Business Situation
A pharmaceutical manufacturer sought to strengthen the accuracy and transparency of its Scope 3 greenhouse gas (GHG) inventory by incorporating activity-based emissions coverage across its Scope 3 inventory.
Its existing inventory relied predominantly on spend-based emission factors. While this approach provided comprehensive inventory coverage, it offered limited visibility into supplier performance, emissions hotspots, and procurement-related emission drivers. Additionally, fluctuations in commodity and energy prices could influence spend-based estimates without reflecting actual operational emissions.
The company required a more robust and scalable carbon accounting approach that could progressively increase activity-based emissions coverage, improve reporting quality, strengthen data credibility, and provide enhanced transparency into the sources driving its Scope 3 emissions.
SGA Approach
SGA designed and implemented a phased transition from a predominantly spend-based inventory to a hybrid (activity-based + spend-based) Scope 3 accounting approach. The methodology combined Scope 3 materiality assessment, supplier prioritization, structured supplier engagement, intelligent document processing, and governance processes to progressively improve inventory quality while maintaining practical implementation and a complete emissions coverage.
Scope 3 Materiality Assessment and Methodology Design
- Classified procurement spend across applicable GHG Protocol Scope 3 categories.
- Identified the most material Scope 3 categories representing over 75% of procurement spend.
- Evaluated supplier concentration, emissions materiality, and data maturity to prioritize categories where increased activity-based data coverage would deliver the greatest improvement in inventory accuracy.
- Developed a phased hybrid accounting methodology aligned with GHG Protocol guidance.
- Reassessed the emissions baseline by incorporating GHG Protocol baseline recalculation principles to maintain year-on-year comparability as methodologies and data quality evolved.
Hybrid Scope 3 Accounting Approach
- Transitioned from a predominantly spend-based inventory to a hybrid methodology by applying activity-based and supplier-specific calculations across material Scope 3 categories, while retaining spend-based emission factors where primary data remained unavailable.
- Prioritized high-impact suppliers based on procurement value, emissions materiality, and data availability.
- Designed structured supplier questionnaires to collect activity data, emissions information, renewable electricity usage, and sustainability commitments.
- Leveraged automated document processing to extract supplier activity data from questionnaires and sustainability disclosures, classify emissions information, standardize reporting formats, and populate calculation-ready datasets, improving data consistency while reducing manual processing effort.
- Consolidated procurement, supplier, and sustainability datasets into a centralized emissions dataset through automated data processing workflows, followed by data quality validation and peer benchmarking.
Governance and Reporting Framework
- Documented methodologies, calculation assumptions, data quality scoring criteria, and calculation protocols to improve reporting transparency and consistency.
- Incorporated GHG Protocol baseline recalculation principles to maintain year-on-year comparability as methodologies and primary data coverage evolved.
- Developed governance processes and reporting documentation to support inventory management, audit readiness, and future assurance requirements.
Key Takeaways
- Enhanced Scope 3 Inventory Progressively increased activity-based emissions coverage across material Scope 3 categories, improving the accuracy, representativeness, and transparency of the overall Scope 3 inventory while maintaining complete emissions coverage.
- Improved Emissions Visibility Enhanced identification of high-impact suppliers, procurement categories, and purchased goods contributing to value chain emissions, enabling more targeted supplier engagement and decarbonization planning.
- Better Data Quality Strengthened reporting through standardized supplier engagement, intelligent document processing, automated data standardization, and robust quality assurance processes, improving data consistency and credibility.
- Improved Reporting Readiness Established standardized methodologies, governance processes, documented assumptions, and baseline management practices aligned with GHG Protocol guidance to support consistent reporting and future assurance activities.
- Scalable Hybrid Carbon Accounting Approach Delivered a repeatable hybrid Scope 3 accounting methodology capable of progressively expanding primary data coverage while supporting evolving disclosure requirements, supplier maturity, and continuous inventory improvement.
