Heli
Aramo-Immonen
Principal
Lecturer, Dr (Tech), Adjunct Professor
Faculty of
Engineering and Business – Master School
Turku
University of Applied Sciences
Finland
heli.aramo-immonen@turkuamk.fi
Transparency into a company’s ESG (environmental, social, governance) practices is becoming exponentially important for business success. Currently, most ESG reporting is voluntary. However, the landscape for mandated sustainability reporting is changing. Many governments are rolling out mandated reporting, often starting with a company’s Scope 1, 2 and 3 greenhouse gas emissions.
The Greenhouse Gas Protocol Corporate Standard (GHG Protocol Corporate Accounting and Reporting Standard) is the world’s most widely used standard for organizational-level carbon footprint accounting. The purpose of the standard is to guide and harmonize calculations. Standard-based accounting plays a crucial role in avoiding greenwashing.
The GHG Protocol standard divides emissions into three categories, or scopes. Scope 1 covers direct emissions from a company’s own operations, such as emissions from fuels used in energy production and company-owned vehicles. Scope 2 includes all emissions from purchased energy, such as electricity and district heating. Scope 3, on the other hand, includes emissions from the value chain and procurement, such as emissions from raw material procurement, transportation, and the use of manufactured products.
Scope 3 raises the most questions and causes headaches for companies in carbon footprint accounting, as calculating its emissions and finding suitable emission factors can be challenging. However, its significance in carbon footprint accounting is often substantial. Especially in the trade and industrial sectors, significant emissions often arise from value chains and procurement, and excluding them from the calculations can give a misleading picture of a company’s emissions.
Contrary to common misconception, including Scope 3 in carbon footprint accounting is not optional. If the accounting is to be conducted in accordance with the Greenhouse Gas Protocol standard, all emission sources identified as significant for the operation must be included in the accounting. This also applies to Scope 3 for those emission sources for which reliable data is available with reasonable effort. Therefore, if an emission source is expected to have more than a negligible impact on the accounting results, it must be included in the accounting.
GHG Scope 3 in the Shipbuilding Industry refers to the indirect greenhouse gas (GHG) emissions that occur in the value chain of shipbuilding companies, outside of their direct operations (Scope 1) and purchased energy (Scope 2). These emissions are categorized under Scope 3 and include a wide range of activities and sources in ecosystem.
Purchased goods and services includes emissions from the production of materials and components used in shipbuilding, such as steel, paint, and electronic systems. Therefore, material traceability needs to cover also GHG footprint of materials.
Transportation and distribution emissions come from the logistics involved in transporting materials to the shipyard. Close operations and intensive supply network are important.
Waste generated in operations covers emissions from the disposal and treatment of waste produced during the shipbuilding process in supplier network. This requires special efforts to be taken in operations management at supplier companies. Also loosely coupled networked supplier consortiums needs to consider their joint operations management systems. Waste is generated on poorly planned network processes, where knowledge diffusion from operator-to-operator is inadequate. This often due to lacking information design between supplying companies.
GHG Scope 3 covers also use of sold products emissions from the operation of ships once they are sold and in use, including fuel consumption and maintenance. It is question of time when are companies accountable for customers' use of their products. In other words, disclosing downstream emissions in value chain. End-of-life treatment of sold products, emissions from the dismantling and recycling of ships at the end of their operational life for example.
Scope 3 emissions are often the largest and most complex to calculate, but they are crucial for understanding the full environmental impact of the shipbuilding industry. While writing this article September 2024, there is already vivid discussion and attempts to develop AI aids to help companies in this reporting task.
Reporting timeline in EU is as follows. Corporate Sustainability Reporting Directive (CSRD) went into effect in January 2023, with a phased introduction of required reporting by company type. 2024 (reporting in 2025) Large Public Interest Entities (PIEs) with more than 500 employees. 2025 (reporting in 2026) other large companies, including those listed on the EU-regulated markets. 2026 (reporting in 2027) small and medium-sized companies listed on EU-regulated market. 2028 (reporting 2029) ultimate non-EU parent companies with substantial activity and presence in the EU.