5 Steps to Credibly Recognise Scope 3 Reductions

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Transcript

Isobel Wild  [00:00:00]:

What are the tools, the approaches that companies can use to actually recognise those reductions in a credible way?

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Saif Hameed [00:00:07]:

We would go for a before and after PCF or product carbon footprint. When we do PCFs, we do PCFs as a snapshot in time associated usually with a particular facility and a particular stockkeeping unit or product. Which means that we can get very, very specific with our PCFs. We could have 100 PCFs if we needed to around a specific product over a period of time. So you can actually like monitor all the changes that, that and you could do that at a super, super low cost. And so the way that we would think about doing this is saying, let's say it was packaging, you bought this bottle in January 2024. A number of changes have happened to transition to let's say renewable electricity instead of gas and it's a hybrid furnace. And now in January 2026 we want to do another PCF of the same glass bottle because we believe that those changes have reduced the emissions.

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Saif Hameed [00:00:54]:

In that case we would have these two PCFs, the before and after PCF and the delta is the change that's happened and that allows us to have measurable and which means that we measured the change and we can attribute it to this specific supplier, this specific material and in fact also this specific intervention that made the delta.

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Isobel Wild  [00:01:28]:

In today's episode we're outlining our approach to credibly deploy and recognise scope three emissions reductions. What's the challenge? The traditional standard setters have provided quite high level, limited frameworks to account for carbon reductions. And more recently the mass balance based measurement approach has been used. We've done a previous episode on this, so we'll add that in the show notes. But that basically ensures that reductions in the value chains are not double counted. I think everybody who's been through that process can actually agree that it's quite a big burden of making the claim. So today we're going to work, we're going to dig into the workarounds. But first step, should we maybe dig into that? What the challenge is a bit more detail.

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Saif Hameed [00:02:12]:

Yeah. So in a nutshell, Izzy, right now companies typically have two parallel sets of books that they're maintaining effectively. There is their corporate footprinting and carbon accounting where they have scope one, two and three and so on. And then they usually have some project based plans and project based inventories that they're working towards as well where they're saying, hey, I'm going to be doing something with relation to soy or packaging or whatever and I'm going to have a project based inventory for that and they're trying to reconcile the two retrospectively or at the end of the line. And increasingly, as we move towards activity based and volume based scope 3 measurement, companies are starting to think through how they can actually run initiatives and projects that will directly impact the emissions factor that they're using for scope 3 and actually directly reduce the scope 3 numbers. In short, what they're looking for is some ability to identify change that is measurable and attributable. That means that the change can actually be measured, they know what it was and it can be attributed to a specific thing that they did, a specific supplier that they worked with, a specific material that was changed.

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Isobel Wild  [00:03:18]:

Awesome. And we've begun thinking about this and approaching this in five key steps. Step one data setup setup. Step two intervention identification. Step three, implementation. Step four, measurement and tracking. And step five, validation and verification. And the purpose of this podcast, we're going to run through each step.

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Saif Hameed [00:03:39]:

Purchases data. That's the simplest way to think about it. We are typically looking for all the things you've bought, who you bought it from, where you bought it, when you bought it. And so the way that we work on this at Altruistiq is we try and get the raw data with as much granularity and as much metadata as is available. By that I mean, I know there'll be many solutions that might require you to aggregate data. So maybe you have like a million unique transactions, let's say over the last year, and actually you typically would be aggregating that up to 10,000 categories. Whereas actually we'd like the million every unique kind of line item almost, we'd like to have that. By metadata, I mean that as much classification data as is available, sometimes this will be structured with the purchasing data.

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Saif Hameed [00:04:25]:

So you might have, for instance, information on currencies, you might have some categories already embedded in the purchasing data. But often this is very subjective, qualitative information that individuals in your business will have. So they might know how much recycled content was used in a particular type of packaging material. But this isn't necessarily written down in any kind of tabular format. And, and so we'd look to capture that as well. So we usually want as much as rich an information set from the purchasing side as possible because we're going to use that data to identify two things, both of which will overlap. One is which suppliers are most material from an emissions contribution perspective. And the second is which materials or sale items within those suppliers are the most material to focus on.

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Saif Hameed [00:05:12]:

So you might say Actually, like I have 20,000 suppliers and 100 of them are really important and from those hundred you might be buying a thousand different things, but actually maybe 500 or 300 things that you're buying from those hundred suppliers are actually the ones that you need to care about. So we are usually guided from a materiality standpoint by the purchases data.

