Achieving meaningful climate action requires businesses to tackle their full carbon footprint. While much focus has been placed on Scope 1 (direct emissions) and Scope 2 (indirect emissions from energy use), Scope 3 emissions, which stem from a company’s value chain, often account for the largest share of a company’s greenhouse gas (GHG) emissions. Within Scope 3, Category 2: Capital Goods represents a significant and often overlooked opportunity to reduce emissions.

In this guide, we’ll explore what Scope 3 Category 2 is, why it matters, and provide actionable insights for calculating and reducing these emissions.

What Are Scope 3 Emissions?

Scope 3 emissions, defined by the GHG Protocol, include all indirect emissions (excluding those from purchased energy) that occur throughout a company’s value chain. These emissions are divided into 15 categories, reflecting activities such as purchased goods, employee travel, waste management, and investments.

Category 2, specifically, focuses on capital goods, which are assets with a long lifespan, used to produce goods or services. Examples include machinery, vehicles, equipment, and buildings.

Key Characteristics of Scope 3 Category 2: Capital Goods

• Lifecycle Focus: Emissions are measured from cradle to gate, covering all upstream activities related to the production of capital goods.

• Accounting Distinction: The operational emissions from using these goods fall under Scope 1 or 2, ensuring no double counting.

• Examples: Vehicles purchased for logistics, manufacturing equipment, office buildings, and IT infrastructure like servers.

Why It Matters:

Capital goods are resource-intensive to produce, involving materials like steel, cement, and plastics, which are among the most carbon-intensive industries. Addressing emissions from these goods can help companies significantly reduce their overall environmental impact.

Understanding Scope 3 Category 2: Capital Goods

Capital goods are essential for business operations, but their production leaves a substantial environmental footprint. Their emissions are often “hidden” from plain sight, embedded within supply chains. To understand the emissions under Category 2, companies must consider:

• Material Inputs: Raw materials like metals, concrete, and composites have high energy requirements during extraction and processing.

• Production Processes: Emissions from manufacturing machinery, vehicles, and infrastructure can vary depending on the supplier’s energy mix and practices.

• Transportation: Shipping of these goods from manufacturers to end-users also contributes to emissions.

The Challenge of Measuring Scope 3 Category 2 Emissions

For businesses committed to reducing their carbon footprint, accurately measuring emissions from capital goods under Scope 3 Category 2 is a daunting yet crucial task. Capital goods, such as machinery, buildings, and vehicles, involve complex supply chains and energy-intensive production processes. Each step of their lifecycle, from raw material extraction to manufacturing and transportation, contributes to greenhouse gas emissions.

The challenge lies in gathering precise and comprehensive data across multiple variables:

• Supplier Transparency: Not all suppliers provide detailed GHG inventories, making it difficult to obtain reliable cradle-to-gate emissions data.

• Data Gaps: Many companies must rely on secondary data or industry averages, which can compromise accuracy.

• Accounting Complexity: Businesses often struggle to differentiate between capital goods (Scope 3 Category 2) and other purchased goods (Scope 3 Category 1), leading to potential misreporting or double counting.

• Resource Intensity: Gathering and analyzing data for each product or supplier requires substantial time, expertise, and technology.

Without robust tools and streamlined processes, companies risk underestimating emissions, which can lead to non-compliance with reporting frameworks like the GHG Protocol, as well as reputational and regulatory risks.

Sprih Insight: Sprih offers a comprehensive emissions management tool to help businesses streamline data collection, simplify calculations and analysis for Scope 3 categories. Explore our solutions here.

Reducing Emissions from Capital goods

To reduce emissions from capital goods, companies should prioritize sustainable procurement practices and innovative strategies.

1. Engage Suppliers:
   
   • Work with suppliers who demonstrate strong environmental performance.
   • Incorporate sustainability criteria into supplier contracts.
   • Example: Partner with steel suppliers who use electric arc furnaces powered by renewable energy.

2. Optimize Design and Material Use:
   
   • Redesign products to use fewer materials or incorporate recycled content.
   • Example: Use prefabricated construction materials to reduce waste and emissions.

3. Adopt Circular Economy Practices:
   
   • Extend the life of existing assets through maintenance, refurbishment, or upgrades.
   • Reuse or recycle end-of-life equipment to minimize waste.
   • Example: Implement a buy-back program for old IT equipment.

4. Switch to Low-Carbon Alternatives:
   
   • Replace conventional materials with sustainable alternatives
     1. Bamboo: A fast-growing, renewable material often used for construction. Bamboo absorbs large amounts of CO2 during growth and requires less energy-intensive processing
     2. Recycled Steel and Aluminum: Using recycled metals dramatically reduces the energy required for production (recycled aluminum uses 95% less energy than virgin aluminum).

The Benefits of Managing Category 2 Emissions

• Regulatory Compliance: Stay ahead of global regulations, such as the EU’s CSRD and the SEC’s climate disclosure requirements.

• Cost Optimization: Reducing material use and increasing asset efficiency can lower capital expenditures.

• Brand Differentiation: Demonstrating leadership in sustainability attracts eco-conscious customers and investors.

• Resilience: Companies that reduce emissions are better prepared for carbon taxes and market volatility.

Scope 3 Category 2: Capital Goods represents both a challenge and an opportunity for businesses committed to sustainability. By addressing these emissions, companies can not only reduce their carbon footprint but also gain strategic advantages in cost management, compliance, and market positioning.

At Sprih, we are here to support you in every step of your sustainability journey. From emissions tracking to actionable reduction strategies, we empower businesses to lead the way toward a sustainable future.

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