Getting Scope 3 Ready: A Step-by-Step Framework for Navigating Emissions Disclosure

Arne: [00:00:00] Hello everyone. Hello everyone, and welcome to our webinar on Scope three emissions. We've got a few people coming in still into the webinar, so we're gonna wait a few minutes until everyone's here.[00:01:00]

Arne: It looks like the attending numbers are still climbing, so we're just gonna wait for a few more seconds.

Arne: First question already by Adam. I believe the recording will be shared amongst those that are registered, but I need a nod from my colleagues on this, Louise, is that right?Yes,

Arne: that's perfectly fine. Lisa.

Arne: Okay, let's kick off. [00:02:00] So thank you very much for joining and welcome. My name is Arne Geschke, I'm the co-founder and Chief Data Officer here at Fair Supply. Welcome to our Scope three webinar. Scary Topic,obviously lots of work to do for us coming our way in terms of Scope three reporting and today's essentially aimed at putting a bit of structure around that and showing you how to again, essentially get this entire process set up.

Arne: I'm joined today by my colleague Louise Hall. So I'm just gonna do a quick interest of how I came into this role here. And then we'll hand over to Louise, who will do the first part of the webinar. So again, my name is Arne Geschke. Thank you very much for joining. We have a fantastic turnout for this webinar today.

Arne: So we had lots of registrations. Really happy to talk about Scope three. I've worked in supply chain management, supply chain mapping, and also carbon assessment within supply chains, which is now obviously scope, obviously summarised under the name Scope three, [00:03:00]and in an academic capacity for 15 years at the University of Sydney.

Arne: And essentially looked at different methods, how scope three calculations can be performed, how they can be performed efficiently, what data sources need to be understood, harnessed and processed to to do these kinds of tasks. And that's essentially one of the core things I'm bringing to Fair Supply here.

Arne: So this is very much at home. I spent my days doing Scope three and I'm looking forward to diving into it. But before I do that, I'm gonna hand over to my colleague Louise Hall to take you through the first part of the webinar.

Louise: Thanks Are. And hi everybody. I'm Louise Hall. I qualified as a chartered accountant in South Africa before relocating to Australia.

Louise: A number of years ago where I continued my career in audit and assurance at Deloitte I have always been passionate about the environment and sustainability. And while I had some time out of the professional services world when I had young children, I found myself noticing places in our local community that [00:04:00] really surprised me.

Louise: Schools were doing the right thing by encouraging children to bring fresh, healthy foods to school for a fruit break, but the apple cores and banana peels and sometimes completely untouched fruit was just going into the general waste, in the classrooms and ending up creating methane and landfill.

Louise: Now most of the time these things were just happening because people didn't know any better and didn't understand the impact of their actions. And unfortunately, nothing changes if people don't have the information and the understanding about the impact of their actions. So some simple education and processes put in place, problems can be turned into opportunities and schools.

Louise: The school now has an active composting program where organic waste goes back into nourishing the school grounds. And it's this, that, it's exactly what excites me about the climate reporting regime. I know a lot of you will not share my excitement at this point in time, but once we are through the short term [00:05:00] pain of navigating the new reporting requirements we have good data available, I'm really hopeful that we will seethe opportunities that it brings and see some ambitious goals being set in real climate action.

Louise: So with my foundation of financial reporting and passion for sustainability, I love being a part of the Fair Supply team and guiding businesses through the climate reporting landscape. So without further ado, the next slide please, Arne. We will do a quick introduction just on how Scope three fits into the reporting landscape, and then we'll get into the detail and go through step-by-step framework for creating your Scope three inventory.

Louise: And at the end we are hoping to have time for some questions and answers. So we'll move onto the next slide. Just before kicking off, I just wanted to emphasise that this webinar should not be considered accounting, financial, or legal advice for your organisation. [00:06:00] Please do consult with your professional advisors for your own accounting tax and other financial matters.

Louise: All right. So to start with we just wanted to do a quick overview of the reporting landscape and set the scene for Scope three reporting. So this diagram might look familiar to those of you who have looked at Greenhouse Gas Protocol. It illustrates the classification of greenhouse gas emissions into scope 1, 2, and 3 emissions.

Louise: So scope 1 emissions being the direct emissions that originate from sources that are owned or controlled by the entity. And it's where emissions are released into the atmosphere as a direct result of the company's activities. So examples might be fuel consumed by a vehicle fleet that is owned or controlled by the company, or emissions from chemical reactions or manufacturing processes [00:07:00] within an organisation's facility.

Louise: Scope two are indirect emissions from purchased electricity or heating or cooling, where the emissions are not generated on site itself, but are still controlled by the company. And then scope three are all the other indirect emissions both upstream, upstream from the reporting entity that feed into the reporting entity and downstream from the reporting entity that kind of flow on from the reporting entity as a result of the entity's products or services.

Louise: Next slide please, Arne. And this is just a very quick overview of some of the climate reporting frameworks that and what they require in terms of measurement and disclosure of greenhouse gas emissions. Now there are many more out there but these are a couple that your organisations might interact with.

Louise: Some of these are mandatory [00:08:00] standards like our new Australian Sustainability Reporting Standards that is mandatory for entities that meet the reporting thresholds. And others of these are voluntary standards. So we won't spend too long going into the intricacies of these, but to give you a perspective of what we are focusing on today, we will be looking at Scope three, greenhouse gas emissions and the measurement in accordance with the Greenhouse Gas Protocol principles, and there's a good reason for that.

