Scope 3 emissions: A challenge for companies

Reducing greenhouse gas (GHG) emissions is crucial in the fight against climate change. Many companies face the challenge that indirect emissions in their value chain, so-called Scope 3 emissions, are often the largest contributors. Since these emissions fall outside the direct control of the company, they are usually the most difficult to determine (and optimize). How can companies address these central challenges within their value chains?

What are Scope 1, 2, and 3 emissions?

The Greenhouse Gas (GHG) Protocol classifies emissions into three categories: Scope 1 for direct emissions from company-owned sources, Scope 2 for indirect emissions from purchased energy, and Scope 3 for all other indirect emissions, including those from upstream and downstream processes within the value chain. Scope 3 is particularly important because it often accounts for the majority of GHG emissions. The GHG Protocol defines 15 categories of Scope 3 emissions that arise from both upstream and downstream activities. These include raw material extraction, production and transportation of purchased components, and the use of the manufactured products by end consumers. These emissions are difficult to capture as they are not directly under the company’s control.

Corporate Carbon Footprint (CCF) vs. Product Carbon Footprint (PCF)

There are two central approaches to calculating emissions: the Corporate Carbon Footprint (CCF), which encompasses all activities of a company, and the Product Carbon Footprint (PCF), which focuses on the lifecycle of a specific product. The PCF is particularly important when it comes to determining emissions along the value chain. Companies that aim to measure their Scope 3 emissions also need data from their suppliers regarding the PCF of the components they purchase.

Why is measuring Scope 3 emissions important?

Companies can directly influence and therefore more easily calculate Scope 1 and Scope 2 emissions. However, Scope 3 emissions should not be overlooked when aiming to assess the entire value chain. Since emissions from upstream and downstream processes often are the largest sources of GHGs, this is the only way to identify and reduce “hotspots” within the value chain.

For many SMEs, significant emissions lie in the upstream processes. However, this is also particularly relevant for industries that rely on complex and globally distributed supply chains. The automotive industry, for instance, depends heavily on purchased components and services, which significantly impact the GHG balance. According to the study “Climate-Friendly Production in the Automotive Industry” by the Öko-Institut e.V., an average of 74.8% of Scope 3 emissions occur during the usage phase, while in-house production (Scope 1 and 2 emissions) only accounts for about 1.9%, and 18.6% originate from the upstream value chain with purchased components. As the industry focuses more and more on e-mobility, the Scope 3 emissions of purchased components – and thus those from suppliers – come into sharper focus as a key lever.

Challenges in the supply chain

The pressure on suppliers to make their production more efficient and sustainable is growing, along with the need for transparency regarding the emissions of the supplied parts. Key challenges in the supply chain include data quality and availability. To tackle this and reduce greenhouse gas emissions, companies need to break new ground, ranging from material selection to production methods. A solid data foundation supports these necessary decisions, as well as the accurate documentation of emissions.
Capturing Scope 1 and Scope 2 emissions is already mandatory under the GHG Protocol Corporate Standard, while Scope 3 reporting is currently optional. However, the importance of Scope 3 reporting is increasing, as demonstrated by EU regulations like the Corporate Sustainability Reporting Directive (CSRD) and the associated European Standards (ESRS). These regulations emphasize the disclosure of emissions as a central aspect of climate action and sustainable business practices.

Three key steps to reduce Scope 3 emissions

  1. Optimize data management: Companies should collect comprehensive data on their products and their lifecycles to make design and portfolio decisions in favor of sustainability.
  2. Ensure data sovereignty and trust: Accurate calculation of Scope 3 emissions requires control over data, particularly in the context of the upstream and downstream value chains.
  3. Use open interfaces: Open data interfaces are essential for seamless integration and communication within the value chain. Approaches like the Asset Administration Shell (AAS) and concepts such as the Digital Product Passport (DPP) can provide valuable support.

Conclusion

Measuring and optimizing Scope 3 emissions is one of the greatest challenges for companies seeking to improve their GHG balance. By leveraging better data, optimizing collaboration within the supply chain, and ensuring transparent reporting, companies can meet regulatory requirements and make progress toward a more sustainable future.

Read a more detailed article on Scope 3 emissions on the CONTACT Research Blog.

Five project management issues that software must solve in the industry

What can software accomplish in engineering projects? What typical project management problems do digital tools have to solve in industry? Which functions are required for this? And how can small and medium-sized companies manage digitalization in this area with relatively few resources? 

Project management software becomes essential

The requirements for product development are continuously increasing. This is driven by the growing share of electronics and software components, the high number of product variants, as well as new laws and compliance regulations. All of this inevitably impacts the complexity of engineering projects. Therefore, project management issues, particularly those affecting small and medium-sized enterprises (SMEs), can no longer be resolved without digital support.

Which problems must software solve in engineering projects?

Digital tools for project management are abundant: from Excel spreadsheets and SharePoint to dedicated software solutions. However, SMEs in the industry often encounter limitations with these tools. This becomes apparent when examining five common problems that suppliers face in project management:

1. Lack of transparency

It is crucial for the success of industrial projects that everyone involved has access to up-to-date project and product data at any time. Such a data foundation requires software that can be connected to all data sources in the development organization (ERP, CAD, CAx, etc.) via interfaces. Project management tools without integrated data management cannot achieve this.

