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December 8, 2021

Calculating Value Chain Emissions: The Role of Spend-Based Data

Calculating Value Chain Emissions: The Role of Spend-Based Data

The food we eat, the clothes we buy, the books we read or gift to others: each of our activities has an environmental impact and hence greenhouse gas (GHG) emissions associated with them. This is not merely a personal consideration but a fundamental one for businesses. 

In fact, between 80-99% of corporate emissions tend to fall within their supply chain, defined as scope 3 emissions under the Greenhouse Gas Protocol. Contrary to electricity used, heating or cooling of facilities, which a business owns or can control directly, value chain emissions are a much more complex challenge. 

Activity or Spend-Based Data?

Scope 3 emissions include a range of activities, such as business travel, waste generated, or purchased goods and services. To account for these emissions, there are two main approaches: activity-based data and spend-based data.

Collecting activity-based data along your supply chain can quickly become a tedious, time-intensive task, not least because you are dependent on every single supplier conducting their own detailed GHG assessment. While activity-based data is much more granular and potentially insightful, it is the spend-based data approach that currently dominates the market.

Spend-based data takes the financial value of a purchased good or service and multiplies it by an emission factor. This will return an estimate of emissions per financial unit. However -put bluntly- this is at best a very rough proxy. This is because spend-based emission factors are derived from an industry average of emissions levels, typically at a national level -and sometimes even broader.

Expenses are only ever a Proxy

Take for example dietary options. Research shows that cattle farming has a much higher environmental impact than pork, which in turn means that the emissions per piece of beef far exceed the emissions of a pork-based dish. However, due to the relevant factor from the UK and US governments being based on the industry average across a range of livestock farming, the emission factor applied in the spend-based approach appears to be the same. Put differently, even if your business opts to no longer cater beef, your estimated emissions are unlikely to reflect the reduction.

Another example is air travel. When choosing a way to estimate flight emissions, a number of aspects will have a significant impact on emissions, such as length of flight (e.g. domestic vs international or long-haul vs short-haul) or different classes of travel. All of these aspects can be selected with activity-based emission factors; however amongst spend-based factors they are either not available or -perhaps worse- they are but return the same amount of emissions.

On the left, activity-based air travel emission factor options for the UK. On the right, spend-based air travel.

As we were adding spend-based emission factors to the database, it became apparent that by faithfully reproducing data points from the original dataset (diets and air travel being only two of many examples), we would convey a false sense of granularity, potentially resulting in misleading estimations and comparisons.

That said, sometimes the spend-based approach is the only option available, which is why it is important to present data in the least confusing, most transparent way possible. Carefully weighing ease of use, depth of insight, and data availability, we decided to initially introduce umbrella categories that present emission factors with the same value as a single factor. So that, for the meat example above, you will find a single “Meat (fresh/chilled/frozen/processed)“ emission factor, with the detail of the various options provided in the description of that factor. 

Growing Demand for GHG Accounting: Activity Data Needed

We are seeing increasing regulatory attention and stricter reporting requirements coming into force globally. These are no longer limited to previously regulated sectors, like fossil fuels, but now often span sectors, regions, and company size -- and they include accounting for scope 3 emissions. While spend-based data provides a catch-all proxy to speed up corporate reporting requirements, developing more granular approaches and data will be crucial to inform targeted climate action going forward.

Have you already developed or identified more granular data, e.g. for specific product categories? Get in touch! Our database is open to contributions.