Identifying incentives & discouragements to understand how a Scope 3 boundary could
be set
A case study on a metal processing company
Arziv Babikian Alexander Fagrell
Industrial and Management Engineering, master's level 2021
Luleå University of Technology
Department of Social Sciences, Technology and Arts
Abstract
Purpose: The purpose of this study is to identify incentives and discouragements thus providing a better understanding of how metal processing companies could set their Scope 3 boundary.
Method: To achieve the purpose of the study, a qualitative case study with an inductive approach was used. The studied company was a global metal processing company that was working towards setting a Scope 3 boundary, and the data consists of semi-structured interviews that were gathered from both internal and external stakeholders.
Findings: Firstly, the findings presented, highlight incentives that affected companies in the metal processing industry to pursue setting a Scope 3 boundary, namely incentives that are categorised into 1) Improved corporate environmental reputation, 2) Increased competitive advantage, and 3) Financial gains. The discouragements found were categorised into 1) High uncertainty, 2) Immature industry/technical solutions, and 3) Low influence outside of the organisational boundary. These incentives and discouragements were analysed to show how they affected the Scope 3 boundary. This resulted in an industry-specific guideline on how companies in the metal processing industry could set their Scope 3 boundary.
Theoretical contribution: The findings prolong earlier research by defining incentives and discouragements in a Scope 3 context. A theoretical contribution from this study was that regulations might inhibit some of the Scope 3 incentives. The findings indicate that drivers to benchmark against other stakeholders, such as differentiating from competitors and improved corporate sustainable reputation. A non-regulatory market environment is, therefore, fostering these incentives, which could be useful to acknowledge in further studies in a Scope 3 context.
Practical implications: This study provides an enhanced understanding of how metal processing companies can set their Scope 3 boundary based on what set of incentives or discouragements that drives them. It is also important for companies to understand incentives and discouragements that may change (e.g., regulations towards Scope 3 emissions) in time, which would result in different Scope 3 boundaries. Also, this understanding of what incentives and discouragements affecting the boundary-setting could benefit policymakers in their work improving the Scope 3 discouragements.
Keywords: Scope 3 boundary, Sustainable incentives, Sustainable discouragements, Indirect emissions, GHG protocol, Metal processing industry.
Acknowledgment
This master thesis is a result of our final course in our master’s degree in Industrial Engineering and Management studies at Luleå University of Technology. This thesis has been a truly educational experience, which we both believe will benefit us in our future careers.
We would firstly like to thank our academic supervisor at the university, Johan Frishammar, for giving us continuous feedback throughout the entire project. Secondly, we would like to thank the opponents that gave us valuable feedback in each seminar. Thirdly, we would like to thank the studied case company and especially our on-site supervisor who helped us a lot throughout the project.
Luleå, May 2021
Alexander Fagrell Arziv Babikian
TABLE OF CONTENTS
TABLE OF CONTENTS ... 3
1 INTRODUCTION ... 1
2 THEORETICAL FOUNDATION ... 4
2.1 BACKGROUND OF DIFFERENT SCOPES ... 4
2.2 DEFINING THE SUPPLY CHAIN ... 6
2.3 BOUNDARY SETTING OF SCOPE 3 EMISSIONS ... 7
2.4 INCENTIVES AND DISCOURAGEMENTS TO STRIVE FOR SUSTAINABILITY ... 8
3 METHOD ... 12
3.1 RESEARCH APPROACH ... 12
3.2 CASE SELECTION ... 12
3.3 DATA COLLECTION ... 12
3.3.1 The first wave ... 14
3.3.2 The second wave ... 15
3.3.3 The third wave ... 15
3.4 DATA ANALYSIS ... 16
3.4.1 First wave - data collection and problem identification ... 16
3.4.2 The second wave - thematic analysis: problem mapping ... 17
3.4.3 Third wave ... 19
