How Activity-Based Data Improves Scope 3 Reporting

Scope 3 emissions, covering indirect emissions across a company’s value chain, often represent over 90% of total emissions. However, tracking them is challenging due to unreliable supplier data and outdated methods like spend-based calculations. These approaches rely on averages, leading to inaccuracies and missed opportunities for precise action.

Switching to activity-based data offers a more accurate alternative by using specific operational metrics instead of estimates. This method provides detailed insights into emissions sources, supports compliance with regulations like the CSRD, and enables targeted reduction strategies. Platforms like neoeco simplify this process by automating data collection, integrating sustainability metrics into financial workflows, and improving accuracy for audits and reporting.

Although transitioning to activity-based tracking requires upfront investment and supplier collaboration, the long-term benefits outweigh the challenges. For UK organisations, focusing on high-impact categories, engaging suppliers, and leveraging advanced tools are key steps to improving Scope 3 reporting and reducing emissions effectively.

Current Scope 3 Data Collection Methods: Problems and Risks

Getting a handle on Scope 3 emissions starts with reliable data. Without it, managing and reducing emissions effectively becomes a guessing game.

Spend-Based and Input–Output Analysis Methods Explained

Right now, many organisations rely on two main methods to estimate their Scope 3 emissions: spend-based methods and input–output analysis. These methods use financial data as a starting point, converting money spent on procurement into estimated carbon emissions using average emission factors.

• Spend-based methods work by applying generic emission factors to the amount spent. Essentially, they turn financial expenditure into emissions estimates.

• Input–output analysis takes a similar approach but uses national or regional datasets to calculate the average emissions intensity across different economic sectors.

Both methods aim to simplify the complex task of emissions tracking, but they rely heavily on averages, which can lead to oversights.

Problems with Current Methods

The biggest issue? These methods are too broad. By using general averages, they fail to capture the unique emissions profiles of individual suppliers or specific supply chain activities. For example, a supplier's operational efficiency or energy sources are often overlooked, making it hard to pinpoint where emissions are truly coming from.

This lack of detail can lead to some strange outcomes. Imagine a supplier offers a discount - spend-based calculations might show a drop in emissions, even though nothing has changed environmentally.

Another challenge is inconsistent supplier reporting. Smaller businesses, in particular, often lack the resources to provide detailed emissions data, resulting in gaps or inaccuracies. This inconsistency makes it harder to integrate data and meet reporting deadlines.

Regulatory compliance is also a growing concern. New standards like the Corporate Sustainability Reporting Directive (CSRD) push for supplier-specific, primary data to track emissions reductions accurately. Spend-based methods, with their broad estimates, often fail to meet these stricter requirements, leaving organisations vulnerable to scrutiny.

Current Methods vs Activity-Based Data Comparison

So, how do these traditional methods stack up against activity-based data? Here’s a side-by-side comparison:

This comparison makes it clear: activity-based data is the way forward for organisations aiming to tackle Scope 3 emissions seriously. While spend-based methods might work for low-risk areas, high-priority categories demand the precision and insights that activity-based approaches offer.

The Path to Better Scope 3 Reporting

The GHG Protocol encourages companies to improve their emissions estimates over time, treating spend-based methods as a stepping stone rather than a long-term solution. For a mature Scope 3 reporting strategy, organisations should combine approaches - using spend-based data where risks are lower and activity-based data for more critical areas.

This shift, while challenging, is essential. Advanced platforms and tools are becoming indispensable in helping companies move from rough estimates to accurate, actionable data. By embracing more precise methods, businesses can not only meet regulatory demands but also identify real opportunities to cut emissions.

How Activity-Based Data Improves Scope 3 Reporting

Switching to activity-based data tracking can transform Scope 3 reporting by moving away from generic financial estimates and focusing on direct operational measurements across your value chain.

What Is Activity-Based Data Tracking?

Activity-based tracking involves recording specific activities that generate emissions - like travel, material processing, or equipment usage - and pairing these with precise emission factors to calculate actual carbon footprints.

This approach offers unparalleled accuracy in carbon accounting because it relies on real, measured data. This is especially important when you consider that supply chain emissions often dwarf operational emissions, averaging 11.4 times higher and accounting for around 92% of an organisation’s total greenhouse gas (GHG) emissions.

By capturing both direct and indirect emission sources, activity-based tracking provides a more complete picture of an organisation’s environmental impact. This level of detail supports more effective and targeted strategies to reduce emissions.

Why Use Activity-Based Tracking?

The benefits of activity-based tracking go well beyond improved accuracy. According to EPA studies, manual inventories have an error rate of 18-24%, compared to just 2-5% for automated systems. This leap in data quality enables better decision-making and ensures compliance with regulations.