Louise: Next slide, please. Our new Australian Sustainability Reporting Standards require entities to disclose their absolute greenhouse gas emissions generated within a reporting period, and to classify those greenhouse gas emissions into scope one, two, and three greenhouse gas emissions. It also requires the measurement of those greenhouse gas emissions to be in accordance with the greenhouse gas protocol.

Louise: And there [00:09:00] are one or two slight nuances and exceptions to that, but we won't get into that. Today. In terms of timing, in your first reporting period, you will need to disclose your scope one and two emissions, and then from the second reporting period, you also need to disclose Scope three greenhouse gas emissions.

Louise: And now, because of this delay in the scope three disclosures, there are people who think that they don't need to worry about scope three just yet. But by you being here you'll be a step ahead and as we progress through the webinar today, you'll see that you absolutely do need to start thinking about Scope three emissions as early as possible.

Louise: Next slide please, Arne. So this just shows the four pillars of the new reporting standards and to give you context for where the greenhouse gas emissions and Scope three fits into the overall reporting requirements. There are four key pillars of disclosures that [00:10:00] are required in the sustainability report, and the greenhouse gas emissions falls under the metrics and targets pillar.

Louise: So measuring and disclosing your annual greenhouse gas emissions is one aspect of what's required in the disclosures, but the most important in my mind is the target-setting and like setting your emissions reduction targets and then demonstrating your progress against those targets year on year.

Louise: Next slide please. So this table is probably familiar to a lot of you and we have covered it in previous webinars, so won't spend too long on it today. But if you are still not sure which reporting group your entity falls under, it's a useful table to refer to help you determine when you will need to produce your first sustainability report.

Louise: One thing just to note is the revenue asset and employee numbers refer to those figures [00:11:00] at the end of a financial period. So you do need to consider growth and mergers and acquisitions that might take place during the course of a financial period. And what your size, the size of your consolidated entity will be at the end of that reporting period.

Louise: Next slide please. And this just gives you a visual representation of each of those groups and the reporting timeline applicable to each one. So for Group one entities, for example, they will need to compile their sustainability report for the first time for financial years commencing from one January, 2025 onwards.

Louise: And then 12 months later in the second reporting period, those Group one entities will be required to disclose their Scope three emissions for the first time, and then that is applicable to group two and three entities. Two whether have the first12, 12 months of reporting there's no need to [00:12:00] disclose group three emissions, but then from their second reporting period, they will need to.

Louise: Thank you. Next one. And then this is just a quick overview of the assurance requirements for your sustainability report. Specifically looking at the scope three disclosures in year one, there's obviously no assurance needed over those scope three disclosures because the actual scope three emissions are not required to be disclosed in the first year.

Louise: But then from the second year, the second and third year, you'll need limited assurance over those scope three disclosures. And then from your fourth year of sustainability reporting, you will need to get reasonable assurance over those disclosures. And so that was a very quick and brief overview of the reporting standards.

Louise: We have got other material if anybody needs more detail on those, but [00:13:00] for now I know this is the moment you've all been waiting for, and I will hand over to Anna to get into the scope three details.

Arne: Thanks Louise. Almost sound a bit like a drum roll. So as you've seen now, obviously we have to think about scope three.

Arne: We have to think about scope three various stages for various companies, but we somehow have to get ahead around how we do this. And when you look through the greenhouse gas protocol, and I'm sure many of you have spent some time with that documentation. Scope three. It can be very labour intensive.

Arne: It can be a very scary subject to get into. And I think it, it can be a much smoother process if you know where to start, if you know how to start and how to buildup the capabilities in-house so that when the full suite of the reporting requirements hits, then you're ready to go.

Arne: And that's what this is about today. We build it up similar to, to, in a way how the legislation is rolled out. So it, it's probably going to be a lot more challenging if companies wait until the full requirements for reporting and scope three are rolled out for their specific [00:14:00] case.

Arne: Because then the capability has to be built in a very short amount of time. And that will take up resources, that will take up focus and and it, it makes much more sense to ramp the capabilities into that into that space. So for me, and I don't know how you guys see that, but for me, scope three is the main difference between Scope one, two and the scope three assessment is that for Scope one and two, from a methodological viewpoint, it's quite intuitive and quite straightforward, but it's a huge data collection exercise.

Arne: It's very tricky to to really get all the data centralised in a way that it's ready for reporting. For Scope three, there's an additional additional challenge. And that challenge is that we need to get our hands on the right type ofi nformation and the right modelling techniques in order to actually understand those Scope three.

Arne: I've got a million chat messages coming through. Hang on.

Arne: It's not clear enough here. I'm sorry. Venda we tried to work on the sound. We tried two headsets and another [00:15:00] mic. I'mj ust gonna try to maybe shout into my laptop a bit more and that's gonna work then. Okay. Sorry about that. When you look into Scope one and Scope two, you can see that there's only one Scope one and one Scope two category.

Arne: For Scope three, it gets much more complicated. You have 15 different Scope three categories. Some of those, again, are a bit more intuitive and a bit easier to calculate, and some of those can be quite complex to calculate depending on your business profile. And to make matters worse, there's a distinction between upstream emissions and downstream emissions.