3.5 QUALITY IMPROVEMENT MEASURES ... 19
4 RESULT AND ANALYSIS ... 21
4.1 INCENTIVES AND DISCOURAGEMENTS TO WORK TOWARDS SETTING A SCOPE 3 BOUNDARY ... 21
4.1.1 Improved Corporate environmental reputation ... 22
4.1.2 Increased competitive advantage ... 24
4.1.3 Long-term financial gains... 26
4.1.4 High uncertainty ... 26
4.1.5 Immature industry/technical solutions ... 27
4.1.6 Low influence outside of the organisational boundary... 28
4.2 SETTING A SCOPE 3 BOUNDARY BASED ON THE FOUND INCENTIVES AND DISCOURAGEMENTS ... 29
5 DISCUSSION AND CONCLUSIONS ... 32
5.1 THEORETICAL CONTRIBUTION ... 32
5.2 PRACTICAL IMPLICATIONS ... 33
5.3 LIMITATIONS AND FUTURE RESEARCH ... 34
5.4 CONCLUSION ... 35
6 REFERENCES ... 36 7 APPENDICES ... I 7.1 APPENDIX I-INTERVIEW GUIDE ... I 7.2 APPENDIX II–SUMMARY OF KEY ARTICLES ... II 7.3 APPENDIX III–INCENTIVES:CODING WITH REPRESENTATIVE QUOTES ... III 7.4 APPENDIX IV–DISCOURAGEMENTS:CODING WITH REPRESENTATIVE QUOTES ... X
1 INTRODUCTION
CO2 equivalent (CO2) emission is the primary source for global warming and the standard unit used when measuring companies' or industries’ environmental impact (Karltorp, Bergek, Fahnestock, Hellsmark & Ulmanen, 2019; Rebitzer et al., 2004). Today, several of the largest industries are getting accused of their negative environmental impact and face pressure from various stakeholders to report and reduce their CO2 emissions. As a reaction to this pressure, many organisations within these industries voluntarily report their CO2 emissions (Dienes Sassen
& Fischer, 2016). These organisations are often following the Greenhouse gas (GHG) protocol, which is a widely accepted standard (Hickmann, 2017). The GHG protocol provides guidelines for how companies should report their direct and indirect CO2 emissions (GHGP, 2011).
Direct CO2 emissions, also referred to as Scope 1, are caused by the reporting organisation’s own activities while indirect CO2 emissions, also referred to as Scope 2 and 3, are caused by external actors. Scope 2 are the emissions related to purchased energy while Scope 3 emissions relate to all other indirect emissions caused by activities throughout the reporting organisation supply chain (GHGP, 2011). The chosen definition of a supply chain is: “A supply chain is a complex network mainly composed of raw material suppliers, manufacturers, distributors, retailers, and customers, being a linkage of upstream and downstream members” (Ren, Taghipour, & Depitre, 2016).
In the ideal world, all companies would report their direct emissions and the need to calculate and report indirect emissions would not exist. However, this is no2t the case today nor in the near future. Thus, not taking the supply chain into account when calculating CO2 emissions leads to an underrepresentation of the total CO2 emissions caused (Blanco, Caro & Corbett, 2016; Hickmann, 2017; Snyder, 2019), since more than 75% of an industry's CO2 emissions can be connected to Scope 3 (Hertwich & Wood 2019; Huang et al., 2009). It is proven difficult to calculate Scope 3 emissions due to the complexity of supply chains (Patchell, 2018; Ren et al., 2016). The author explains that the further away from the reporting organisation, the harder it gets to obtain valid data. Therefore, it is of importance to set a Scope 3 boundary where data collection is feasible. A Scope 3 boundary is described as the Scope 3 emissions that a company decides to report (GHGP, 2011). It is further acknowledged the need to provide more industry- specific standards for how to set Scope 3 boundaries (GHGP, 2011), but as for now, the boundary setting seems to be highly based on how companies interpret the generic guidelines.
Therefore, companies will most likely report their Scope 3 differently from each other, if reporting it at all.
Previous literature provides precise methods for how companies can calculate, reduce and report Scope 1 and 2 emissions (Hickmann, 2017; Snyder, 2019). However, the guidelines provided for reporting Scope 3 emissions do not. Instead, it is described that each separate company needs to figure out which CO2 emissions to include or exclude when reporting Scope 3 emissions, as long as they can argue for their cause (GHGP, 2011).