When you know exactly where emissions occur, you can implement targeted reduction strategies. Instead of broad, unfocused initiatives, resources can be directed to the activities, suppliers, or processes that generate the most emissions. This precision allows organisations to see the immediate impact of their sustainability efforts, as activity-based tracking reflects changes in real-time.

For audits and compliance, the advantages are significant. Real-time systems achieve 90-95% data accuracy compared to the 70-80% accuracy of traditional reporting. They also maintain a 92% compliance rate with the Corporate Sustainability Reporting Directive (CSRD), compared to just 67% for conventional methods. Additionally, the detailed audit trail created by activity-based data aligns with the increasing demands of regulators.

"Traditional annual reporting creates 'carbon blind spots' - we need continuous data streams to match business decision cycles." - GHG Protocol Technical Advisory Group

Activity-based tracking also helps organisations pinpoint emission hotspots with incredible detail. This allows for deeper analysis and a clear understanding of where interventions will have the greatest impact.

For companies aiming to manage Scope 3 emissions in real-time, activity-based tracking is a game-changer. It enables continuous monitoring and improvement, moving beyond outdated annual reporting methods. Platforms like neoeco use this precise data to enhance compliance and streamline modern Scope 3 reporting.

That said, implementing this approach isn’t without its challenges.

Challenges of Activity-Based Tracking

Transitioning to activity-based tracking comes with its own set of hurdles. Collecting accurate Scope 3 data is inherently complex, resource-intensive, and often plagued by data gaps. Shifting from financial estimates to detailed operational metrics demands significant changes in data collection and management processes.

The biggest challenge lies in gathering data from across the entire value chain. Many suppliers, especially those in multi-tiered and complex supply chains, struggle to provide the necessary data. Smaller suppliers may lack the resources or systems to collect detailed information, and inconsistent data quality remains a persistent issue.

Cost is another barrier, particularly for smaller organisations. The upfront investment in systems, training, and supplier engagement programmes can be steep. However, these costs are often offset by the long-term benefits of more accurate emissions reporting and improved sustainability outcomes.

Adding to the complexity is the constantly evolving landscape of GHG reporting regulations. Frequent changes can make it difficult for organisations to design systems that remain compliant over time.

Despite these challenges, there are ways to make the transition smoother. Organisations can prioritise high-impact Scope 3 categories initially, invest in supplier training and collaborative programmes, and utilise technology platforms to automate much of the data collection and processing.

Ultimately, while activity-based tracking requires more resources, it delivers far more accurate emissions calculations than spend-based methods. For companies serious about reducing emissions and taking credible climate action, this trade-off is well worth the effort.

Technology Platforms: Supporting Activity-Based Scope 3 Reporting

Managing the complexity of activity-based Scope 3 tracking has become far more manageable with the rise of technology platforms. Considering that supply chain emissions are, on average, 11.4 times higher than operational emissions and make up roughly 92% of a company’s total greenhouse gas emissions, organisations require sophisticated systems to handle such extensive data. This move towards integrated platforms allows businesses to harness real-time activity-based data across their entire value chain.

What Are Financially-Integrated Sustainability Platforms?

Traditional sustainability reporting often operates independently of financial systems, leading to fragmented data and inconsistencies. Financially-integrated sustainability platforms solve this problem by merging sustainability and financial data into one system, enabling more precise and streamlined Scope 3 management.

These platforms work by embedding sustainability metrics directly into financial processes. For example, emissions data is collected during financial transactions such as purchasing materials, booking travel, or making supplier payments. This ensures that every pound spent is automatically linked to its environmental impact.

This approach becomes even more critical when you consider that 86% of companies still rely on manual spreadsheets for recording and reporting emissions. By integrating sustainability data with financial workflows, these platforms ensure that the information meets the same audit standards as financial records, eliminating inconsistencies and improving accuracy.

neoeco: A Platform Designed for Modern Scope 3 Reporting

A standout example of a Financially-integrated Sustainability Management (FiSM) platform is neoeco, which addresses the challenges of Scope 3 reporting with advanced technologies. Using AI-driven automation and Life Cycle Assessment (LCA) methodologies, neoeco provides detailed, real-time insights into environmental, social, and governance (ESG) impacts.

What makes neoeco unique is its FiS Ledger, a system that applies double-entry accounting principles to ESG data. This ensures that sustainability metrics are embedded directly into financial transactions, creating audit-ready data that integrates seamlessly with financial systems. By combining financial and sustainability data, neoeco enables precise, activity-based reporting.

The platform also supports compliance with key global standards such as ISSB (IFRS S1 & S2), CSRD, and GHGP - essential for UK organisations preparing for stricter ESG disclosure requirements. By automating workflows for data capture, mapping, and reporting, neoeco eliminates much of the manual effort traditionally associated with Scope 3 reporting. This is particularly important given that only 9% of companies currently measure emissions comprehensively across all scopes. With neoeco, organisations gain real-time visibility into their entire value chain emissions while maintaining the financial accuracy required for audits.

