We’ve heard a lot of references to Scope 3 emissions in our discussions over the past few weeks. It’s an important regulatory development which all transport operators should have on their radar. We thought we’d kick off with a short explainer.
Since April 2019, carbon reporting has been a mandatory requirement for many companies in the UK. Regulation known as SECR (Streamlined Energy and Carbon Reporting) is mandatory for large companies, listed companies and some medium companies depending on number of employees and financial performance. The 1% of operators who are responsible for operating 50% of the UK vehicle fleet, all fall into this camp. On a national business scale, 11% of all UK businesses are required to complete annual SECR returns.
Carbon reporting is broken down into different categories known as Scopes 1,2 and 3: Scope 1 is direct emissions from company activities, this includes fuel use, plus other carbon emitting processes carried out by the business; Scope 2 covers indirect emissions from company activities comprising the emissions from electricity used on site (the emissions for electricity occur at a power stations, hence indirect emissions). Reporting of Scope 1 and 2 emissions is mandatory under SECR regulations.
Finally, we have Scope 3 emissions – this covers indirect emissions from third parties that are a direct result of a company’s activities. As you’ll have gathered, this scoops up most third-party transport operations. Scope 3 emissions reporting is not currently mandatory, but in some instances Scope 3 emissions can be the bulk of a company’s emissions. While voluntary, many organisations choose to measure and report Scope 3 emissions bringing sometimes the smallest of suppliers under the carbon spotlight.
As a result, businesses that fall outside of emissions reporting regulations end up being asked to report these emissions, not to regulators, but to their customer under the catch-all Scope 3. It is also becoming common for emissions reporting to be a part of the qualifying criteria for government contracts or commercial contracts over £5m.
While voluntary today, you’d have to expect Scope 3 emissions to become mandatory in the future. It is also reasonable to expect the qualifying criteria for all emissions reporting to widen in the future, to encompass all companies until such a time that emissions reporting becomes part of annual financial reporting – something we’ve heard mooted.
Understanding the emissions of your business now, should help prevent it becoming a show-stopper or the reason you lose a contract in the future. The first step on this journey is measuring your current emissions, without this knowledge it is difficult to plan for reductions and it will be impossible to demonstrate how you are reducing your emissions. The good news is, it’s not just about adopting new technology, it’s about managing operations to drive efficiency. Efficiency gains nearly always drive emissions improvements.
Our basic advice for small businesses – and we will be returning to this matter in the future with some tools which will assist you in this area – become familiar with your emissions, understand what they are and where they come from. From there set out a baseline measurement and focus on efficiency improvements within your current operations, investigate new technologies, new processes and new systems and understand their emissions potential, their financial impact and their operational considerations. And document it all. Do these things and you will be well armed for the carbon reduction battles ahead.
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