When I was in High School, I was a huge dork. I never ditched a class, and I turned in every assignment, even the extra (optional) ones. The people who were willing to be my friends would just squint at me while I turned in the additional assignments like they were trying to understand how a third arm had suddenly grown out of the middle of my forehead, but I did not care. I loved extra credit. Heck, credit by itself was amazing but EXTRA?!? Hold my beer!
This is why I am so excited to hear about an emerging new emissions category, Scope 4.
We are all becoming increasingly aware of Scopes 1, 2 and 3, as reporting on these emissions categories are becoming integrated with other mandated reporting, but what will the requirements be around Scope 4?
Before we explore Scope 4, let us briefly recap the established emission categories:
- Scope 1: Direct emissions from owned or controlled sources. Think of combustion on site, like a gas furnace, water heater or gas-powered golf cart.
- Scope 2: Indirect emissions from purchased electricity, steam, heating, and cooling. Every time you flip on a light switch, that’s scope 2.
- Scope 3: All other indirect emissions in the value chain, both upstream and downstream. This includes everything from purchased goods and services to your site teams’ commute to work.
Scope 4 emissions, also known as “avoided emissions,” represent the emissions reductions related to Scope 1, 2, and 3. Essentially, Scope 4 quantifies the positive climate impact of a company’s solutions and business practices.
How Does It Work?
Let us say a company takes its domestic hot water production from natural gas to solar thermal heating for its swimming pools. The Scope 1 emissions from this onsite combustion are eliminated; Scope 4 replaces Scope 1 thereby reducing the total carbon impact of the business.
Imagine a company that takes its existing building and converts all its lighting to energy efficient LED’s. This reduces the Scope 2 emissions for the company. The emissions reductions achieved would be considered Scope 4 emissions.
Another example is a software company that provides video conferencing tools. By enabling remote meetings, their software reduces the need for business travel, leading to lower transportation emissions thereby reducing Scope 3 emissions. These avoided travel emissions fall under Scope 4.
Scope 4 allows companies to demonstrate the positive climate impact of their innovative solutions by providing visible credit on their environmental financial statements for steps made. It goes beyond simply reducing their own footprint, improving their financial position and derisking their business by demonstrating the result of the course of action taken. It is one thing to say in the narrative for an investor report, “we have reduced our energy use by 10%”, but it is far more exciting to look at biggest loser accounting code of previous Scope 2 emissions minus Scope 4 equals new reduced Scope 2 number.
There currently is no standardization around how to report Scope 4, but if you are going to take your well-earned credit for Scope 4, I recommend that you apply the same Corporate Sustainability Reporting Directive principles and rigor to it as you would for the scope category that you are reducing. Nevertheless, no matter how you report Scope 4, it is wonderful extra credit.
Please don’t squint at me like that.