Features Tailored for Scope 3 Reporting

neoeco and similar platforms offer advanced features that simplify the emissions tracking process. These include technologies like IoT sensors, big data analytics, blockchain, and AI, all of which automate data collection and enable real-time emissions monitoring. Such platforms can track all Scope 3 categories, from purchased goods and services to the disposal of sold products.

Supplier engagement tools are another essential feature. These tools facilitate collaboration and data sharing across complex supply chains. For example, automated surveys, questionnaires, and dashboards make it easier for organisations to communicate their emissions data requirements to suppliers. Real-time analytics help companies identify emissions hotspots quickly and adjust their strategies accordingly. Advanced platforms can even analyse data across multiple supply chain layers, pinpointing high-emission activities and forecasting areas for improvement. Integration capabilities allow these systems to pull data from various sources, such as ERP platforms, accounting software, and supplier databases.

"Leverage Technology Solutions Utilise advanced AI-driven platforms such as neoeco that facilitate seamless data integration, transaction matching, and automated sustainability reporting for an accurate, comprehensive, and effortless ESG strategy." – neoeco

For organisations looking to improve the accuracy of their Scope 3 reporting, these technological advancements mark a major improvement over traditional spreadsheet-based methods. Automation, integration, and real-time analytics make it possible to track emissions comprehensively, meeting the demands of modern sustainability strategies. Explore how to manage Scope 3 emissions in real time with these cutting-edge platform features.

How UK Organisations Can Implement Activity-Based Scope 3 Tracking

For UK organisations, adopting an activity-based approach to Scope 3 tracking is essential, especially since these emissions can account for over 70% of their carbon footprint. The process begins by focusing on key areas, fostering partnerships with suppliers, and leveraging technology to streamline tracking - all while staying aligned with evolving UK regulations. This method ensures targeted action and effective collaboration within supply chains.

Start with High-Impact Scope 3 Categories

Instead of attempting to tackle all 15 Scope 3 categories at once, organisations should begin with a materiality assessment to pinpoint areas with the greatest impact. Concentrating on these areas allows businesses to allocate resources effectively and show measurable progress early on.

For many UK businesses, high-impact categories often include purchased goods and services (Category 1), capital goods (Category 2), and business travel (Category 6). In manufacturing, raw materials and components tend to dominate emissions, whereas service-based organisations may find that employee commuting and business travel are their primary contributors.

Initially, companies can use industry-average emission factors, transitioning to activity-based data as their systems mature. This phased approach helps build internal expertise and strengthens supplier relationships without overburdening resources. Once the key categories are identified, businesses can set clear sustainability targets within procurement processes. For example, they might introduce emissions reduction goals for key suppliers or include carbon intensity criteria in tender documents. The aim is to establish accountability mechanisms that encourage ongoing improvement across the supply chain.

Collaborating with Suppliers for Accurate Data

After identifying high-impact categories, the next step is securing reliable data from suppliers. Since supply chain emissions usually fall outside an organisation's direct control, collaboration is critical for accurate tracking.

"Companies must deliver ongoing, timely communications to support suppliers and comprehensive, actionable guidance and resources. In addition, targeted, personalised training and support to meet suppliers where they are in their climate journey and provide interventions and pathways towards more mature initiatives are needed to build supplier capacity." - Anthesis Group

Successful supplier engagement involves aligning sustainability goals with supplier priorities. Instead of simply requesting emissions data, organisations can highlight how sustainability efforts might benefit suppliers - through cost savings, improved efficiency, or enhanced market opportunities. Identifying internal champions within supplier organisations can also help navigate processes and encourage data sharing.

Practical steps include offering suppliers tools like standardised data submission templates, emissions calculation training, and access to carbon accounting platforms. Incentives can also make a difference. For instance, co-investments, longer contracts, or premium payments can encourage suppliers to improve their sustainability performance and enhance data transparency.

Automating Tracking with Technology

Technology plays a vital role in simplifying activity-based Scope 3 tracking. Despite its importance, 86% of companies still rely on manual methods like spreadsheets to record and report emissions. Automated platforms not only improve accuracy and efficiency but also help organisations meet compliance requirements under the UK's Streamlined Energy and Carbon Reporting (SECR) framework and other international standards.

UK organisations should invest in platforms that align with the latest guidance and include updated emissions factors. For example, tools like neoeco’s FiS Ledger system integrate sustainability metrics directly into financial transactions, capturing activity data automatically and reducing the need for separate data collection efforts.

Key features to look for in these platforms include robust data validation tools, seamless supplier integration, and flexible data collection options to accommodate varying supplier capabilities.

