Carbon reporting and how it can affect your chances of winning a job
A single weak link in the supply chain could cause construction companies a big headache under new carbon emissions procurement rules. keith cooper investigation
Last summer, without fanfare, a thin government document slipped a measure that had a significant, immediate and lasting impact on the efforts of construction companies to gain jobs. A public procurement notice required departments and their subsidiary agencies to place larger contracts only with companies that record and report so-called Scope 3 emissions.
These are the emissions generated by the supply chain – the goods and services imported from outside. The impact on construction should not be underestimated.
Scope 3 emissions are very varied. They can include emissions generated from the manufacture, transport and disposal of tools and materials, from hammer and nails to structural concrete and steel, and everything in between. Even emissions from contractor vehicles, from pick-up trucks to excavators, now have to be accounted for by those purchasing these services.
The 10-page notice, called Public Procurement Notice (PPN) 06/21, follows the UK’s commitment in 2019 to become the first major economy to legally commit to net zero carbon emissions by 2050.
The “new trade policy” outlined in the PPN requires all suppliers to major government contracts to make the same commitment and publish their own carbon reduction plans, indicating how they intend to meet them.
“The direction of travel has been fixed”
Jessica Boardman, Bevan Brittan
By definition, Scope 3 emissions are not under the direct control of their buyers; details should be obtained from contractors and suppliers who provide services to them and sell products to them. Scope 3 also accounts for far more emissions than Scopes 1 and 2, which are those that companies generate directly or indirectly from their own activities, and which they already regularly report on.
Additionally, this requirement to report Scope 3 emissions is now more likely to become commonplace, as other public sector bodies – and even the private sector – follow Whitehall’s lead.
“The direction of travel has been set,” says Jessica Boardman, a partner at the law firm Bevan Brittan, which advises many public bodies. “Scope 3 emissions reporting is more onerous, but this kind of requirement – for suppliers to look beyond direct emissions and consider the wider supply chain – is likely to become more widespread , shifting from the central government to other public bodies.”
So how are contractors reacting to this new Scope 3 reporting push? To find out, we spoke to some of the companies leading the industry’s effort toward net zero, all of whom have tracked Scope 3 emissions before without any regulatory requirements to do so.
Skanska claims to be the first prime contractor in the UK to set a net zero target including scope 3 emissions, in 2019.
“We saw that climate change and reducing carbon emissions were going to be big issues,” says Skanska environmental manager Adam Crossley. “It didn’t quite hit the headlines, but we knew it was going to be important in our industry. So, we thought, how are we going to get ahead?
“We saw that climate change and reducing carbon emissions were going to be major issues. We knew it was going to be big”
The company’s first step was to assess the scale of the challenge it faced, while being aware that many suppliers might not be recording their own carbon emissions. Without any actual data, it estimated its supply chain emissions through 2010, using a process it published for transparency. This exercise revealed that 90% of its total emissions were generated by its supply chain and were therefore classified as Scope 3. Only 10% were caused by its own activities.
As its suppliers improve their reporting, Skanska is replacing its estimates with actual emissions data. Its latest figures show it has cut its carbon intensity by around half, from 347m tonnes of CO2 emissions per £1m of revenue in 2010 to 182m tonnes of CO2e/ £m in 2021.
For Willmott Dixon, another entrepreneur eager to take action on net zero, the connection between Scope 3 and Scopes 1 and 2 is even more striking. “If you draw a pie chart of our emissions, scopes 1 and 2 are 1% of our emissions and 99% is scope 3,” says Julia Barrett, director of sustainability.
One burger at a time
Willmott Dixon began reducing its carbon emissions in 2010 and has been carbon neutral in its own operations – in Scopes 1 and 2 – since 2012. It aims to be net zero in all three Scopes of here 2040.
“Achieving net zero operational carbon in our supply chain is a much, much bigger challenge for us, as it will be in any industry, but especially construction,” Barrett said. “But, like any elephant, you eat it one burger at a time.”
