New Framework Challenges Traditional Carbon Accounting Methods for Corporate Supply Chains

Rethinking Corporate Carbon Accounting

Researchers have developed a novel heuristic framework for estimating indirect supply chain emissions that challenges conventional carbon accounting methods, according to recent reports in Scientific Reports. The approach, which analyzes both expenditure and physical quantity data, suggests significantly different emission reduction priorities compared to the widely-used expenditure-based method currently dominating corporate sustainability reporting.

Rethinking Corporate Carbon Accounting
The Scope 3 Emissions Challenge
Limitations of Current Approaches
Innovative Dual-Metric Framework
Implications for Emission Reduction Strategies
Broader Applications Beyond Healthcare

The Scope 3 Emissions Challenge

Scope 3 emissions, which encompass indirect emissions from purchased goods, business travel, employee commuting, and other value chain activities, represent the majority of many organizations’ carbon footprints, analysts suggest. For sectors like healthcare, education, and finance, these indirect emissions can be several times greater than direct operational emissions, the report states.

With new regulations including the European Union’s Corporate Sustainability Reporting Directive and California’s Climate Corporate Data Accountability Act taking effect, organizations face increasing pressure to accurately measure and report these complex emissions. Sources indicate that voluntary climate pledges have typically focused on easier-to-measure Scope 1 and 2 emissions, leaving the more challenging Scope 3 emissions inadequately addressed.

Limitations of Current Approaches

The standard expenditure-based method matches organizational spending to broad industry categories in environmentally-extended input-output tables, then multiplies expenditures by average emission intensities. However, researchers note this approach has significant limitations, according to their analysis.

“The main limitations of using a purely expenditure-based approach to estimate emissions are twofold,” the report states. “One is that it lacks the granularity to adequately accommodate the diversity of products and services and their lifecycle emissions. The second is that both the cost of production and the retail price of a product are poorly correlated with environmental footprint.”

In healthcare specifically, sources indicate a single large hospital purchases over 25,000 distinct products that current methods map to only a handful of economic categories, potentially obscuring major emission sources., according to market developments

Innovative Dual-Metric Framework

The newly developed framework employs a sampling approach that considers both expenditure and physical quantity data to select representative products for detailed analysis. Researchers applied this method to data from the University of California, San Francisco Medical Center, analyzing approximately 1,000 products across 45 categories from a total inventory of over 25,000 items.

According to the report, the approach involves “a heuristic to obtain a sample of ~1000 products spanning 45 categories from a population of over 25,000 products spanning 105 categories.” The researchers then developed two complementary heuristics: a “bottom-up money heuristic” that scales emissions based on expenditure shares and a “bottom-up quantity heuristic” that uses physical quantity data for scaling.

Implications for Emission Reduction Strategies

The most significant finding, analysts suggest, is that the new framework identifies different products as emission priorities compared to traditional methods. By incorporating quantity data alongside cost information, organizations can target reduction efforts more effectively toward high-impact items that might be overlooked when considering cost alone.

The research team acknowledges their heuristic involves some arbitrary thresholds but addresses this through sensitivity analysis and uncertainty quantification using machine learning techniques. They developed “a metric of uncertainty using machine learning techniques to analyze text descriptions of the products” to assess how well each category sample represents product diversity within that category.

Broader Applications Beyond Healthcare

While the case study focused on healthcare, researchers suggest the framework could benefit numerous industries struggling with Scope 3 emissions accounting. The approach offers a practical middle ground between the oversimplified expenditure method and the resource-intensive life cycle assessment of every product.

As corporate climate disclosure requirements expand globally, this heuristic framework could help organizations allocate limited resources toward the most cost-effective emission reduction opportunities in their supply chains, according to the analysis. The method represents an important step toward more accurate carbon accounting that better reflects the physical reality of organizational environmental impacts.