Arne: And my hunch is that when the Scope three protocol was designed, that everything that didn't fit into Scope One and Scope Two kind of was thrown into the bucket of Scope three. Let's worry about this later, because at the time when the Greenhouse Gas protocol was designed. The methods we have today, the methodologies, the understanding also the the the global connectedness of the economy wasn't quite where it is now.

Arne: And it was probably not totally foreseeable. What a, what role scope three will play in the future. So that kind of adds to the complexity. So we have to worry about upstream [00:16:00] emissions. We have to worry about downstream emissions. There's obviously a lot of emissions in the value chains. They're categorised, they have to be categorised.

Arne: There's a bunch of ways to get to that categorisation. And this can be quite overwhelming. It can be quite an overwhelming exercise to even to even get started. And that's why we wanted to talk about a suggested way forward, how this can be tackled. So I'm not gonna go into these 15 categories in detail.

Arne: This is, I'm sure you've all like. Read through the guidelines before at least touched on them. We're going to focus on a few just to see what approach we can take. But that's the main framework. And not all of these categories are applicable for every business. That really depends on the business profile in itself.

Arne: But the reason why Scope three is receiving so much attention now as quite well conceptualised in this plot here. So this plot shows the overall emissions of a specific of companies that operate in a specific sector. So Scope One plus Scope Two, plus Scope three. And the the scope three [00:17:00]component of the overall emissions is highlighted in orange.

Arne: And when we start from the bottom up, you can see that cement and steel transport services are industries where the bulk of the emissions sit in Scope one and Scope two. So it's quite in line with our intuitive understanding of emissions, which is probably more geared towards the direct emissions.

Arne: So the emissions that we can, that are easier to grasp in a sense, when lots of trucks drive along roads through delivery transport services, those trucks burn diesel in their engines. That's, it's a very intuitive concept to understand those emissions. And those emissions belonging to the transport services the same for steel and cement, which are very energy intensive industries.

Arne: And the Scope three component as such cannot have that much weight in the overall emissions exposure. But as we move up this chart here, you can see that as we get to the top, we are moving out of the manufacturing businesses and or the manufacturing sectors and out of the maybe primary industries even like [00:18:00] coal and forestry, and we are moving much more into the service industries.

Arne: At the very top, we have financial services. When you think about a financial services company, a financial services company has probably almost zero direct emissions. Like the offices might have, of course of course they would have electricity supplied to them and the computers would've to run on something.

Arne: But that's where Scope one and Scope two emissions will essentially stop. And in fact, we have customers here at Fast Supply that have no Scope one emissions at all, including Fair Supply. Fair Supply has no scope one emissions because we just don't have any direct combustion processes in our operations.

Arne: I sometimes joke that our soda stream's the only source of CO2 emissions that we have at the office, but that's not covered in our Scope one yet. But for the Scope three component, especially those from from investments that can be for financial services, quite significant. And that can sometimes, that can be a bit confusing in the sense that.

Arne: That in an industry or a company, it doesn't have much active is [00:19:00] not connected to much of active emissions activity can have quite a high footprint. And so the scope three component is becoming more and more more and more dominant in the emissions assessment. And that's why we have to focus on it.

Arne: So the times when the focus was on Scope one and Scope two and Scope three was more maybe optional or something we might wanna think about in the future. Those times are definitely over. This is now becoming something that everybody is focusing on.Just gonna go through. It's hard for me to talk about the slides and then I can see all the chats popping in.

Arne: So I'm just gonna check if there's for me. Okay.

Arne: So it is complex scope three. Accounting is complex, but the good news is there's people that do this for a living, and that includes me. And so there's a lot of work that can be taken off your desk. There's a lot of the, despite the complexity, there's a certain amount of repetition and some of those calculations and those repetitions, [00:20:00] those repetitive motions they can be packaged in software solutions that make life a lot easier for those that need to report on scope three emissions.

Arne: But there's just a few of the data challenges that we listed below is that the emissions data is very scattered. Not just across the company. It is reporting, but also across the value chains. If you imagine, for example, the laptop that I'm using here the one where the microphone's too soft, as you all know.

Arne: So this laptop probably has, I would say, close to 10, 10,000 components in it. The company that built this laptop probably has at least a few thousand suppliers that it needs just to build this laptop. And those, in each of those several thousand suppliers of the laptop company in themselves might have hundreds or thousands of suppliers.

Arne: So by the time you move through the supply chains of any product, which is what Scope three requires you to do, you have potentially like millions of small emissions parcels that belong to the value chain. And that's not something that can be intuitively solved. We [00:21:00] need Big Data and we need software solutions that make this possible.

Arne: So the emissions data can be scattered in a number of dimensions. It's across the reporting company and also across the value chains. And then even maybe the different scope three categories. Then we have, we have the challenge of data legacy systems. Something that we often get confronted with is sometimes hundreds of disparate spreadsheets.

Arne: Maybe emissions accounting was owned by a single person for a while in the company, and that person may have moved on to a new job, but the system and how they accounted, they did their emissions accounting is not completely clear. And so some of that knowledge gets lost. And and then of that can be paired with the expanding emission or legal requirements of of scope three or emissions reporting as a whole.

Arne: You, you might find yourself in a position where there's no, no single responsible owner for this task or even for the underlying data. And so bringing all that together can be quite challenging. And the list goes on. The list goes [00:22:00] on. The word that's often thrown around is inventory.

