In the most “sustainable” cities, per capita consumption-based emissions constitute up to 12x their Scope 1 emissions

In the so-called “most sustainable cities,” per capita consumption-based emissions constitute far more than per capita Scope 1 emissions. Similarly, evidence suggests that, among US firms, an increasing proportion of Scope 3 emissions compared to Scope 1 points to outsourcing. Without proper accountability outside of Scope 1, both responsibility and emissions are misplaced. Incentives should be put into place to improve transparency and re-evaluate how we define what makes a city or company “sustainable.”

What do the most sustainable cities have in common? Apparently, that their Greenhouse Gas emissions from consumption constitute far more than their Scope 1 emissions on a per capita basis. This probably comes as little surprise. When you picture a sustainable city, you might imagine a place with clear air and high quality public space (i.e., a consumer city that imports rather than produces many of its goods and services). But maybe this relationship should be shocking. Shouldn’t the most sustainable city be the one that is circular and self-sustaining, internally managing its food, water, and energy needs?

Based on data and rankings from Corporate Knights Sustainable Cities Index, we find that among the cities ranked highest in sustainability, per capita consumption-based emissions constitute as much as 12x their per capita Scope 1 emissions[1]. In other words, in cities deemed the most sustainable—including Stockholm, Oslo, and Copenhagen—direct emissions (Scope 1) tend to make up a very small portion of total per capita emissions. This particular ranking is not unusual, as these places consistently appear at the top of sustainable city lists. And it’s not to say these cities are not sustainable—after all, some (though not all) do have low per capita consumption-based emissions. But maybe there’s more to unpack about the relationship between direct and indirect emissions.

Before diving into why we should care about what counts as sustainable, it’s worth noting and understanding a parallel that exists at the corporate level. A recent study found that, among US firms, the proportion of Scope 3 emissions relative to Scope 1 is rising. Further evidence suggests that firms are outsourcing their emissions to foreign suppliers (controlling for factors like operating efficiency and assets). There are a number of reasons a company might outsource emissions, such as maintaining social reputations domestically and avoiding regulatory stringency.

So, why does it matter that the per capita emissions of “sustainable” cities are largely consumption-based, and that companies are outsourcing emissions? As lecturer Marcelle McManus puts it, just because they are meeting certain targets, doesn’t mean they aren’t responsible for emissions elsewhere. Without the proper incentives to drive accountability, companies and cities may be less likely to invest in green technology or reduce emissions locally. Furthermore, these factors make it possible for companies and cities to hide (intentionally or unintentionally) behind their impressive Scope 1 performance (which is the most observable), while remaining silent on Scope 3, where much of their emissions lie.

The answer to these challenges lies in regulatory and reputational incentives. Regulatory changes—like the SEC’s proposed climate risk disclosure rule—can mandate the disclosure of upstream and downstream Scope 3 emissions. Not only would this compel companies to reassess efficiency within their supply chains, but also, it could reveal reputational incentives (as observable efforts expand to include Scope 3).

Additionally, it is worth re-evaluating what we consider “sustainable” and paying more attention to hidden emissions. Perhaps the most sustainable cities and companies are not the ones we think they are.

 

[1] The report defines scope 1 GHG emissions as those occurring within the city boundaries. Consumption-based emissions are those (1) from final consumption and (2) embedded in both domestically produced and imported goods and services that ultimately are consumed within the city.

 

65% of business leaders cannot assess if their supply chains are meeting ESG standards

In spite of growing demands for ESG performance data, most business leaders cannot accurately assess if ESG standards are being met within their supply chains, creating a major blind spot for companies’ performance.

There is mounting regulatory pressure on businesses to disclose their ESG impacts within the supply chain. In 2022 alone, several countries already have ramped up legislation on supply chain and ESG transparency. The EU, for instance, published in February a proposed Directive on corporate sustainability due diligence, with a goal to foster “sustainable and responsible” corporate action throughout the supply chain. One month later, the U.S. Securities and Exchange Commission proposed rules to mandate climate-related disclosures for publicly traded companies. Included in the proposal is a requirement for registrants to provide information about Scope 3 – either GHG emissions and intensity or whether Scope 3 emissions are included in the registrant’s emissions targets. Registrants may also be required to disclose potential climate-related impacts on the supply chain.

The supply chain is particularly important to manage, as this is where the majority of ESG impacts are located. For example, Scope 3 emissions may constitute as much as 90% of a company’s total emissions, according to the Carbon Trust. Companies must be able to track, identify, and address ESG-related impacts – such as Scope 3 emissions – within their supply chains in order to meet their own objectives and satisfy new regulations.

Unfortunately, many companies have not – or cannot – accurately measure the impacts of their supply chains. A new study on mitigating ESG risks in the supply chain revealed that 65% of business leaders admit they are unable to assess whether their closest supply chain partners are meeting any ESG standards. Furthermore, over half (57%) say they have not put in place an effective risk management system to verify ESG integrity of their supply chains. This uncovers a significant blind spot in ESG performance tracking. That most business leaders are unable to assess the majority of their end-to-end ESG impacts impedes the ability of these companies to meet their goals and keep up with regulatory changes.

Still, there is a silver lining: the concentration of ESG impacts within the supply chain presents an opportunity for companies to improve their overall ESG performance via enhanced supply chain management. Companies can begin with supply chain mapping—a methodology to gather information about suppliers to document where, when, and by whom materials and services are produced. From here, business leaders can identify weaknesses within their supply chains and mitigate risks by fostering accountability.

Insufficient knowledge of ESG performance within the supply chain can be resolved with improvements to supply chain design and management tools. Companies will only reach their ESG goals and keep up with new regulations if they can accurately track end-to-end processes, identify risks, and hold suppliers accountable for meeting ESG standards.

 

contact us