As the Australian market and government intensifies its focus on sustainability, contractors supplying goods and services to mining and other large operations are increasingly expected to address their greenhouse gas (GHG) emissions. Understanding Scope 1, Scope 2, and Scope 3 emissions are becoming critical components of doing business in the sector. This guide breaks down your obligations and outlines how to get started with emissions reporting.
Firstly, What Are Scope 1, 2, and 3 Emissions?
Scope 1 Emissions: These are direct emissions from sources you own or control. For contractors, this includes emissions from litres of fuel burnt in vehicles, machinery, or equipment used on-site. These are also known as Internal Combustion Engines (ICE); this term is increasingly being used to distinguish between electric and and fuel-based engines.
Scope 2 Emissions: These are indirect emissions from the generation of purchased electricity your business consumes. For example, if your workshop or office uses electricity sourced from the grid, the emissions associated with that electricity are Scope 2. Emissions from this source are estimated from kWh and an emission factor provided by the Clean Energy Regulator.
Scope 3 Emissions: These are indirect emissions that occur in your value chain, both upstream and downstream. A contractor’s Scope 1 and 2 emissions are referred to as Scope 3 emissions by a mining company. Concurrently, A Contractor’s supplier who collects their scope 1 and 2 emissions, is referred to as the Contractor’s Scope 3 emissions. Basically, Scope 3 emissions are all the indirect emissions in your supply chain, and the depth of Scope 3 emissions grows further up the supply chain for other businesses. While reporting methodology for scopes 1 and 2 in Australia can be found in the National Greenhouse and Energy Reporting (NGER), scope 3 emissions methodology is found in the Greenhouse Gas Protocol.
Australian Regulations Relevant to Emissions
In Australia, these obligations are guided by regulatory frameworks like the National Greenhouse and Energy Reporting (NGER) scheme, and Safeguard Mechanism Rule (Safeguard) which is managed by the Clean Energy Regulator, as well as the Australian Sustainability Reporting Standard 2 (S2) for climate-related disclosures which is managed by the Australian Accounting Standards Board (AASB).
NGER and Safeguard determine the thresholds and methodology for reporting emissions and decarbonising with offsets for the biggest industrial emitters in Australia mostly applying to mining, oil and gas production, manufacturing, transport and waste facilities. The AASB S2 determine the thresholds and requirements for large companies earning over a certain amount to review their climate risks and opportunities for investors, including disclosing their scope 1 and 2 emissions, with a recommendation to also disclose scope 3 emissions. With the introduction of the AASB S2, many other large companies now must report and disclose emissions. There is some grace in the first few years, but eventually, non-compliance will have repercussions.
What are the Emissions Reporting Obligations Relevant to Contractors and Suppliers (to Large Companies)?
Mining companies and other large companies over thresholds are under increasing regulatory and market pressure to account for their carbon footprint so they can decarbonise and be in control of mitigating or adapting to future climate change risks. This includes building transparency about emissions across their entire supply chain, which means contractors are now part of the equation. While mining companies bear the responsibility for increasing transparency, they rely on the coordinated efforts of their suppliers to provide accurate data to meet these obligations. As a result, contractors are expected to:
1. Measure and Report Their Own Emissions: Particularly Scope 1 and Scope 2 emissions.
2. Provide Data to Mining Clients: Enabling mining companies to calculate their Scope 3 emissions.
Some contractors may also ask their suppliers to collect and provide information on their Scope 1 and Scope 2 emissions, 3 degrees of separation from the main reporting large company, particularly if the middle contractor/supplier is over or nearing the threshold for AASB S2.
How to Get Started with Emissions Reporting:
1. Understand Your Obligations
Reviewing client contract requirements for emissions data.
2. Identify Emission Sources and Boundaries
Conduct a review of your operations boundaries to identify your direct and indirect Scope 1 and Scope 2 emissions, and ensure there isn’t an overlap of reporting with the suppliers and customers.
Document where records can be found.
Map your supply chain to understand the largest source of Scope 3 emissions.
3. Use Reporting Standards
– Familiarize yourself with the NGER Determination, which provides a framework for measuring and reporting scope 1 and 2 emissions in Australia. In particular, the method for calculating emissions from electricity consumed and liquid fuels for transport or stationary energy. These would likely be the main source of emissions.
– Leverage industry-specific tools and guidelines.
4. Collect Data and Maintain an Audit Trail
– Gather fuel consumption records, electricity bills and other metric usage of fuel fuels used.
– Create a management procedure and system for the procurement and/or finance team to methodologically save metric usage for converting into emissions in a safe filing system.
– Contact suppliers, and update contracts to request suppliers send their scope 1 and 2 emissions.
5. Engage Experts
– If in-house expertise is limited, consult sustainability professionals or carbon accountants, such as Highlight Sustainability to guide your reporting process or provide an audit.
6. Communicate with Clients
Share your emissions data as an annual figure clearly stated as kilograms or tonnes of carbon dioxide equivalent (t CO2-e) (with a subscript ‘2’).
Show your data was verified by a sustainability professional to build trust with your client.
Highlight any initiatives you are undertaking to reduce your carbon footprint.
Benefits of Emissions Reporting
- Strengthened Client Relationships: Demonstrating your commitment to sustainability can improve your standing with existing and new clients.
- Regulatory Compliance: Staying ahead of reporting requirements reduces enterprise risk of non-compliance with client contractors or regulatory requirements.
- Operational Efficiency: Identifying emissions sources can often highlight areas for cost savings, such as fuel or energy use reductions.
A common question in mining company tenders is “What initiatives is your business showing that will assist in our decarbonisation”. By measuring your emissions, you can better identify which initiatives will give the best response to this question.
________________________________________
Final Thoughts
Meeting emissions reporting obligations can seem daunting, but it’s becoming a necessity for contractors and suppliers who service larger clients. By taking proactive steps to measure and report your emissions, you not only meet client expectations but also position your business as a responsible and competitive player in the market.
If you’re looking for tailored support to navigate your emissions reporting journey, Highlight Sustainability can help. Get in touch with us today to learn more!