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Category 9 Downstream Transportation and Distribution – The best read

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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.
    • 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

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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:
    • Emissions reporting for Category 8 Upstream Leased Assets typically falls under Scope 1 and Scope 2 emissions, as defined by the Greenhouse Gas Protocol.
    • Scope 1 emissions refer to direct GHG emissions from sources that are owned or controlled by the reporting entity, such as emissions from combustion of fossil fuels in owned or leased equipment and vehicles.
    • Scope 2 emissions involve indirect GHG emissions from the consumption of purchased electricity, heat, or steam. This can include emissions associated with electricity purchased to power equipment and facilities at leased assets.
  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 7 Employee Commuting – The best calculation guidance

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Category 7 Employee Commuting

Category description – Category 7 Employee Commuting includes emissions from the transportation of employees1 in this category, as well as consultants, contractors, and other individuals who are not employees of the company, but commute to facilities owned and operated by the company) between their homes and their worksites.

Emissions from employee commuting may arise from:

  • Automobile travelCategory 7 Employee Commuting
  • Bus travel
  • Rail travel
  • Air travel
  • Other modes of transportation (e.g., subway, bicycling, walking).

Companies may include emissions from teleworking (i.e., employees working remotely) in this category.

A reporting company’s scope 3 emissions from employee commuting include the scope 1 and scope 2 emissions of employees and third-party transportation providers.

Overview – Category 7 Employee Commuting

Reporting for Category 7 Employee Commuting involves documenting and disclosing information related to greenhouse gas (GHG) emissions resulting from employees’ travel to and from their workplace. This reporting process is typically conducted as part of broader sustainability or corporate social responsibility (CSR) reporting efforts aimed at transparency, accountability, and performance tracking. Here’s a comprehensive overview of reporting for Category 7 Employee Commuting:

Purpose of Reporting:

  1. Transparency: Reporting on employee commuting emissions provides stakeholders, including employees, investors, customers, and communities, with transparent information about the environmental impact of the organization’s operations.
  2. Accountability: By disclosing commuting-related emissions data, organizations demonstrate accountability for their environmental footprint and commitment to addressing climate change and sustainable transportation.
  3. Performance Tracking: Reporting allows organizations to track trends, set targets, and measure progress over time in reducing commuting-related emissions, supporting continuous improvement and goal achievement.

Components of Reporting:

  1. Emissions Inventory: Organizations quantify and document GHG emissions associated with employee commuting, including emissions from different transportation modes (e.g., personal vehicles, public transit, walking, cycling) and indirect emissions from energy consumption and infrastructure.
  2. Data Collection and Analysis: Data collection methods may include employee surveys, transportation logs, fuel consumption records, public transit ridership data, and vehicle fleet tracking systems. Analysis of collected data identifies commuting patterns, emission hotspots, and opportunities for emissions reduction.
  3. Metrics and Indicators: Reporting may include various metrics and indicators to communicate commuting-related emissions data effectively, such as total emissions (in metric tons of CO2e), emissions per employee, emissions per mode of transportation, and emission intensity per unit of distance traveled.
  4. Trends and Comparisons: Reporting may involve analyzing trends in commuting-related emissions over time, comparing emissions data across different geographic locations, business units, or employee demographics, and benchmarking performance against industry peers or best practices.

Reporting Guidelines and Standards:

  1. Global Reporting Initiative (GRI): GRI standards provide guidelines for reporting on sustainability issues, including transportation-related emissions, in corporate sustainability reports. GRI Indicator 305-3 specifically addresses emissions from commuting.
  2. Carbon Disclosure Project (CDP): CDP collects data from companies on their environmental performance, including emissions from employee commuting, and provides a platform for disclosure and benchmarking.
  3. ISO 14064: ISO 14064 is an international standard for greenhouse gas accounting and reporting, providing guidelines and principles for quantifying and reporting GHG emissions, including those from employee commuting.

Stakeholder Engagement:

  1. Internal Stakeholders: Engaging employees in the reporting process, such as through surveys, focus groups, or sustainability committees, fosters awareness, participation, and ownership of commuting-related emissions reduction initiatives.
  2. External Stakeholders: Communicating commuting-related emissions data to external stakeholders, such as investors, customers, regulators, and community organizations, demonstrates transparency, builds trust, and supports informed decision-making.

Continuous Improvement and Goal Setting:

  1. Target Setting: Organizations may set targets and goals for reducing commuting-related emissions, such as reducing emissions per employee, increasing the use of sustainable transportation modes, or implementing telecommuting policies.
  2. Implementation of Initiatives: Reporting informs the development and implementation of initiatives and programs aimed at reducing commuting-related emissions, such as promoting public transit use, incentivizing carpooling, providing bicycle infrastructure, and supporting telecommuting arrangements.
  3. Monitoring and Evaluation: Regular monitoring and evaluation of commuting-related emissions data enable organizations to assess the effectiveness of implemented initiatives, identify areas for improvement, and adjust strategies as needed to achieve emission reduction targets.

Conclusion:

Reporting for Category 7 Employee Commuting is a vital component of sustainability and CSR reporting efforts, providing stakeholders with transparent information about an organization’s environmental impact and commitment to sustainable transportation practices. By quantifying and disclosing commuting-related emissions data, organizations can track performance, set targets, engage stakeholders, and implement initiatives to reduce emissions and contribute to a more sustainable and resilient future.

Practical examples

Here are some practical examples of how organizations can address and report on Category 7 Employee Commuting:

1. Commuting Surveys:

Conducting regular commuting surveys among employees to gather data on commuting patterns, preferences, and transportation modes used. The collected information can be analyzed to identify the most common commuting modes, distances traveled, and emission hotspots.

