investments not included in cash equivalents.’

Financing activities are activities that result in changes in the size and composition of the contributed equity and borrowings of the entity.’

1. Operating activities

It is often assumed that this category includes only those cash flows that arise from an entity’s principal revenue producing activities.

However, because cash flows arising from operating activities represents a residual category, which includes any cashStatement of cash flows flows that do not qualify to be recorded within either investing or financing activities, these can include cash flows that may initially not appear to be ‘operating’ in nature.

For example, the acquisition of land would typically be viewed as an investing activity, as land is a long-term asset. However, this classification is dependent on the nature of the entity’s operations and business practices. For example, an entity that acquires land regularly to develop residential housing to be sold would classify land acquisitions as an operating activity, as such cash flows relate to its principal revenue producing activities and therefore meet the definition of an operating cash flow.

2. Investing activities

An entity’s investing activities typically include the purchase and disposal of its intangible assets, property, plant and equipment, and interests in other entities that are not held for trading purposes. However, in an entity’s consolidated financial statements, cash flows from investing activities do not include those arising from changes in ownership interest of subsidiaries that do not result in a change in control, which are classified as arising from financing activities.

It should be noted that cash flows related to the sale of leased assets (when the entity is the lessor) may be classified as operating or investing activities depending on the specific facts and circumstances.

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