In an attempt to push companies to report and reduce their CO2 emissions, institutions (e.g., Governments and the European Union) have agreed to implement policies such as the Paris agreement and Agenda 2030. These policies are voluntary based and will be driven by market forces (Hickmann, 2017). On the one hand, several scholars argue the need for regulations to force companies to report and reduce Scope 3 emissions with financial incentives such as taxes to satisfy these policies (Hickmann, 2017; Ioannou & Serafeim, 2019; Söderholm et al., 2014).
On the other hand, there are currently no regulations in place that drive the work towards setting and reporting Scope 3 emissions. Still, companies are striving to report their Scope 3 anyway (Blanco et al., 2016). Therefore, it is important to understand what incentives drive companies towards setting a Scope 3 boundary and reporting these emissions.
There are various incentives for companies to become sustainable (Cadez & Czerny, 2016;
Castro, Lopez, and Nunez, 2020; Cordova, Grima & Merello, 2018; Dienes et al., 2016;
Fantozzi & Bartocci, 2016; Hickmann, 2017). However, these have not been applied in a Scope 3 context. It is therefore of interest to investigate the positive incentives and negative incentives, also referred to as discouragements in this report, to understand how companies could set their Scope 3 boundary when there are no regulations or standards in place. Having a clearer understanding of how to set a Scope 3 boundary would benefit companies and policymakers in understanding how they could foster further sustainable efforts. It would also benefit the global society by speeding up the process of highlighting and hopefully reducing the global environmental impact. This study will focus specifically on metal processing companies since they are responsible for a tremendous amount of CO2 emissions that have a global impact on the environment (Asif & Chen, 2016; Huang, Weber & Matthew, 2009; Karltorp et al., 2019;
Nuss & Eckelman, 2014).
Therefore, the purpose of this study is to identify incentives and discouragements to provide a better understanding of how metal processing companies could set their Scope 3 boundary.
Thus, this study will answer the following questions:
RQ 1: What incentives affect metal processing companies when setting a Scope 3 boundary?
RQ 2: What discouragements do metal processing companies encounter when setting a Scope 3 boundary?
RQ 3: How could a Scope 3 boundary be set based on these incentives and discouragements?
2 THEORETICAL FOUNDATION
The following chapter provides a review of previous literature related to sustainability and Scope 3. More precisely, this section will be structured down into four subchapters. Namely, 2.1 Background of different Scopes, 2.2 Defining the supply chain, 2.3 Boundary setting of Scope 3 emissions and, 2.4 Incentives and discouragements to strive for sustainability. The last chapter will focus on the literature on incentives to work sustainably since there has been limited research done on incentives directly connected specifically to Scope 3.
2.1 Background of different Scopes
Governments and other institutions around the world motivate organisations to report their CO2 emissions (Braam, 2016), which has increased the incentives to make activities more sustainable from an environmental perspective (GHGP, 2011). This increased motivation has given rise to organisations such as the Greenhouse Gas Protocol (GHGP), which are supplying companies in the private and the public sector with comprehensive global standardised frameworks to measure and manage greenhouse gases throughout the supply chain (GHGP, 2004). This has developed into three different categories, or Scopes of CO2 emissions, that organisations are responsible for reporting. Scope 1 includes direct CO2 emissions and Scope 2 includes the emissions from the production of electricity, both caused by the reporting company (GHGP, 2011). Scope 3, on the other hand, refers to the CO2 emissions that occur outside of the reporting company but is still included in the supply chain. GHGP (2011) definitions of the different Scopes can be seen in Table 1 as the following:
Table 1: GHG protocols definitions of the three different Scopes
Scope 1 “Direct GHG emissions occur from sources that are owned or controlled by the company, for example, emissions from combustion in owned or controlled boilers, furnaces, vehicles, etc.; emissions from chemical production in owned or controlled process equipment” (p. 25)
Scope 2 “Scope 2 accounts for GHG emissions from the generation of purchased electricity consumed by the company. Purchased electricity is defined as electricity that is purchased or otherwise brought into the organizational boundary of the company.