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Isobel Wild  [00:05:32]:

Is there a minimum threshold? Because I know that quite a lot of guidance that's out there, if you are reporting on your emission reduction to happen, is still in draught. There isn't any concrete kind of evidence that say what you need. Are there any thresholds that you should be aware of or something, anything to keep in mind when you're thinking about the quality and the granularity of the data that you're collecting?

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Saif Hameed [00:05:55]:

Yeah, I would say that if you are on the journey towards a flag conformant data set and target, then you're probably capturing much of what we would look for anyway. And so you're already capturing or starting to capture weights, locations, getting a sense of the activities that went into producing the thing that you're buying. All of this data would be typically necessary for you to set a sort of flag conformant scope 3 that you can use for a flag target. Bearing in mind, obviously the guidance is still in flux, but we know what the SBTI targets look like. We have a reasonable sense, I would say, of direction of travel on the greenhouse gas protocol side as well. And so typically locations, weights, activities will be par for the course on this.

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Isobel Wild  [00:06:43]:

So on step two, which is intervention identification, so what am I targeting, who am I supposed to be working with and what am I trying to change?

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Saif Hameed [00:06:54]:

So these are all the questions you must answer, Izzy, as you go on this journey. And so depending on which materials you identify which materials and support suppliers you identify as most important, it will be helpful to do some clustering to make implementation easy. What I mean by that is that really there might be 20 different categories of intervention that could be relevant across the, let's say, 30 suppliers that you've chosen to work with on this stuff. However, you want to try and narrow that down to make it easier to implement. So you might say, well, I'm going to actually take two intervention types and apply them broadly across all these suppliers that I'm going to be working with. So maybe you say heat pumps and electrified mobility are easy for me to implement and chalk up some wins on the board. Whereas actually regenerative agriculture, while it might be kind of sexy and interesting, actually is probably not the best one for most companies because it's hard, it takes a long time to show impact. It looks very different depending on the material, the actual crop type that you're working with and the location.

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Saif Hameed [00:08:00]:

I know obviously a lot of companies are setting up great regen ag programmes, but you might find quicker wins are going to be had in a lot of the fuel transition, energy transition, packaging transition type of space, for example. So I would say that identifying what are the one or two interventions that are top of my list to implement from an ease cost timeline perspective is the next thing to think about. On our side, we're starting to build out these decarbonization roadmaps for the key suppliers of our large customers and usually we're taking this view. What is the share of emissions that this will impact, what is the cost that it will have per tonne, what is the expected timeline to have an impact? And we're going to prioritise based on that.

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Isobel Wild  [00:08:44]:

I think maybe that should we go on to the step three, which is implementation. Are there any. Are there hurdles that companies face when setting up projects that will be accepted as credible reductions further down the line?

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Saif Hameed [00:08:57]:

Yeah. So implementation requires expertise and I would say that there are probably at least two critical partners for that and maybe a third. The two are the company that is producing the thing that you're buying. So let's say if it's, you know, something in dairy, it might be like a land o'lake something in packaging, it might be an amcor. Whoever it is, like this is your actual partner, this is your supply chain partner that you're going to be working with. The second might be a project implementation partner and there are situations where the supplier could also be the project implementation partner. Like this is something that they are well able to do themselves operationally they are going to fully deliver it end to end, but very often there will be a third party that actually needs to come on board. So let's take a couple of examples.

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Saif Hameed [00:09:42]:

Heat pump installation, solar panel installation, you know, a lot of elements of capex. There might need to be a third party that actually comes in and sets this up, brings the equipment, installs it, all that sort of stuff. And this might be something that your supplier will identify themselves and they'll say, hey, we're totally capable to go out and run a tender and find our own source of this sort of equipment and expertise. Or you as let's say the brand, for want of a better word, the requester of change. You may say, actually we're seeing this thematically across many suppliers. Let Us run a centralised purchasing process to bring on these solution partners who can then work with selected suppliers of ours. So those are, I would say, the two more or less integral collaboration partners, the supplier and the implementation partner. There might be a third, which is someone to manage the change aspect.