Arne: What's the Scope Three inventory. So a Scope three inventory is essentially a disclosure, or it's a document that contains the assessed emissions and the result of this entire process. And it's the highest level of detail that a Scope three assessment can have according to the Greenhouse Gas Protocol.

Arne: So GreenhouseGas Protocol has a whole bunch of guidelines, how emissions should be assessed, and if all those guidelines are followed then at the end of it you have a Scope three inventory. They come in all shapes and forms. They can simply be a an Excel workbook where maybe each Scope three category gets one of the sheets in theExcel workbook book with a justification where the data sources were found, which data sources were used, which internal activities were considered.

Arne: And it can reach much higher levels of complexity where, a hundred page reports are published that go in detail into admissions exposure. There's no clear guideline by the Greenhouse Gas [00:23:00] Protocol what a scope inventory should look like. It just just the guidelines are just around how the numbers in the inventory must be obtained.

Arne: So from here to a Scope three inventory, that is something that that takes a few steps and it takes a bit of practice. And so the steps that there's, again, there's no clear outline in the Greenhouse gas protocol, which steps you have to go through as in a way as a carbon practitioner in order to.

Arne: Gain the experience and the knowledge and and proficiency to be comfortable with this process. So what we found through our work here at Fair Supply is that you can break it down to a number of steps. This is our suggestion. You break it down into five steps. And the first one, in my opinion, is a very important one.

Arne: That's the screening process. The screening process is essentially the younger brother or the smaller cousin of the inventory. The screening process tries to understand where are the heavy exposure [00:24:00]components of the Scope three emissions in the value chains of the company. And the clear task of that screening process is to understand where more work has to be invested to get to a point where the inventory is in line with the Greenhouse Gas Protocol.

Arne: And what that does is it focuses your work straight away. Rather than having to go through each individual business process, through each individual purchase to understand what the emissions are, it's a really well executed screening process. Shows you very quickly that potentially, maybe only a very small percentage of suppliers carry more than 90% of the carbon exposure.

Arne: In that sense, that's a very clear focus where more detailed data work has to be done to arrive at the inventory. That's all done in step two and three. So step two is essentially then an interpretation of the screening results. What are my materiality thresholds? What do I think as a reporting entity are the important bits of carbon I should I should look at?

Arne: Following from that, from when we get to step three, we jump back into the calculation guidelines of the [00:25:00] Greenhouse Gas Protocol and we determine how do we actually. Calculate the emissions for those components of our business operations that have emerged as being material to micro-carbon exposure, the Greenhouse Gas Protocol as a whole heap of guidelines around that

Arne: Decision trees suggested methods and data sources, and they really take you along the journey in terms of how you meant to how you meant to essentially incorporate information that you have to compile the inventory. Step four is in actually doing it, collect the data, and step five is refine the result further until it's in line with what the Greenhouse Gas protocol requires or what the legislation requires, and also what may be internal standards may require.

Arne: So screening's, the big one, and it's the one where we found that, and I've seen it like a number of times now where some reporting entities. Spend a lot of time. So there can be a lot of time, especially if you're a large company with avery large supplier list, you might find yourself in a position where you have to do a screening [00:26:00] exercise across thousands of suppliers with hundreds of thousands of purchase events.

Arne: And if that is, if there's no clever, succinct system behind how to do this this can be a very time time -intensive and also very costly exercise that can take that can take the focus away from what we actually doing here and why we want to d this. And so what's actually happening, what's essentially happening behind the scenes, what the screening of the emissions profile requires is that.

Arne: We use a high-level method. We use a high-level method to estimate or do a first sweep of what the emissions look like. And what this method is meant to be doing is it's meant to map the value chains and it's meant to assess the emissions along each of the value chains. And I put that like a little bit of a sort of emissions upstream supply chain tree on the right hand side there.

Arne: If you are, they're putting yourself into the seat of the reporting entity. And then you can see that one step up. We have the tier one suppliers. In this case it's only four. If you [00:27:00] think back to my laptop, you would already have probably 10,000 in the first row there. Then you step backwards through the supply chain tree in order to understand where they'll sit.

Arne: And using my example from before, again, this can become very quickly complicated, and it's just not it's not within scope of a manual intuitive process. So this idea, I call up my suppliers and ask them, "Hey, where do you get your raw inputs from? Give me the emissions data."

Arne: That is something that I've never seen that work often, even if there are the resources available to do this. For the first level of suppliers at tier one suppliers, the information that is usually gathered around the tier two suppliers is usually quite scattered. It's incomplete, and it doesn't actually capture the entire value chain.

Arne: So the greenhouse gas protocol helps us in that sense. It says if you need to do the screening exercise, use data-driven methodologies. The problem is that these data-driven methodologies in [00:28:00]themselves, they need so muc expertise that in itself can already be quite an exercise to get your head around how these data-driven methodologies can assist you.

Arne: But there are solutions, there are very elegant solutions that can be very streamlined with even your internal ERP system that can help you to do this first screening exercise. It's one of the things that we do here at Fast Supply. One of the offerings is a very fast screening exercise, a screening process for companies to start on their emissions journey.

Arne: And that's also in line with what sort of the initial stages of the Australian regulations require. So the way this works is now, I've got two examples here, is that that each purchase is coded to a taxonomy. This taxonomy is linked to data sets that understand supply chains around the world and the emissions associated with them.