Scope 2 emissions physically occur at the facility where electricity is generated.”
(p. 25)
Scope 3 “Scope 3 is an optional reporting category that allows for the treatment of all other indirect emissions. Scope 3 emissions are a consequence of the activities of the company, but occur from sources not owned or controlled by the company. Some examples of scope 3 activities are extraction and production of purchased materials;
transportation of purchased fuels; and use of sold product and services” (p. 25) GHGP (2011) further describes that Scope 3 emissions can be structured in 15 different sets of categories, which represent the entire spectrum of indirect CO2 emissions throughout the supply chain, see Table 2. Hence, when referring to upstream or downstream CO2 emissions in this report, it includes those categories of CO2 emissions.
Table 2: GHG protocols categories of Scope 3 emissions
No. Categories.
Emissions related to…
1 Purchased goods and services Scope 3 emissions Upstream 2 Capital goods
3 Fuels and energy-related activities (that are not included in Scope 1 or 2) 4 Upstream transportation and distribution
5 Waste generated in operations 6 Business travels
7 Employee commuting 8 Upstream leased assets
9 Downstream transportation and distribution 3 emissions Downstream Scope 10 Processing of sold products
11 Use of sold products
12 End-of-lifecycle treatment of sold products 13 Downstream leased assets
14 Franchises 15 Investments
About 92% of companies included in Fortune 500 follow the GHG protocol, directly or indirectly. These companies, also referred to as reporting companies, have been required to take measures to report their Scope 1 and 2 emissions (GHGP, 2011), which Patchell (2018) describes as a fairly easy task since these two Scopes strictly concern internal CO2 emissions and emissions related to electricity purchases. However, the author further discusses that in recent years, Scope 3 has received more attention since large corporations’ supply chains, both upstream and downstream, often causes the highest CO2 emissions which are also acknowledged by Huang et al., (2009) and Hertwich and Wood (2018). The authors claim it is regarded as a difficult task to measure Scope 3 emissions since it occurs outside the reporting organisation's control, especially when the supply chain is complex (Patchell, 2018; Hertwich & Wood, 2018).
2.2 Defining the supply chain
The definition of the supply chain has been developed and changed over time but has always been important for organisations to understand (Govindan & Soleimani, 2017; Mrabet, Souissi
& Tikito, 2017). One reason is because of the competitive advantages gained through collaborative relationships within and outside of the organisation's boundaries (Roja & Natase, 2013). Summarising earlier definition of the concept resulted in: “a set of integrated entities managed in a synergic way along a business chain” which broadly describes that all activities from raw material to the end-user are included (Govindan & Soleimani, 2017). The early definition is very similar to the definition of the GHG protocol of the supply chain. However, they did not consider that supply chains are networks that often are complex due to globalisation (Busse, Meinlschmidt, & Foerstl, 2017). Nevertheless, academic efforts have been made to create alignment among supply chain actors with an aim towards sustainability (Montabon, Pagell &
Wu, 2016). The authors further claim that the only way of reaching a fully sustainable supply chain is by applying the Ecologically dominant logic, where environmental and social issues go before profit and where optimisation to minimise harm to the environment goes before maximisation of profit. However, the authors acknowledge that this may not be put into practice before further research has been done. Thus, limited research focused on finding practical solutions towards reducing indirect CO2 emissions throughout the supply chain.
Later definitions view supply chains as a network that is both complex and affects sustainability.
This reflects today’s society, which matches the challenges that global companies are facing when setting a Scope 3 boundary. Complexity in the supply chain makes it difficult to know how the
Scope 3 boundary should be set. Hence, another definition of the supply chain will be used in this study that reflects the reality among metal processing companies: “Supply chain is a complex network mainly composed with raw material suppliers, manufacturers, distributors, retailers and customers, being a linkage of upstream and downstream members” (Busse et al., 2017) The authors further claim the importance of information sharing since globalisation has created a decentralised supply chain that is not easy to track. However, this shows that the term “supply chain” is diffuse with no natural boundary. Therefore, it is of the essence to handle every supply chain separately when working towards setting a Scope 3 boundary (GHGP, 2011).