This leads to various problems. Project participants often work with isolated solutions that are used only in specific departments, locations, or companies. The resulting lack of interfaces forces team members to exchange information manually, for example, through emails or SharePoint.

This approach generates a lot of work. Data must be continually updated, which distracts employees from more important tasks. Additionally, they need to regularly exchange information about the current status of the data. It is also common for data to get lost among the multitude of emails so that it has to be requested manually.

All of this creates delays that negatively impact project progress, costs, productivity, and customer satisfaction.

2. Significant risk of manual errors

If project teams do not have access to a consistent data foundation, the risk of misunderstandings during data exchange increases. When product and project data have to be entered manually into documents or spreadsheets, it is only a matter of time before transfer errors occur.

In the industry, such errors can have serious consequences. For instance, a transposition error made by an engineer can affect ordering processes in procurement. Similarly, the design team might develop their designs based on incorrect or unclear product data.

Such mistakes are not just annoying. They jeopardize the success of the project, drive up project costs, and damage the company’s reputation with customers and partners.

3. Limited flexibility for spontaneous changes

In development projects, it is not uncommon for customers to spontaneously change the requirements for a product. This often creates chaos, especially in small and medium-sized companies. To implement these changes, close coordination with the customer’s interdisciplinary teams is essential. Furthermore, suppliers must optimally time their own supply chains and implement changes as quickly as possible.

Both skills require flexible processes and clean data handling. Project managers must be able to plan and implement necessary processes at short notice, even after the project has started. In addition, data statuses must be precisely documented and reconciled between the departments and companies involved.

Otherwise, changes become expensive and time-consuming. For example, today only a few suppliers still use prototype tools. Instead, due to tight project timelines, they immediately move to steel and iron. This approach is faster but creates significant difficulties in the event of changes, which could be avoided through greater flexibility.

4. Experience-based knowledge is not used systematically

Insights gained from a customer project are rarely incorporated into the planning and execution of subsequent orders. This often impacts costs. For example, factors that caused delays in working with customers or partners are not considered when preparing the next quote. As a result, expensive mistakes or misunderstandings frequently occur.

When companies do not systematically document insights and lessons learned – which is not possible with every project management tool – the dependency on individual employees increases. For instance, during the COVID-19 pandemic, many experts left their companies due to poor order volumes. This loss of knowledge is particularly difficult for smaller businesses to compensate for in times of skilled labor shortages. In many companies, it still has an impact today.

5. New requirements due to laws and regulations

New laws and regulations bring numerous additional requirements for traditional industries. Many of them are aimed primarily at large companies. These, however, have to pass on specific requirements to their suppliers and partners.

Processes that companies have successfully used for decades no longer work under these circumstances. At the same time, suppliers lack the know-how and resources to adapt to the new conditions. For instance, customers are increasingly demanding that suppliers provide the carbon footprint of the parts they produce. This requires suitable processes and IT systems that companies must integrate alongside their day-to-day operations.

Laws and compliance requirements will continue to change the industry in the coming years. Those who ignore this trend risk losing their customers and, in the worst case, even face legal consequences.

What if companies ignore common mistakes in project management?

Project management software that is designed to meet the requirements of the industry must be able to solve these problems. If it doesn’t, project planning, management, and controlling will suffer, as will collaboration between project teams and external stakeholders. The results are

  • financial losses,
  • waste of resources,
  • delays,
  • unsatisfied customers,
  • loss of reputation,
  • frustrated employees,
  • internal tensions within the project team, and (in worst-case scenarios)
  • legal consequences.

Outlook

Many of the problems described in this article will become more pressing in the next few years. This is due to new laws and compliance requirements, but also the increasing use of new technologies. To address these issues, effective communication, efficient data exchange, integration of project and product data, and a high degree of standardization are essential. For this, you need software that not only offers project management functions but also includes PLM (Product Lifecycle Management) capabilities.

Our software CIM Database Cloud is such a solution. It is a powerful PLM tool that helps companies with product development as well as project management. The project management functions enable you to link schedules, tasks, and documents and support project managers in completing projects on time and budget. The cloud solution also makes it easier to connect globally distributed locations and implement laws and regulations.

How will the Data Act affect the industry?

Successful digital transformation requires access to data and its intelligent use. The EU has therefore defined a regulation that is intended to strengthen the European data market: the Data Act. Companies from traditional industries must adapt to it as soon as possible.

What is the Data Act?

The “Regulation on harmonised rules on fair access to and use of data” (Data Act) is a directive of the European Union that defines regulations regarding data access and use. It aims to create a fair, transparent framework for the exchange and use of data within the EU, thereby promoting innovation and increasing the competitiveness of European companies on the global data market.

The Data Act is a key component of the EU’s digital strategy. It was approved by the European Council on November 27, 2023 and came into force on January 11, 2024. Following a 20-month transition period, it is to be converted into directly applicable EU-wide law from September 12, 2025.

What is the motivation?