Arne: And all these complicated, these millions of calculations that do this initial screening assessment is something that we have packaged into our platform. There are other approaches that, that use a similar [00:29:00] kind of data driven approach that you may have come across. And they, the title for those approaches is spend -based emissions factors.

Arne: They use a very similar approach also in line with the greenhouse gas protocol to do this first screening exercise. The reason why I wanted to put two examples in is because we can see already here that we have a fantastic starting point to define a materiality threshold and to identify where more work has to be done.

Arne: So when you look at these suppliers here, this is a dummy data set from our end. You can see here that we have five dummy expenses. All expenses are $100,000 in this case. And the entire upstream screening process was completed. And then we we looked at, out of all the purchases that we assessed and the associated carbon emissions, how many of those emissions, or what's the component or the share of those, of that specific purchase against all the emissions that were assessed for the company.

Arne: And you can see here in one of the columns on the right hand side where the title says Share of kilotons of CO2 E, and underneath are the [00:30:00] percentages. You can see that this first purchase, which is an air transport service purchase. Already carries 35% of the entire emissions exposure for this company according to the to the screening process.

Arne: So when you addup these first five items here, then you already have a very large proportion of the of the emissions covered. So we have here, like we are heading, we're heading towards 90% of all the emissions are concentrated on these top five expense items. And this is a profile and emissions profile that we often find in primary industries, especially mining and and also agricultural customers.

Arne: And often it's not within four, five items, but it's a very small amount of suppliers that carry a very heavy component of the carbon exposure. And that's to no fault of a supplier or any industry as simply the structure of the economy and the structure of those industries. So in this case, it's pretty clear we focus on a small number of suppliers and that really gives us the right lever to [00:31:00] to understand the bulk of the emissions really well.

Arne: The second example is slightly different. This is not this is a different company. The spend is completely different. The the spend structure and profile is completely different. You can see here that these first five suppliers for this company, they don't carry significantly, but they still carry significant amount of emissions, but not the bulk of the emissions.

Arne: So for this company, the screening process would reveal that it doesn't make, it's not the right approach to define what is, what needs more work and what doesn't. By just looking at the top 5% of suppliers, we have to understand the total emissions profile. We might have to consider the first 50% of suppliers.

Arne: We might have to change our view of what we think materiality actually means. And the Greenhouse gas protocol gives a few starting points for that. So how do we establish materiality thresholds? How do we identify which emissions are important? And there's a number of philosophies that can be followed here.

Arne: So the first one, again, is probably quite intuitive. The [00:32:00]magnitude of emissions should be if that's big, then it's material. But it can also be, it can also be a an, it is almost like an inverted view where you say, it's not so much about like where the emissions happen. It's where do I spend my money, because that's where I have the biggest impact.

Arne: So I might spend the majority of my money on a not so carbon intensive industry, or because I spend so much money, I actually, I have quite a lever. I can influence my suppliers because we have such a strong economic relationship. So the financial spend or revenue can also have can be used as the basis for the materiality threshold.

Arne: Then of course, we have underneath it all the business risk exposure. Is there risk to my business by having an exposure to carbon in that specific sector? Is there something going on that I need to be aware of? Do I want to work on that sector to reduce that risk? Maybe there's also specific relationships within the supplier base where the influence or the ability to influence is much higher.

Arne: And that can be, for example, that the scope the screening [00:33:00] revealed that the emissions actually happen within the lower tiers. So they happen within tier one or tier two of the supplier base. So it means that there's actually direct relationship between the reporting company and the supplier that these large emissions are associated with rather than maybe a situation where the bulk of the emissions sit much further in the, much deeper in the supply chain.

Arne: So it's a bunch of ways that, how the materiality can be defined. So once this is done. We can, again, these are a few examples how this can be done. So we can prioritise by greenhouse gas impact. This is what I did in my example, prioritise by spend.We can prioritise by relevance.

Arne: That's a bunch of filters we can use to identify what does material mean for each reporting entity. So this is a it it's a little bit this plot reminds me a little bit of the plot I showed in the beginning. And it shows that the different approaches [00:34:00] and the different lenses that companies can use to understand or to define their materiality thresholds.

Arne: You can see here that like utilities for example, they have the, a majority of the emissions around utilities sit in scope one and two. So the materiality for scope three probably has a completely different lens than. Than than other ones. And also these scope three categories, which are in these blue colours.

Arne: So dark blue, light blue, and the orange they shift quite a bit. So you can see for utilities, for example the scope three expenditure sits in category 11. And I would have to lie if I said what the title of that category is. But you can see that there's a very heavy focus on scope three, category 11 for utility companies.

Arne: So the materiality would probably be defined around what that means, whereas other yeah, other sectors like the real estate sector. The third from the top has the majority of its scope three sitting in category 15, which is investments. And also the others component of scope three. So category 11 has much less of a weight scope three category one, which is the [00:35:00]very faint grayish blue, almost.

Arne: That often pops up as the first one. And that's purchased goods and services for the majority of say manufacturing companies, purchase goods and services together with capital goods. That's the big one. So everything, all secondary industries around manufacturing will have a very heavy scope three exposure in those categories.

Arne: And purchased goods and services is the one where we often spend the most time when we prepare inventories for our customers.

Arne: Once, oh, wec an go back again. So where we are with our categories, this is a quick break so I can stop for a bit. You don't have to listen to me talk the whole time.I'm gonna see if I can go through the through the chat and see what questions have popped up. But I have to warn you this might be sensory overload for me because I think I missed about a hundred messages.