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Saif Hameed [00:10:36]:

We'll talk about this a little in the tracking context, but you want to have the delta or the shift validated somehow by another third party, such that it is not the supplier marking their own homework or the implementation partner marking their own homework and just saying, yes, we did this thing, we got paid to do this thing, and surprise, surprise, this thing that we did was useful and had an impact. You might want to have a third party doing that. Whether it's a third party doing a PCF like we would do, or an LCA or something similar, that's subjective.

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Isobel Wild  [00:11:07]:

Okay, so actually onto that. So step four, measurement and tracking. What are the tools, the approaches that companies can use to actually recognise those reductions in a credible way and actually account for them as well?

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Saif Hameed [00:11:21]:

So typically we would go for a before and after PCF or product carbon footprint. And when we do PCFs, we do PCFs as a snapshot in time associated usually with a particular facility and a particular stockkeeping unit or product, which means that we can get very, very specific with our PCFs. We could have 100 PCFs if we needed to, around a specific product over a period of time. So you can actually monitor all the changes that happens. And you could do that at a super, super low cost. Like we're talking dollars basically, rather than hundreds of dollars for an individual PCF at a certain scale, which is a radical cost reduction versus LCAs, which opens up a huge set of new use cases for this functionality, which is quite cool. And so the way that we would think about doing this is saying, you bought this thing in January 2024, let's say it was packaging, you bought this bottle in January 2024. A number of changes have happened to transition to, let's say, renewable electricity instead of gas and it's a hybrid furnace.

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Saif Hameed [00:12:24]:

And now in January 2026, we want to do another PCF of the same glass bottle because we believe that those changes have reduced the emissions. In that case, we would have these two PCFs, the before and after PCF and the delta is the change that's happened and that allows us to have measurable and attributable change, which means that we've measured the change and we can attribute it to this specific supplier, this specific material, and in fact also this Specific intervention that made the delta. I would say that's probably the side that can scale really well often for like a tier one supplier if you're going all the way back to agriculture. You might also want to involve an MRV solution to incorporate satellite imagery for instance, and see what the change maybe is on forest cover or land management practise that often has a high cost associated and some restrictions based on geography, crop type, et cetera. And then there are those who can kind of only really do above ground and anything beyond that gets really fuzzy versus you might have to have someone come in and do soil testing so that space can get quite complicated as you start to get into the field, so to speak.

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Isobel Wild  [00:13:30]:

And are you seeing a skew in the market of kind of reduction initiatives towards more energy based ones which perhaps are easier to track and verify versus agricultural ones?

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Saif Hameed [00:13:41]:

A good portfolio will have all of them. They will have some interventions that are quick yielding stuff that will show up in the numbers within, let's say one year to two years, for example. A lot of the energy transition stuff will show up in that timeframe. A lot of packaging stuff can show up in that timeframe, logistics, et cetera. And so you want to have a lot of these, I wouldn't even call them low hanging fruit because I don't think they're always low hanging as such, but they are quicker impact. But then you also want to make sure that you have some line of sight to large contributors that will take time to decarbonize. And so if you're like a PepsiCo for instance, and you're buying lots of potatoes for the crisps, if you're a Coca Cola, not to be heathen and mention both in the same episode, but if you're like a Coca Cola and you buy lots of sugar and you know sugar is going to be really hard to drive an impact on, then those are things that it makes sense for you to start the ball rolling because it's going to be a decade long journey. I think that the companies that are newer to the field are prioritising maybe the quicker wins, the energy transition stuff, because it's easier to get going.

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Saif Hameed [00:14:55]:

And it's the stuff that is most likely to be a mandatory requirement as you start looking at scope one and two targets, for example. But I think a good portfolio has a balance.

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Isobel Wild  [00:15:07]:

In your opinion, what are the hardest ones in the field at the moment?

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Saif Hameed [00:15:09]:

There's no shortage of hard ones and I think that hard ones should be classified by technical maturity, implementation maturity and cost maturity, like I would probably take these three and let me say a little more about what I mean by this. If we take alternative fuels for logistics, a lot of this stuff is not technically mature E fuels or synthetic fuels, or hydrogen as a fuel, whatever people might say who are in that side of the space. These are not fully technically mature solutions. They have not been tested at scale globally. You know, like, we don't fully know how they're going to work, you know, if they're in play all the time at scale. So I would say that there's a technical maturity question there. However, for many of them, implementation maturity may not be super hard. For example, like if you're basically just replacing one piece of kit with another piece of kit, but the workflow for the individual is the same.