2.3 Boundary setting of Scope 3 emissions
The very essence of setting a Scope 3 boundary is to reduce the overall CO2 emissions in the defined supply chain (GHGP, 2011). In practice, it is necessary to obtain data to locate where CO2 emissions are caused (GHGP, 2011). However, Scope 3 includes CO2 emissions caused throughout the entire supply chain. It is very hard, if not impossible, to calculate, especially if the supply chain includes many actors (Patchell, 2018). The metal processing industry has, often, a wide range of both suppliers and buyers and is therefore subject to this issue. However, it is possible to locate “hot spots” by prioritising Scope 3 CO2 emissions based on their influence.
The highest emitting activities, both upstream and downstream, are of the highest priority to be included if the data is accessible (GHGP, 2011). The authors recommend that companies should always base their data gathered in the Scope 3 boundary on the following principles: Relevance, Completeness, Consistency, Transparency, and Accuracy, see Table 3.
Table 3: GHG protocols principles of reporting Scope 3
Relevance ...refers to how the data appropriately reflects the CO2 emissions of the company so that it can serve the needs user has when making a decision.
Completeness ...refers to the importance of reporting all CO2 emissions occurring and motivate if and why some of these emissions should be excluded.
Consistency ...means that the data gathered should follow the same method so that performance can be tracked over time.
Transparency …means that the reporting company should account for the methods used so that external parties can follow and understand how and what data was collected.
Accuracy …means that the reporting company should take measures so that the data collected should be neither over nor under that actual amount.
Hence, when setting a Scope 3 boundary in practice, it is important not to calculate and report CO2 emissions that may be wrong, even though it is included as emissions related to Scope 3 (GHGP, 2011). Additionally, the further away from the reporting company these CO2 emissions occur, the harder it will be to follow these principles (Patchell, 2018). It is therefore important to set up a relevant boundary of emissions based on the data quality (GHGP, 2011; Patchell, 2018). The protocol describes that there is no standardised way of setting a Scope 3 boundary for every supply chain since companies will encounter different difficulties when collecting data.
Therefore, it is not recommended to compare Scope 3 emissions between companies (GHGP, 2011). If these principles are not followed, then the reporting organisation could end up working inefficiently (GHGP, 2011), which also could lead to greenwashing (Delmas & Curuel‐Burbano, 2011). Greenwashing is a term used when an organisation deliberately highlights positive information and at the same time, choosing not to disclose any negative information so as to create a better sustainable reputation (Delmas & Curuel‐Burbano, 2011). Therefore, recommendations are that if the CO2 emissions are not obtainable based on these previous principles, then they should be excluded (GHGP, 2011).
2.4 Incentives and discouragements to strive for sustainability
Incentives are defined as the following: “Incentives are stimuli or rewards which motivate a behaviour. The motivation could both be positive or negative and also be monetary and non- monetary “(Marchant & Van Del Stede. 2012). In this report, the incentive will be used as a stimulus to take positive actions towards calculating and reporting Scope 3 emissions, while the term discouragements will be used as the negative.
Transparency
Cordova et al. (2018) identified a wish to be transparent regarding emissions as an important nonregulated incentive and based this on the increased demand for information from stakeholders. However, Dienes et al. (2016) found that being visible for a large public incentivises firms to be transparent and present CO2 emissions. These discussed incentives show that there is outside pressure on firms to become transparent. It is argued that being transparent with emissions will also satisfy the internal stakeholders (Cordova et al., 2018; Dienes et al., 2016).
The authors argue that companies have a need to be able to communicate achievements and provide information so that the public can make an informed view of the reporting companies.
However, the incentives to be transparent are not studied in terms of Scope 3 emissions. Yet,
Scope 3 is getting more attention lately, and it is therefore of interest to see if these incentives drive companies to report Scope 3 emissions as well. For example, Castro, Lopez, and Nunez (2020) defined the term corporate sustainable reputation (CER) which they argue improves with increased transparency. CER is built out of two blocks, Corporate sustainable image (CSI) and corporate sustainable legitimacy (CSL). CSI is of concern for the market stakeholders while CSL is of concern for the non-market stakeholders perception of the company. The market stakeholders are for instance downstream- and upstream organisations, employees, and shareholders. The non-market stakeholders are communities, governments, and media.