Arne: So I'll see if there's a few questions that I can attend to now. And then yeah, we can talk about that. And I might turn my video off. I might turn the share off. So that's just me on the screen for a while and we can see how we go [00:36:00] with this. Sorry, I didn't see that request to enlarge the slide. I'm sorry about that. This is an interesting question. Screening is not possible in a very poor data outputs without external platform to do this. That's that's, I wish there was a question, there was a response, yes or no to it.

Arne: Everything's possible if you have unlimited time and resources, Lachlan, so you can ask, what's the purpose? What's the, and so I think if you take one step back. You could say, what's the purpose of this? So why are we actually doing scope three reporting? Of course there's legislation around this that makes us, we have to do it.

Arne: But at the same time, the actual purpose of why the legislation was put in place in the first place is because we want to get to a point where we have the right levers, the right knowledge, and the right instruments to reduce emissions. And screening is the very first step in this journey. We want to understand where we should actually where can we reduce emissions?

Arne: And in order to get there, we need to run the screening exercise. It probably makes sense to find a solution that gets you through the screening exercise with a great level of accuracy, but [00:37:00] very quickly because the real work happens where you as a as a reporting entity. Identify where you can actually make a difference, because that also comes back to reducing business risk for the company as a whole.

Arne: And at the same time reduces environmental impact, which will affect all of us at some stage anyway. I would say screening is is, I would probably reframe your question into screening. Screening is very challenging. If you don't use external tools that help you streamline this, and I've seen cases where companies have spent probably like the majority of nine months on the screening exercise to get an idea of where the exposure to the emissions actually lie.

Arne: And then by the time they got to the point where they could actually move into the inventory workflow, or even maybe start mitigating emissions in their value chains, it was the next reporting period and they had to start from scratch. I think it's in everybody's interest to find solutions.

Arne: Solutions along the way that essentially assist this journey. It saves time, it saves quite a bit of cash too. And it gets you to where you [00:38:00] actually want to be.

Arne: I don't think I can.

Arne: Are we overcomplicating the process of Scope three emissions? No, we don't. We don't. There is the Greenhouse Gas protocol says this is what Scope three emissions are, and the screening process should tell you where the exposure for your company is. And it's essentially the job of companies like Fair Supply to make that simple.

Arne: That's, why we're here and I would hate to have a conversation with the customer that says to me, working with you overcomplicates the screening process for me. So we are, that's one of our big focus points here, is that to really take the complexity away and not overwhelm customers with their with the challenge of of screening for scope three emissions.

Arne: I might just jump back into my slide deck here and maybe we have alright, here we go. Let's see if I can answer that one. I might not be able Magna to answer that one, but [00:39:00] see what we've got. Leasing office, no. High-rise building management control. Including with the ability, we don't have option to choose green electricity.

Arne: We can't change the lights. Yeah. So you're locked onto a path that, you can't get out of, but it's how, yeah. We're in a similar situation here. So this is a great question and it's not a scope three question, but it shows you that it shows you how complex emissions reporting can be. So when you're leasing an office on a high rise there's, I think as far as I understand, there's not actually a clear definition.

Arne: If the electricity that you are essentially buying with your lease should be bucketed in scope three or bucketed in scope two. And there's no clear guideline by the greenhouse gas protocol that says, oh, if you are subletting or subleasing, this is what you should do it. The Greenhouse Gas protocol comes more from an angle where it says, how much control do you have over these scope two emissions?

Arne: So how much control do you have over your electricity plan or over your electricity usage? And I would probably say there's an argument to be made that this is scope two electricity still sits in Scope two. [00:40:00]And a screening process of your Scope Three might actually reveal that despite the fact that it is really annoying that you don't have an option to choose green electricity, you might actually find that it makes much more sense for you if you wanna do, make a positive impact to focus on certain components of your Scope three emissions.

Arne: Which I don't know what line of business you're in Magna, but it could actually be that Scope three emissions dwarf this problem that you identified in Scope two. Terry Burke, if it's the Terry that I think it is. Hi Terry, an old friend of Fair Supply. There's no double counting in scope three.

Arne: The Greenhouse Gas Protocol says you can't double count up the upwards into the emissions tree or into the supply chain tree. The methods that are recommended for the Greenhouse Gas Protocol and also the methods that, that we use here at FairSupply, they are simply from a mathematical perspective unable to have a double counting event that is not that is not in line with the Greenhouse Gas [00:41:00] Protocol.

Arne: Wyman Wyman, I might get back to your question later 'cause I would've to screen back scroll back and find your question. Is that Yeah. Ah, end of life. Ah, yeah.

Arne: So that's interesting. So you can screen for end-of-life and use phase. There's a lot of steps in between the spend data and screening for those events. You can make the, and that it's very important here to understand that the screening process is there to give you a first idea of where the bulk of your emissions might sit or will sit.

Arne: And then the inventory process that comes later, which we'll be covering in a second that gives you more clarity around it. But there are ways to do that and I don't have enough time to go into that in detail because this is becoming then more like the geek component of my job. And I don't think we have enough time for that today.

Arne: So I'll return to my slides now if I can find them and keep going. Sorry about [00:42:00] that.

Arne: Determining the calculation methods. So we're at step three now. We've done the screening, we've done the materiality assessment. We know where the where the skeletons are in the closet. We know where the big emissions parcels are. Now, the greenhouse gas protocol comes back into play and says, now it's up to you.