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Saif Hameed [00:16:12]:

I'm going to be driving a truck and it's going to be a hydrogen powered truck, or it's going to be a diesel powered truck. I'm still driving a truck. You could argue that the implementation maturity is not super high. And then there's the cost aspect, which is, is this something that's going to become a lot cheaper over time or stay expensive, or is this something that is already actually cost mature? Which means that whatever gains we were expecting on cost have been realised. So hydrogen, again, a good example. There's been expectation for a while that electrolyzer costs are going to shoot down and therefore actually hydrogen will become a lot cheaper. So, you know, like, there's the cost maturity aspect as well, but really, like Izzy, this is like a massive bag of chips that you could dip your hand and then come out with a different fistful of initiatives each time.

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Isobel Wild  [00:16:57]:

I'm keen to actually get your take on the BOVA controversy that's happened at the moment. And for listeners who haven't tuned into this, it's. ARLA announced that they had rolled out bova, which is a methane mitigation supplement, which we spoke about in previous episodes, that cuts methane from enteric methane from cows. And there has been a big consumer backlash around this because it's seen as, you know, another additive into our milks. There have been other milk companies that are actually rolling back to say we aren't using this, when actually it is one of a big way that companies are trying to cut methane emissions from their baseline at quite a high cost. Saif, what's your take on this? Because this is supposedly quite a cool sustainability initiative that's happening to reduce the impact of milk, but people have turned around and be like, whoa, no, I don't want this I've seen videos of consumers pouring ala milk down the sink. What are your thoughts?

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Saif Hameed [00:18:00]:

I always find it really funny when people buy something only to destroy it, which of course is like a massive demand signal to the company. But that said, like, I don't know if I'm being controversial here or not, but I think most people are just ignoring the cow in the room, which is. We've turned all these domestic animals into little factories and for frankly centuries, if not millennia, we have been feeding them things to maximise their output of meat and milk. We have been breeding them selectively together. And let's not even get into how we do this breeding stuff, right? Like I once had to set up an artificial livestock insemination facility in a previous life, which was really like a somewhat traumatic experience for me. But, you know, like, we've been doing this for longer than anyone or their great grandparents can remember. This is a very small thing. In contrast, like, it's not like most of these consumers knew what the animal was being fed at scale across the industry anyway, right? Like if you kind of go and have a look at what livestock in, in, in.

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Saif Hameed [00:19:05]:

In most countries is fed, in most places it's fed on waste, like domestic waste, waste from, you know, the, the restaurant kitchens and all this stuff. Like, I've seen this firsthand in Philippines and, and you know, I was, when I was doing this Asian waste analysis, it was just interesting to see how the whole waste system ends up being quite circular because animals are used as the final consumption of a lot of food waste. So I think this is a small, a small, small, small thing, frankly, that is probably not, not amongst the worst things that are happening to animals by any measure and probably in the scale of things inconsequential in terms of how the animal feels about it. That said, I may of course retract all of this if there's like a massive lawsuit and Dark Waters style movie on this in a few years that.

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Isobel Wild  [00:19:52]:

Actually a cow has fed almost like a wheelbarrow of food a day. And the bova makes up just a teaspoon of what that is.

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Saif Hameed [00:19:59]:

What I mean, right? Like it's.

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Isobel Wild  [00:20:01]:

Yeah. And equally M and S did an announcement about using Bova a few months ago and they got, I think it was about 13 comments on a Daily Mail article that was published because of it. And Arla has just had an onslaught of kind of comments because of it. So I think it comes around the point I'm trying to like maybe get to is around communicating your implementation or your carbon Reduction because actually it's not always seen as perhaps a good thing to the consumer, despite thinking it will be because, you know, everyone's focused on sustainability. There are other considerations at play, like, you know, nutrition, health, quality.

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Saif Hameed [00:20:40]:

Yeah, I agree. I think there are these two things that somehow, two myths that somehow a lot of people have fixated on. One is that sustainability pays for itself and the other is that sustainability is always not just good for the planet, but good for creation or creatures as well. And like these two things are just not, not always true. You know, like if you kind of think about what's best for the planet, it's probably like a massive livestock genocide right now actually. And everyone switches to plant based food, but actually all the livestock just gets slaughtered en masse. Maybe that's like net, net a good thing from an overall cruelty impact perspective, I don't know. But you know, or it's like just keeping really radically reducing the amount of space that an animal inhabits because actually the more space that you have for it, the more land uses is being taken up.