First-mover advantages
Obtaining the first-mover advantage is, according to Cordova et al., (2018), an incentive for sustainable reporting. Even though the study is focused on Scope 1 and 2 emissions, it was conducted in countries where there were no regulations. Therefore, it reflects the same non- regulatory situation as for Scope 3 emissions (Hickmann, 2017). Thus, it is argued to be an applicable incentive also for companies working with their Scope 3 emissions. Fantozzi and Bartocci (2016) argue that investors are interested in CO2 emissions reports because they could reduce their investment risk. The authors further acknowledge that investors first choice would be companies that are in the forefront of reporting CO2 emissions, these companies could label their products proving their sustainability to a greater extent.
Cordova et al. (2018) argue that companies strive to report their CO2 emissions in pre- compliance to get first-mover advantages over their competitors. However, Hickmann (2017) further acknowledges that the strive for pre-compliance occurs when the company is operating in a country that is active regarding climate issues, meaning that this incentive will differ depending on which country the company is operating in.
Capital structure
According to Dienes et al. (2016), the capital structure of a company affects the incentives to report their sustainability. The authors identified that shareholders are also interested in their companies sustainable reporting. This is because those companies that need capital, have identified that transparency increases the possibility of investments, by lowering the risk for investors (Cordova et al., 2018). Hence during unstable times, where investments are not made to the same extent, it is believed to be of extra importance to prove that the company is a sound investment.
Ownership structure
An incentive identified by Dienes et al. (2016) is the willingness for companies to sustainably report their CSR work and emissions when foreign ownership increases. This might be because of higher global pressure from stakeholders compared to if companies act locally. However, since this study covered a global perspective, it also included countries that lacked regulations. This might not affect companies much in a more regulatory environment, such as Sweden. Yet, many large Swedish companies have global ownership structures, and sustainability demand could be driven by investors from other parts of the world. Other articles also claim that global ownership structure affects sustainable reporting positively (Ling et al., 2019). Hence, companies that have global investors have higher incentives to report their CO2 emissions.
Governmental policies, taxes, and laws
Scholars have studied the financial and regulatory aspects for reporting and reducing CO2 emissions for some time (Cerin & Karlson, 2002; King & King, 2005; Jaber, Glock & El Saadany, 2017; Hickmann, 2017). Cerin and Karlson (2002) argue that regulatory incentives are the only way forward to make companies work sustainably since there are low financial incentives in a non-regulatory market. However, it does not necessarily mean that companies should not report their emissions without any regulations in place. On the one hand, there are scholars claiming that companies without any direct economic benefit are working sustainably (Cordova et al., 2018). On the other hand, financial regulations might escalate the speed of reporting and reducing emissions (Hickmann, 2017). Jaber et al. (2013) describe that the greatest incentive for companies to reduce their CO2 emissions is when governmental institutions set regulatory taxes.
However, many of the regulations suggested are focusing on internal emissions and thus not having any effect on the indirect emissions. Still, the results from earlier reports indicate that governmental policies, taxes, and laws would have an impact on the Scope 3 boundary setting.
For instance, Hickmann (2017) argues that governmental policies, taxes, and laws are needed to force companies to follow the GHG protocol. The author further acknowledges that there is no other option than to use these regulatory measures to obtain sustainable reporting and ultimately a reduction of emissions. Hickman (2017) describes that the incentives for companies to reduce and report their CO2 emissions are often a result of carbon trading, meaning the possibility to buy and sell emission permits. However, this would only result in a status quo where one company’s CO2 improvement is offset by another company’s increased CO2 emissions.
Company size
According to Dienes et al., (2016), the size of the company is an important variable as a larger company has a greater incentive to report and reduce CO2 emissions than a smaller company.
One explanation is that larger companies have stronger financial possibilities (Schrech & Rajthel, 2018). Also, if a company is capital-orientated, it is more interested in taking action against CO2 emissions Dienes et al., (2016). Perhaps larger companies are more dependent on maintaining a solid sustainable reputation to be an attractive company.