Arne: It's up to you to determine how much information you have. You need to go into more detail. And depending on how much detail you have, you should go into more and more detail. And so there's a hierarchy of calculation methods. The first one is always spend based. That's the one that we employ in the screening process.

Arne: And there are situations where you can't go any further. And there are, you can broadly characterise those situations into either that is not material, so you don't need to do anything else, or it is material, but you can't get any more information. In which case, the spend -based approach is the only option you have to actually have any kind of result.

Arne: So for example, we as a small company Fair Supply, [00:43:00] if we were to identify that all our IT equipment is like material to our scope three exposure, I don't think we're gonna have much success getting individual data from a large IT manufacturer just for our scope three reporting. I don't think they're going to respond to our emails.

Arne: So we can look into third party data sets and stuff if we wanted to, but the spend based method would be one of the methods that we would have to fall back on. One step down is then the average data method. This is where we move from a spend -based to a much more industry average data. And that's then where other industry body specific data sets are onboarded.

Arne: You can see here we are moving from dollars to tons of freight per tons of CO2 per ton transported, for example. Those are, again, data sets that are, that live outside of the spend-based methodology, but are also supplied by either official data providers or also third party data providers.

Arne: But it's still something. That you can do almost like from a desk based perspective. It gets more interesting when you move into method three and four, which is hybrid and supplier specific. That's when you really start [00:44:00]to onboard specific pieces of information that that belong to your specific business activity.

Arne: And we worked with the mining company a few years ago and they would, had, they had a very good relationship to the to the supplier of their explosives. And so they were able to really identify if we buy those types of explosives, what chemicals go into those? What are the emissions associated with the production?

Arne: Also, with the use of those explosives compared to another sort of explosives and those kind of supplier specific information can then be onboarded. The Greenhouse GasProtocol gives you for each of the 15 scope, three categories, are in my opinion at first, highly confusing and scary decision tree that looks like this.

Arne: And you alway sstart from the top left and it says, okay, you have identified, you are screening for this category. And then the first box is always based on the screening. Does the purchase goods or services contribute significantly to the Scope three emissions? Or is supplier engagement otherwise relevant to your [00:45:00] own business goals?

Arne: So it's both sides. Either the greenhouse gas protocol says this is material, or you've identified this is important for me. And then you can go through the yes or no answers. And you can see there's many paths and they all end up in one of these light green boxes and they are these four different methods.

Arne: So if you answer yes three times, you end up with the supplier specific method. If you answer no twice, you end up with the spend-based method and everything in-between. If you just look at this picture, you don't want to do this exercise for 50,000 purchased items. That's not something I wouldn't, I would wanna put anybody through.

Arne: So that's why a really informative, punchy screening approach is important so that you only have to do this where it really makes sense. Yeah. So we've talked through the calculation methods already. This is another slide on that. So it'sa tension between data is easier to obtain on the one hand and a higher level of [00:46:00] detail and more specific results.

Arne: Towards the end. It's really important to always keep an keep the focus on why are we doing this? This is not, we're not in a competition to submit the shiniest most researched scope three inventory. That's not what this is about. We are really doing this to have a good overview and a proper, researched scope three assessment so that we can go and find ways to reduce our emissions.

Arne: And so the data collection piece is something that is very case specific. It depends on where you sit in the reporting in the reporting cycle, in your reporting journey, the reporting expertise. It depends on what industry you're in, what the relationship is to your suppliers, what the screening process has revealed in terms of where the materiality sits or where the heavy the the heavy exposure to emissions sit and all sorts of other factors.

Arne: And then the primary and secondary data sets then can be used to gather to, to find the right way that fits your specific purpose here. [00:47:00]But again, this is like a much more labor intensive exercise and in order to focus that that that level of detail that, that required work.

Arne: That's why we need really smart and fast screening process. We don't waste time on something that might take us a day or two to research. In the end, we find out that it's actually not at all relevant for the overall scope three exposure.

Arne: So here's an example. So we have a match data type to category and priority. So this is for business travel. So we're looking at business travel. There's sometimes when you look at so I booked a flight last week and that flight was was from Sydney to Melbourne. And it came after I booked the flight.

Arne: It said for you on this plane in economy class, you are causing 79 kilograms of CO2 to go from Sydney to Melbourne. So I had the most reliable data source came with the booking. So that's the kind of information that I would put into that primary data collection. And there's ways to to essentially summarise this [00:48:00] piece of information.

Arne: We might not always get our hands on them, but if you put the right processes in place now, and that's what this about. If you know that this is coming and you know that international flights or business travel is a main activity in your business, you might wanna put maybe the the processes in place to collect that information over the next 18 months.

Arne: So by the time the reporting requirements come around, you're ready, you have that information ready to go. So that's why it's important to start early and really find out, okay, maybe we need eight weeks or 10 weeks to find out if we can actually getthat information from all the airlines that we're using.

Arne: And if not, can we use other data sets and then start the engine of data collection? And essentially make it part of the, make it let it sit side by side with the business of usual business as usual workflows so that the information comes to you and by the time you need it. Then on the right hand side, you can see here we've got car hire and rail transport.

Arne: There's secondary data sources that might be acceptable because maybe that car hire is not as as dominant in the [00:49:00] business travel activities as our international flights, domestic flights and taxi rides.