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Saif Hameed [00:21:32]:

So I think there's a lot of these things that are just in contradiction with each other. And on the cost side you might get the first 5% or 10% of reductions cost neutral, but after that it's called an externality for a reason and that's because it's not priced in.

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Isobel Wild  [00:21:48]:

On step five before we go down another rabbit hole of controversial implement reduction initiatives. But step five is validation and verification. So do companies need third party verifiers for this final step? And like, what evidence do you need to support port it? Is this the PCF Delta or otherwise?

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Saif Hameed [00:22:07]:

So in general we're seeing third party verification increase radically, almost, I was going to say year on year, but like even quarter on quarter, where most companies that are disclosing their greenhouse gas inventory or carbon footprint are using, are using one party to calculate it and another party to verify it. And that is just becoming best practise. And I think that the direction of travel for reductions is going to be the same, which is if a reduction has happened, the reduction should be verified by a third party as well to make sure that you're not marking your own homework. I think that the other piece, the question mark is going to be is there a general ledger of some sort such that two parties can't take credit for the same reduction? And you don't get double counting that piece. I think as an industry we have a lot less clarity on. There are some ledger concepts that are being mooted or Piloted like there's the Value Change Initiative has a ledger that it's building for reductions from its member companies. There's obviously going to be a question around whether maybe some of the existing ledgers for carbon offsets could be maybe repurposed or grow in time. I think this is just space for more innovation.

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Isobel Wild  [00:23:32]:

And what's the cost going to be of these third party verifiers? Is it going to be significant? Is it something that needs to be built into the overall cost pipeline of one of these initiatives?

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Saif Hameed [00:23:44]:

Well, I was just doing the math to myself one day, as one does, and I found that if you look at the EUCSRD before that came out, the European Commission had an impact assessment done where they tried to form an opinion on how much it would cost a company to comply with CSRD requirements. And I'll bring this back, Izzi, to your point in a moment, but their assessment was that it would cost roughly a few million dollars for an average company to comply with CSRD requirements. And the scope of companies they had was around, I think 48,000 companies, which means we're well beyond like Fortune 500 sort of companies and actually well into mid market, mid sized business territory. I would say probably businesses doing a few hundred million dollars of revenue would be captured. If you look at the amount that those companies are spending today on CSRD reporting, I am certain it is a fraction of the few million dollars that the impact assessment suggests. And so I think that regulation and quasi regulation countenances or anticipates a much higher spend than most companies have done historically. And I think verification will not be the biggest part of that. I think it'll be one of the smaller ends of that expense.

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Isobel Wild  [00:24:59]:

Awesome. Saif, any final thoughts before we wrap up?

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Saif Hameed [00:25:03]:

I think that what we're discussing now is going to be the basis of a playbook for how companies do this. Well, in terms of achieving measurable and attributable change, where they can say this was my number, this is how the number changed, this is why it changed, this is what it changed to, and these are the people that have signed off on it. I think that playbook is being written live and that's actually quite exciting because I think we can repurpose that from emission, we can take it from emissions to emissions at scale, but then we can also repurpose it to water and frankly a whole host of environmental impacts.

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Isobel Wild  [00:25:41]:

In absence of any formalised guidance or standardisation around this, your advice would be to get going, to start gathering purchase data ready for your PCFs yeah.

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Saif Hameed [00:25:56]:

I mean, let's kind of not forget that the guidance originated with industry. It's not like the Greenhouse Gas Protocol and all the and SPTI just sort of spontaneously existed and were original thought by a Plato in a cave somewhere. These things were informed by business and by many interviews at the time, many consultation groups. And what industry was doing played a big role in what standard setters thought should be done. And I think at some point over the last few years we sort of forgot that and thought actually standard setters should tell us what we should do. But actually industry best practise in this space, I think, was the guide and will be the guide again. The standards are really for the bottom 50%, not the top 50%. The top 50%.

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Saif Hameed [00:26:48]:

And that's a much bigger pool than just saying the top 1% of companies, like the top half of companies, will be the ones that contribute to defining the guidance and then the bottom 50% are the ones that will be more or less forced or expected to comply.

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Isobel Wild  [00:27:03]:

Awesome, Saif, thank you so much. That's all for today. And we'll add all the podcast references that we did to the show notes. Thanks everyone for listening.

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Saif Hameed [00:27:13]:

Thanks all.

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