"One of the key essential measures for Plan A is the time to action, time to report, time to data upload. And these are very operational metrics of the efficiency of a sustainability team. If that team is able to divide by 80 the time get a complete report, then they have that much more time available to strategise around this data." - Nathan Bonnisseau, co-founder at Plan A

Beyond data collection, advanced systems offer real-time analytics and reporting, enabling businesses to quickly identify emissions hotspots, monitor progress, and generate regulatory compliance reports. Integration with existing ERP systems, accounting tools, and supplier databases ensures that activity-based tracking becomes a seamless part of daily operations.

For UK organisations looking to embrace activity-based Scope 3 tracking, adopting integrated technology platforms provides a scalable way to achieve accurate reporting while maintaining operational efficiency.

Conclusion: Improving Scope 3 Reporting with Activity-Based Data

Switching to activity-based data tracking marks a significant step forward for UK organisations aiming to address their largest emissions source with greater precision. Unlike traditional spend-based methods, this approach offers a much-needed boost in accuracy and aligns organisations with evolving regulatory demands.

The numbers speak for themselves: activity-based systems achieve an impressive 90-95% data accuracy compared to the 70-80% range of older methods. This leap in precision also enhances regulatory compliance, with real-time systems showing 92% compliance with CSRD standards, compared to just 67% for conventional approaches. According to EPA studies, manual emission inventories come with error rates of 18-24%, while automated systems reduce those errors to a mere 2-5%.

Beyond improved accuracy, activity-based tracking helps organisations pinpoint specific emission sources within their supply chains. This level of detail replaces reliance on industry averages, which often mask underperforming suppliers. By identifying these hotspots, businesses can set science-based targets and respond to growing investor expectations in the ESG space.

That said, making the switch requires commitment. For organisations prepared to move past the limitations of traditional methods, platforms like neoeco's FiS Ledger system offer a practical solution. These systems integrate sustainability metrics directly into financial transactions, delivering the audit-grade accuracy necessary for effective Scope 3 management.

The technology supporting activity-based tracking has also evolved, enabling updates within 24 hours - a stark contrast to the six-month delays often seen with traditional methods. This faster turnaround allows businesses to address emissions hotspots promptly and align sustainability reporting with their decision-making processes.

For UK businesses, adopting activity-based data tracking isn’t just an upgrade - it’s a necessity for meaningful climate action. With tools like neoeco's FiS Ledger system providing enhanced accuracy, real-time insights, and automated compliance, organisations can confidently navigate both current sustainability demands and future challenges.

FAQs

What are the benefits of using activity-based data instead of spend-based methods for Scope 3 emissions reporting?

Using activity-based data for Scope 3 emissions reporting delivers a much more precise picture by focusing on specific operational activities like energy use, transportation, or material consumption. This approach allows organisations to pinpoint the exact sources of emissions, offering clarity on where reductions can be made most effectively.

On the other hand, spend-based methods rely on financial data, which is generally easier to access but less accurate. While suitable for broad estimates, spend-based methods lack the detail needed for targeted action. For organisations looking to develop focused and impactful emission reduction strategies, activity-based data provides a deeper, more actionable understanding of their environmental footprint.

How can UK organisations work with suppliers to improve activity-based Scope 3 emissions tracking?

Strengthening Scope 3 Emissions Tracking Through Supplier Collaboration

For UK organisations aiming to improve Scope 3 emissions tracking, building strong partnerships with suppliers is a game changer. Begin by conducting initial assessments to pinpoint areas with the highest emissions. Once identified, focus on suppliers that have the greatest environmental impact. Leveraging technology can also streamline data collection and help maintain consistency in reporting processes.

Providing suppliers with clear instructions, training, and ongoing support is key to improving the quality of the data you receive. Regular communication and initiatives to build their capacity can align suppliers with your sustainability objectives, ensuring the data is both accurate and dependable. Emphasising openness and teamwork creates a foundation for more thorough and precise Scope 3 emissions reporting.

How can technology help streamline and improve the accuracy of Scope 3 emissions reporting?

Technology has become a game-changer in making Scope 3 emissions reporting simpler and more accurate. With tools powered by AI-driven automation, embedded analytics, and detailed data tracking, organisations can handle the process more efficiently while staying aligned with global standards. These advanced platforms assist in gathering, organising, and analysing activity-based data, resulting in clearer and more reliable reporting.

Take neoeco, for example - a Financially-integrated Sustainability Management (FiSM) platform. It combines sustainability and financial data to deliver insights that are ready for audits. Using Life Cycle Assessment (LCA) methodologies and real-time data, neoeco helps businesses navigate the challenges of Scope 3 emissions reporting. It also supports compliance with rigorous standards like ISSB, CSRD, and GHGP.

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