Willmott Dixon’s approach is shared by other entrepreneurs we’ve spoken to – you start by biting off the bigger pieces.
For starters, that means targeting strategic suppliers. “We know that 20% of our operational supply chain is responsible for 80% of emissions,” Barrett says. “Working with our strategic suppliers, we were able to identify carbon and cost savings of 30-40% and implement real savings of 20-30%, which didn’t require massive changes to their business. .”
“We know that 20% of our operational supply chain is responsible for 80% of emissions”
Julia Barrett, Willmott Dixon
A similar approach to reducing Scope 3 emissions is taken by Skanska. He wrote to all of his major suppliers in 2019, asking them to collaborate on his efforts to get to net zero and start building the skills they needed to get there.
Another way to target the biggest slices of Scope 3 emissions is to identify the most polluting subcontract work packages. Robertson is doing just that as part of a sustainable growth agreement with the Scottish Environmental Protection Agency.
For this project, he is analyzing the construction supply chain in Scotland and using this analysis to produce heatmaps of the most carbon-intensive jobs, as well as ‘learning journeys’ and reporting tools for suppliers. and supply chain contractors. Unsurprisingly, earthmoving and earthworks were found to be the most carbon-intensive on-site activities for their use of heavy equipment.
Robertson’s own efforts to work with contractors to reduce Scope 3 emissions are aided by its regional build model.
Such an approach is used by other leading Scottish companies headquartered in the central belt of Glasgow and Edinburgh, says its director of sustainability and social impact, Graeme Hannah. “By having construction teams in these regional businesses, we are able to engage well with the local community and with a local supply chain partnership model. This helps reduce our Scope 3 emissions.”
Robertson became carbon neutral for its own operations in 2018, after deciding to offset all of its emissions that year. By setting this level of compensation in 2020, while continuing to reduce its own emissions, it became “climate positive” last year, which means that its activities actually produce an environmental benefit.
Cut in both directions
Calls from entrepreneurs for collaboration can go both ways, of course. Reducing Scope 3 emissions is not just about contractors improving their practices and reporting their emissions data. It’s also about how contractors can get the most out of their subcontractors and suppliers.
“In construction, no company has the answer to achieving net zero,” says Martyn Kenny, director of sustainability at Tarmac. “The supply chain has such an important role to play in ensuring the end product is as low carbon as possible.”
Training has a big role to play in reaching net zero, entrepreneurs say. “Organizations need to ensure that their boards, leaders and other key people understand and are fully aware of these issues,” says Skanska’s Crossley. The company has internally developed tailor-made training for key employees, such as project managers, designers and purchasing teams.
Hannah from Robertson says her company empowers staff to make good decarbonization decisions through trainings, management plans and site visits. “Sustainability teams are typically small teams within large organizations. We can not do everything.
Another challenge with Scope 3 emissions is that, by definition, the companies and workers who are best placed to reduce them are not under the control of contractors. To address this problem, many companies, including Willmott Dixon, Skanska and Robertson, are funding an industry collaboration body, the Supply Chain Sustainability School. Founded in 2012 by seven Tier 1 companies, it offers free training and advice and is now financially supported by 180 companies.
“In construction, no company has the answer to reach net zero”
Martyn Kenny, asphalt
The school has become a useful resource in the industry in the race to net zero. Last summer, it launched a tool to simplify Scope 3 emissions reporting. It works by allowing contractors to do a single upload of their total Scope 1 and 2 emissions. Contractors use this upload to calculate their share of these total emissions. Their share depends on their share in the turnover of the subcontractors.
Barrett admits the calculation is a proxy and “slightly flawed”. “But that means contractors report once and they did,” she adds. “It demonstrates the direction of travel in a light-hearted way. The last thing we want to do is add [a] burden for them.
In the increasingly difficult quest for net zero, entrepreneurs should never let “perfection be the enemy of good,” Barrett adds.
In the ever-changing world of net zero, that seems like sage advice.