Data is a key resource in the digital economy. However, due to a lack of guidelines, legal requirements, and standards, a large part of the data generated remains unused, especially in industry.

Furthermore, we are currently observing a strong imbalance on the market: data is mostly owned by a small group of large companies. Compared to SMEs and start-ups, this gives them a considerable competitive advantage, which is reflected, for example, in one-sided contracts regarding data access and use.

To counteract this, the EU has developed the Data Act. It aims to democratize the market and create a balanced, fair data ecosystem. To this end, the EU has defined a legal framework ensuring that users of networked products or connected services can promptly access the generated data.

The objectives of the Data Act in a nutshell:

  • Clear rules for the use and exchange of data
  • Transparency and fairness within the data market
  • Protection of personal data
  • Secure data processing
  • Promotion of data-driven innovations
  • Increased competitiveness of EU companies

Who is affected by the Data Act?

The Data Act addresses companies, organizations, and individuals who

  • bring connected products to the market,
  • offer connected services,
  • as a data owner, share generated data with third parties,
  • receive data from data owners,
  • as a public institution, request data owners to share data, or
  • offer data processing services.

Persons who participate in data rooms and providers of applications that include smart contracts are also affected. Persons whose trade, business, or profession involves the implementation of smart contracts for others in connection with the execution of an agreement must also comply with the Data Act.

Which tasks result from the Data Act?

The Data Act imposes numerous new obligations on the industry. These include:

Making data accessible: Providers must ensure that users of connected devices or connected services have access to the data they generate.

Ensuring portability: The Data Act demands mechanisms that enable users to easily and securely transfer their data to third parties. This includes the development of standards and interfaces for data exchange.

Ensuring transparency and fairness: Companies must be transparent about what data they collect, how they use it, and who has access to it.

Ensuring data protection: The processing and disclosure of data must comply with applicable data protection laws (e.g., the GDPR).

Enabling cooperation with authorities: In many cases, it is necessary to pass on data to public institutions. This requires clear processes and responsibilities.

Data Act vs. Data Governance Act

The Data Act is not the only pillar of the European data strategy. It also includes the Data Governance Act (DGA), an existing regulation that defines processes and structures for the exchange of data between individuals, companies, and public institutions. In contrast, the Data Act focuses more on promoting the digital economy. It regulates which players are allowed to use the generated data under which conditions.

What are the consequences of violating the Data Act?

Unfortunately, it is not yet possible to predict how these aspects will be structured in detail. The EU regulation has not yet been transposed into German law. It therefore remains to be seen what obligations will arise in Germany and which supervisory authorities will oversee implementation.

However, one thing is clear: violations of the Data Act will result in fines, similar to the GDPR. There is also a risk that companies will be sued for damages by other market players if they fail to meet the requirements. Furthermore, it is possible that products and services that do not comply with the Data Act may no longer be sold in the EU.

Does the Data Act only create new duties?

The EU regulation does not only entail obligations. It opens up many new opportunities for SMEs in particular. If data is available to all market players in interoperable formats, this facilitates the implementation of innovative, data-based services, such as predictive maintenance.

This is precisely what the democratization of the data market aims to achieve. It gives companies more control over the way they handle their data and creates rules that facilitate data transfer. Both data owners and users will benefit from this.

Processes that are complex and time-consuming today will be accelerated. For example, the regulation provides clear rules for contract management. Cloud or edge providers, for instance, must contractually and technologically ensure that customers can transfer their data as easily as possible when they switch systems.

The industry will also benefit from increasing competition. For example, machine manufacturers who want to enable their products for the Internet of Things can currently only turn to a few providers for this purpose. The Data Act opens up this restricted circle. This not only increases the quality of products and services but also leads to lower prices.

According to a representative survey by the digital association Bitkom, Germany’s economy is currently divided on the Data Act. 49 percent of the 603 companies surveyed across all economic sectors see the new EU regulation as an opportunity for their business. On the other hand, 40 percent of respondents consider the Data Act to be a risk.

What is the best approach for companies?

Companies dealing with the Data Act quickly come up against complex issues: How do they ensure that the data interfaces of their machines, systems, and products are accessible to third parties? What impact does the sharing of data have on their business model? What opportunities does this present (e.g., new services and offers)?

Many of these questions are currently still unclear, making it difficult to prepare for the EU regulation. However, it is advisable to put the topic on the strategic agenda and seek an exchange with associations and other companies. This dialog helps assess the impact of the Data Act on your business.

Summary

With the Data Act, the EU wants to equip the European data market for international competition. The regulation promotes a secure, efficient flow of data and creates a framework that facilitates data exchange and use. This results in new business obligations, but also fairer market conditions.

How the Data Act will be implemented in Germany remains to be seen. Manufacturing companies should nevertheless get to grips with the contents as soon as possible. It is a complex set of rules that influences topics ranging from technological infrastructure to processes and contract design. Companies affected must adequately prepare themselves.

Further information

Handling data is becoming increasingly important for a company’s success. A reliable security architecture is essential, especially for cloud users. In our guide “IT security for companies”, you can read about the requirements for this and the factors you should consider when selecting software providers.