As sustainability becomes a focal point for businesses, understanding the carbon footprint and its implications for procurement functions is crucial. Here we delve into the concept of carbon footprint, regulatory landscape, and the role of purchasing departments in managing Scope 3 emissions.
The Carbon Footprint and Regulatory Landscape
The primary goal of reducing carbon emissions is to mitigate climate change by decreasing the amount of greenhouse gases (GHGs) released into the atmosphere. A carbon footprint is a measure of GHGs an activity, product, or company releases into the atmosphere, typically expressed in terms of CO2 emissions.
In the U.S., the Securities and Exchange Commission (SEC) has introduced rules requiring public companies to disclose their Scope 1&2 GHGs emissions, with filings expected in 2026. In Europe, the Non-Financial Reporting Directive (NFRD) requires large public-interest entities to disclose information on environmental matters, including GHG emissions.
Scopes 1, 2, and 3: The Role of Purchasing Departments
The Corporate Emissions calculated for a company are the sum of Scopes 1, 2, and 3. Scope 1 covers direct GHG emissions from a company’s own operations. Scope 2 covers indirect emissions from the energy a company purchases for its operations. Scope 3 includes all other indirect emissions in the value chain.
Purchasing departments are primarily concerned with Scope 3.1 (Purchased Goods and Services), but they will also be involved in Scope 1 if fossil fuels are purchased.
Calculations, Challenges, and Purchasing Implications
Calculating CO2e for each scope can be complex due to the need to define boundaries between suppliers, one’s company, and one’s customers, as well as determining where to account for each emission. It also requires deciding on the appropriate data sources to use.
As companies integrate carbon footprint considerations into their sustainability goals, purchasing departments will be tasked with providing detailed spend data. Supplier qualification processes will increasingly require certification that suppliers align with carbon footprint initiatives.
Price negotiation will become a more complex exercise because purchasing officers will need to consider the new price, the CO2e content of each product, and how their company is positioned in relation to current emissions levels, objectives to reduce emissions, and if the company needs to buy CO2e allowances to attend the goals.
Carbon footprint considerations will inevitably impact the purchasing function. It is only a matter of time before it becomes an integral part of procurement strategies.