2. Emissions Calculation Tools:

Implementing emissions calculation tools or carbon footprint calculators that allow employees to estimate the carbon emissions associated with their commute based on factors such as distance traveled, vehicle type, fuel efficiency, and public transit usage. This data can be aggregated to provide an overall picture of commuting-related emissions.

3. Telecommuting Policies:

Developing and promoting telecommuting policies that allow employees to work remotely from home or other locations, reducing the need for daily commuting and associated emissions. Organizations can track the number of telecommuting days or hours logged by employees as part of their reporting efforts.

4. Sustainable Transportation Incentives:

Offering incentives and rewards for employees who use sustainable transportation modes for their commute, such as public transit subsidies, bike purchase discounts, carpooling rewards, or flexible work hours to accommodate alternative commuting schedules.

5. Transportation Demand Management Programs:

Implementing transportation demand management (TDM) programs aimed at reducing single-occupancy vehicle trips and promoting alternative transportation modes. This can include providing shuttle services, carpool matching services, designated carpool parking spots, and installing bike racks or bicycle storage facilities.

6. Commuter Benefits Programs:

Participating in commuter benefits programs that allow employees to use pre-tax dollars to pay for eligible commuting expenses, such as public transit passes, vanpool expenses, and bicycle commuting costs. Organizations can track participation rates and cost savings achieved through these programs.

7. Employee Engagement and Education:

Engaging employees through education and awareness campaigns on the environmental impact of commuting and the benefits of using sustainable transportation modes. Providing resources, such as commuting guides, alternative transportation maps, and sustainability tips, can help employees make informed choices about their commute.

8. Reporting and Benchmarking:

Regularly reporting on commuting-related emissions data, including total emissions, emissions per employee, and emissions per mode of transportation, as part of the organization’s sustainability or CSR reporting efforts. Benchmarking performance against industry peers or best practices can help identify areas for improvement and set realistic emission reduction targets.

By implementing these practical examples and incorporating them into their reporting processes, organizations can effectively address Category 7 Employee Commuting and demonstrate their commitment to reducing emissions and promoting sustainable transportation practices.

Calculating emissions from Category 7 employee commuting

Figure 7.1 offers a decision tree for selecting a calculation method for scope 3 emissions from employee commuting.

Companies may use one of the following methods:

  • Fuel-based method, which involves determining the amount of fuel consumed during commuting and applying the appropriate emission factor for that fuel
  • Distance-based method, which involves collecting data from employees on commuting patterns (e.g., distance travelled and mode used for commuting) and applying appropriate emission factors for the modes used
  • Average-data method, which involves estimating emissions from employee commuting based on average (e.g., national) data on commuting patterns

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Category 4 Upstream Transportation and Distribution – The best calculation guidance

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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 suppliers2 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 3 Fuel and Energy Related Activities – The best calculation guidance

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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

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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

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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):

  • Direct use-phase emissions
  • Indirect use-phase emissions.

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

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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:

  • 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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Scope 1 emissions – Best read

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Scope 1 emissions

Scope 1 emissions are emissions from sources owned or controlled by a reporting entity. For example, emissions from equipment, a vehicle or production processes that are owned or controlled by the reporting entity are considered Scope 1 emissions. These emissions include all direct emissions within the entity’s inventory boundary.

The combination of organizational and operational boundaries make up a reporting entity’s inventory boundary, which is also called the reporting boundary. Refer to Organizational boundaries for information on organizational boundaries and Operational boundaries for information on operational boundaries.

The GHG Protocol is designed to avoid double counting GHG emissions. That is, two or more reporting entities should never account for the same emissions as Scope 1 emissions. For example, emissions from the generation of heat, electricity or stream that is sold to another entity are not subtracted from Scope 1 emissions but are reported as Scope 2 emissions by the entity that purchases the related energy.

Theoretically, if every entity and individual throughout the world reported their GHG emissions using the same organizational boundary (e.g., equity share, financial control or operational control approach), the total of all Scope 1 emissions would equal the total GHGs emitted throughout the world.

Types of Scope 1 emissions

The GHG Protocol describes four types of Scope 1 emissions: stationary combustion, mobile combustion, process emissions and fugitive emissions. The type of emissions that are included in Scope 1 will vary based on the industry and business model of the reporting entity.

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Derivative meaning for IFRS 9

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Derivative meaning

A derivative, by definition, is a financial instrument or other contract within the scope IFRS 9 with all three of the following characteristics:

  • its value changes in response to the change in a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index, or other variable, provided in the case of a non-financial variable that the variable is not specific to a party to the contract (sometimes called the ‘underlying’).
  • it requires no initial net investment or an initial net investment that is smaller than would be required for other types of contracts that would be expected to have a similar response to changes in market factors.
  • it is settled at a future date.

Accounting

A derivative financial asset is always classified as held at fair value through profit or loss (FVPL).

A derivative financial liability is also always classified as held at fair value through profit or loss (FVPL).

Always is at initial recognition and subsequent measurement

Fair value changes of a derivative financial liability attributable to own credit risk is recognized in OCI except if this creates or enlarges an accounting mismatch.

Example derivatives

Typical examples of derivatives are futures and forward, swap and option contracts. A derivative usually has a notionalDerivative meaning amount, which is an amount of currency, a number of shares, a number of units of weight or volume or other units specified in the contract. However, a derivative instrument does not require the holder or writer to invest or receive the notional amount at the inception of the contract.

Alternatively, a derivative could require a fixed payment or payment of an amount that can change (but not proportionally with a change in the underlying) as a result of some future event that is unrelated to a notional amount. For example, a contract may require a fixed payment of CU1,000 if six-month LIBOR increases by 100 basis points. Such a contract is a derivative even though a notional amount is not specified.

Gross/Net Settlement

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