Closing Thoughts on Scope 3 Emissions

This week, my team and I delivered our final presentation to our client, a leading venture capital firm focused on early-stage climate and sustainability companies. Over the course of the semester, our team worked to analyze scope 3 management and measurement within several key sectors which are most relevant to the company. Based on our client’s preferences and their portfolio of companies, we selected the electronics, food, home and personal care, and clothing sectors. 

Within these industries, we worked to identify hotspots in their scope three emissions value chains in order to find investable areas that would generate the most impact. We began by conducting desk research in an effort to familiarize ourselves with the scope 3 landscape. This included conducting a number of interviews with industry professionals and experts to gain insights into the space. 

From there, we set out to conduct case studies on five top performing companies within each sector. By digging into their emissions and sustainability reports, our team was able to identify hotspots in their supply chains and see which types of solutions they are interested in. 

Through our research, we found that most companies do not have external incentives or financial resources to pursue scope 3 emissions reduction solutions. Therefore, identifying large-scale solutions tailored for highly-profitable companies emerged as an important space to research. Not only are these types of solutions best positioned to make the most impact on scope 3 emissions due to their scale, they are also some of the best solutions for a venture capital firm to focus on, because they will have the largest market.

Another key finding from our research is that scope 3 emissions are, on average, 26 times greater than operational emissions according to the most recent findings - more than double most previous estimates. This can be attributed in part to a substantial increase in the number of companies disclosing their emissions. 

Yet despite the trend of increasing disclosures, transparency and data inconsistencies are rampant across each industry we analyzed. Companies face significant challenges when trying to gather accurate data from stakeholders – such as suppliers and consumers – because these stakeholders have no incentive to collect or provide GHG emissions information. Data collection and reporting standardization challenges are some of the most vexing obstacles to overcome when it comes to scope 3 emissions reduction. 

Therefore, one of the most essential cross-cutting problems we identified across sectors is measurement. One of the companies in our client’s portfolio has created a promising solution, which allows them to provide companies with highly accurate emission forecasts and help identify solutions. Through our client, we were able to speak with one of the founders of the company and gain a deeper understanding of just how impactful emission measurement solutions could be. 

After our presentation, the client engaged with our material and participated in a question and answer session. They were particularly interested in our conclusion that, beyond a consumer willingness to pay a premium for more “green” products, there are very few incentives for companies to invest in practices that reduce scope 3 emissions. The exceptions are large companies that are subjected to the very limited existing scope 3 reporting regulations, or companies which have enough scale, revenue, and internal commitment from leadership to dedicate resources to the problem. 

Throughout the course of the project I gained a much deeper understanding of the challenges companies face around scope 3 emissions. Without significant improvements and innovative solutions around measurement and reporting standards, progress on scope 3 emissions seems unlikely. However, knowing companies like our client have an interest in the issue, are looking for solutions, and are investing in companies and ideas to solve it gives me some optimism. 

My hope is that our presentation and work identifying hot spots and solutions within the four sectors will help inform our client’s investment decisions and create a new framework for them to think about the impact of potential portfolio companies.