Adding £18 billion of value to the UK economy, the Chemical industry is fundamental to modern society, underpinning global manufacturing supply chains, providing materials and products into a range of sectors from aerospace to pharmaceuticals, construction to consumer goods.
Innovation in chemical production is crucial for the industry to satisfy demanding and environmentally conscious consumers. With a huge variety of products, from vital medicines and foods, the construction of buildings, to transport and leisure, the industry truly does have an impact on virtually every aspect of our daily lives.
Industrial sectors, including the Chemical industry, represent nearly a quarter of UK emissions. The decarbonisation of industry has come under increased scrutiny in recent months and is a crucial part of The Government’s Clean Growth Strategy for meeting the UK’s legally binding Carbon Budgets. Reducing carbon emissions is, however, a complicated task. It is no longer a case of businesses simply monitoring the emissions from within their own operations (Scope 1 and 2).
The last decade has been one of increasing corporate climate action and commitments; the next decade has to be one delivering against those commitments. This means not only tackling emissions in Scope 1 and Scope 2, but most importantly tackling emissions in Scope 3, the value chain emissions. According to analysis of CDP responses in 2020, 77% of the Chemical industry’s emissions are in Scope 3. A Scope 3 footprint of this magnitude is required to be included if businesses choose to set Science Based Targets (SBTs), and increasingly net zero commitments. Failure to report on Scope 3 will create an inaccurate picture of your company’s emissions profile and susceptibility to climate change risks.
This is a challenge. Scope 3 emissions are varied, complex and businesses often have little visibility over where or why these emissions are arising. The GHG Protocol guidance cannot capture the complexity of each industry and there is limited sector-specific guidance available. However, this may change as the SBTi are in the process of developing a Chemical sector pathway for setting SBTs. A sector scoping paper in December 2020 recommended improving the resources available to Chemical businesses, including addressing the sector’s high degree of fossil fuel feedstock use, heterogeneity, and prevalence of the intermediate product trade.
Clearer guidance and reporting feels tantalisingly close, but what should businesses do in the meantime? With key climate milestones already set for 2030 and 2050, a growing climate focus from investors and customers, waiting is not an option.
Deciding whether to include toll materials (raw material that the business does not own) in your reporting can be a confusing business. Some businesses will take raw material from a customer, refine or process it and provide back to the customer. They do not actually own that material, but simply provide a chemicals service.
Sound a good fix? Not really. ‘Reducing’ emissions by simply shifting who owns what does not have a real-world impact: it does not genuinely show the full impact of the products you’re helping to create. Simply moving emissions out of your boundary and claiming reductions could open businesses up to claims of greenwashing and present a real reputational risk.
A large number of chemical companies rely on raw materials that can only be sourced from a small number of countries, and suppliers, globally. This limited supply chain within the sector reduces competition and could reduce the opportunities the business has to cut the embodied carbon of their products.
Unless you have one specific customer or end application, like a car, it is challenging to estimate the emissions coming from the use of your product once it’s sold on. It is even more complicated if the product is combined with other products for final sale. Working out who owns emissions in this scenario and how they get allocated is no mean feat.
If the Scope 3 emissions are not quantified in the right way based on reliable industry-based data or are not considered at all, it could result in financial risks, high capital costs, reputational damage due to green-washing, or even loss of your ‘license to operate’. While significant in emissions impact, the process of sourcing and accurately capturing data for Scope 3 can be a challenge. The breadth of the data types can be large, and the size and complexity should not be underestimated. For a successful Scope 3 reporting process, consider the following suggestions:
The Scope 3 categories within the GHG Protocol are intentionally broad, they need to work for many different businesses. Whilst this means that there are only 15 categories instead of hundreds, it can limit your ability to tell the true story of your business. There is a translation that needs to happen – break categories into sub-groups that actually align to your business. For example, the purchased goods and services category could have sub-groups such as ‘fossil fuel-based raw materials’, ‘bio-based raw materials’, ‘plant equipment’, ‘IT services’ and so on.
This will help you determine where to focus your carbon reduction efforts, and help to identify the individual levers you can pull to influence these key supplier groups.
If you predominantly rely on toll materials, or you have a limited number of flagship products with clear end applications, taking a value chain view can often make most sense.
The Chemical sector is recognised as essential in the transition to the low carbon economy, so turning Scope 3 on its head and looking at the downstream carbon benefits could be a more useful narrative for your company. Consumer products containing chemicals can save energy use and help reduce carbon emissions, such as insulation, low temperature detergents, electric cars or components in wind turbines and solar panels.
Whilst Scope 3 impact could (and should) be reported on for SBTs or net zero, your reporting does not need to end there. This impact tells one side of your story. Considering the environmental benefits realised from your products in use tells the other. By moving away from a strict Scope 3 reporting, you actually provide investors, customers and other stakeholders with a more complete view of your business impact.
The Scope 3 emissions from the Chemical sector are significant and need to be addressed. However, this will look different for every business in the sector. The unique challenges and complexities of your business should be taken into account, and evaluating your Scope 3 emissions will allow you to identify where to tackle first and how to do it. A Scope 3 inventory that is generic and vague helps no one.
There are pioneers and leaders within the Chemical sector, however no business has completely perfected it yet. The upcoming SBTi sector-specific guidance should provide some support on the reporting challenges, but businesses should not simply wait. There are things that can be done right now to improve the value of your Scope 3 reporting.
At Avieco we understand that one size does not fit all. We have supported business of different scale and product size across the Chemical sector such as Croda, Elementis and Synthomer, to tailor Scope 3 to them. We can help you work through your business context and take Scope 3 from simply a reporting requirement to a real, useful tool to support your decarbonisation journey.
more than a word.