Arne: I often try to keep the text in slides to minimum because I know I do a lot of talking in these webinars and when then there's also a lot of text in the slides. Those two things, me talking and the text might contradict or might compete for attention. But it's hard to keep the slides clean when there's, when this is such a complex topic.

Arne: And this is one of these slides about data collection. So we're just going to focus on one specific category here, not all three of them. So once you've identified, you have to go deeper, you have to go to actually come up or to actually compile the inventory. You have to go deeper in the data collection.

Arne: And for example, for purchase goods and services, we would have procurement records, supplier SAQs. We can go through invoices and purchase orders. Those are datasets that would then be onboarded and used to complete the inventory. And there's different data types and data sources that we use that would be used for each individual category.[00:50:00]

Arne: And that setting that up from the start makes the journey much easier when reporting comes around. Often we find that some companies the companies have some process already well in place, especially around business travel, whereas others are just finding, or that they're just receiving attention now.

Arne: Maybe you can pop some stuff in the chat. Would be great to see, see how everyone's looking at this. We would like to understand which emissions categories do you already have data for, and is it primary or secondary data? And whether data is incomplete. Are you already taking steps now to improve your data access or quality or not?

Arne: I might give you 30 seconds 'cause otherwise we're running out of time. We might go a few minutes over time here. And

Arne: actually in the interest of time, you might go further. So this is an important one. Refine over time. You don't need to be perfect. And that's why these regulations are rolled out slowly. This is a hard one to crack. It takes time, it takes capacity building. And also I guess a more slang English.

Arne: You have [00:51:00] to get the hang of it. You have to understand what the exposure is. You have to understand where is it hard to get for your specific case, your hands on secondary data or primary data. Where is it maybe a bit easier? And so having a really starting early with a really a comprehensive screening process is the first step.

Arne: And then working through what are we already capturing? Are we already capturing maybe the miles that our employees are flying? Is that already captured somewhere? Is the procurement software is that already aligned with maybe a taxonomy that can be used for carbon reporting?

Arne: Or is there ways to prepare those kinds of steps? That's what the refine of a time would encompass. I think it's often, it's tempting to go very deep, very early, but it's sometimes the case that we lose focus a little bit and we lose focus on what we're actually doing here. So to really train that muscle of efficient, but efficient yet accurate climate reporting is something that is much better done if it's essentially practiced over time.

Arne: So I would encourage you start early and see [00:52:00]that this quote's fantastic. This progress of a perfection is really the rallying cry for this exercise that. Get better at it rather than focusing on perfection, maybe even on just certain components from the start. Get better at this so that that we can move towards a much better overall scope three inventory landscape essentially.

Arne: We've got a fantastic quote here by Laura Drucker, who who's been involved in the science-based target initiative and and the World Resource Institute. A fantastic capacity in the field understands this and the global significance of this very and so it's really important.

Arne: It's really important to to consider this move that progress over perfection is really where we are at this journey at the moment. Just as the last slide, we obviously wouldn't be running a webinar if we weren't active in the space. We are also offering a screening platform that would pretty much take you by the hand, take you by the hand and take really as much as that, that as what can be taken off, you would be taken off you.

Arne: When this platform is [00:53:00] used we have scope one and Scope two modules on this platform two, but the Scope three screening component is something where we find a lot of traction with the users because it really does take the load of this of crunching thousands of data lines through a carbon assessment process, takes that load off anybody's desk and really starts the journey.

Arne: Creates audit trails and really centralises the entire exercise and the platform that can beused to build out this muscle. If you are in that step somewhere and you want to have a look, it'd be great to be in touch and just essentially have a chat about where you're sitting in that process and what the next steps are for you.

Arne: I think we are at the end here and I am bang on time, one 30. If you wanna stick around, I can, I'm happy to stick around for about 10 minutes and we can like chat a bit and I can answer a few questions. But also happy to to let you get back to your work. Thank you so much for joining. Also on behalf of the rest of the Fair Supply team and of course Louise and thanks so much for joining in.[00:54:00]

Arne: There were a few questions here. Does the platform need uploading of spreadsheets or data inputs? Obviously we can only a platform can only assess your scope three exposure if there's information in the platform about your business. Yeah, so a certain amount of data needs to be uploaded so that we can help with that.

Arne: And there's different tiers of data detail that their platform can accept. And if the financial records is all you can work with at the moment, then we can start with that. But we can also onboard further information. So if you've already worked in carbon accounting in your business and you've already maybe picked out certain suppliers where deep scope 3 was already done, and we can onboard that information as well so that none of the knowledge gets lost.

Arne: None of the work gets lost. It's been done before. Sarah asked me a question here. Would you say that Scope three is related to value chain emissions? Could we generalise this? So yeah, it is. [00:55:00]Scope three is value chain emissions. So a value chain is everything from like the services that a company buys, the product that a company buys, all the way down to what happens to products and services that the company sells.

Arne: So all the emissions that essentially are associated to the money flows that go in and out of your company, that would, what I would say is a value chain emission. And Scope three captures those 2060 messages. Ah, employee salaries, they're out of scope. So an employee salaries and how employees I don't know where exactly where they, where the where the question is.

Arne: Sorry. But if the question is do employee salaries belong to Scope three of a company, they don't. What employees do with their salaries is not something that is within the scope of the greenhouse gas protocol.

Arne: Alright, everyone, thank you very much for joining and we see you next [00:56:00] time. Thank you.

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