Many large and profitable companies can make investments needed to report their emissions.
Their costs of reporting emissions are lower for larger companies compared to smaller ones Dienes, Sassen, and Fischer (2016). However, when reputation is on the line, which could affect profitability, there is always a risk of greenwashing. Greenwashing is referred to as “companies concealing corporate practices that are questionable in terms of sustainability or showcasing routine operating producers as sustainability performances” (Wu, Zhang, & Xie, 2020).
3 METHOD
This chapter presents the method for this study and is divided into five subchapters, namely, Research approach, Case selection, Data collection, Data analysis, and Quality improvement measures. The subchapter provides a description of what approach was taken, how the data was obtained, analysed, and what quality improvement measures have been taken.
3.1 Research approach
To answer the research questions, a qualitative approach was used where depth and meaning go before generalisability and numerical measurements (David & Sutton, 2011). Since there is limited research done on how incentives influence the setting of Scope 3 boundaries, an explorative inductive approach was conducted (Saunders, Lewis, & Thornhill, 2016). Having this approach enabled us to build our ideas on how the Scope 3 boundaries could be set, based on the findings.
3.2 Case selection
A single case study was carried out as a base for this report due to a lack of in-depth knowledge about the incentives to report Scope 3 emissions for the metal processing industry. A case study further enabled detailed data gathering from real-life scenarios (Zainal, 2007).
The studied company was a Swedish, well-established, major purifier of copper, lead, and zinc in Europe. Their internal supply chain contained activities from recycling to smelting ore from mines, which were being sold as pure metals to many different industries. The produced products were standardised, which meant that they would not physically differ from any competitors’
products, and were mainly sold in Europe. Yet the supply chain of the products had a global impact in terms of CO2 emissions. However, being the recycler and smelter of metals meant that the company was one of the first in the supply chain and thus distributing their products in a complex network of buyers in many industries. The studied company is considering defining its own Scope 3 boundary due to a lack of clear guidelines. Therefore, this company is considered a good fit to represent the metal processing industry in this study.
3.3 Data collection
The data collection was made in three waves. The first wave gave an initial understanding of the topic and laid a foundation for how questions got formed for the interviews. This was done through a collection of both primary data, e.g., earlier articles about the topic Scope 3 to understand the topic, interviews, and secondary data, e.g., reading the annual report of the studied company, attending three presentations of the studied project, and reading one internal
document obtained from the studied company about the project. Initially in the project, we had access to relevant personnel at least one day a week to quickly obtain the right information and contacts for further data collection. The weekly informal interviews were continued throughout the study. The formed questions were later used in the second wave interviews. The focus in the second wave was to gather data to be used as a base for the analysis. Thus, readjustments of the interview guidelines were made when new information arose needing further investigation, e.g., when obtaining new information from the interviews or the continuous meetings held each week. The third wave worked as a complementary gathering to find specific information that we lacked during the previous waves. Hence the data gathered from waves two and three were analysed the same way. It was also in the third wave where external expertise of the topic was included to further understand the incentives and discouragements, to discuss boundary settings.
Since Scope 3 emissions occur per definition outside the company, it was essential to collect data from actors throughout the supply chain. Data collected from the internal company are defined as (In) and external as (Ex) in the list of interviews made, see table 4. However, one of the respondents, I18, was not directly a part of the actual supply chain but instead had high academical knowledge about sustainability and supply chains in general. Therefore, this interview was valuable as an unbiased interview to confirm findings.
At the beginning of the project, most interviews were face-to-face (F2F) except for the respondent who preferred other communication methods or was geographically located so that it was not justifiable to meet in person. However, due to the SARS-CoV-2 virus outbreak, additional interviews were held digitally, see table 4.
Table 4 List of interviews made
No. Company representative Internal or
external data Duration Date Type Wave 1
I1 Environmental specialist In 63 10-02-2020 F2F
I2 Environmental specialist In 65 18-02-2020 F2F
Strategy manager In 65 18-02-2020 F2F
Business analyst In 65 18-02-2020 F2F
I3 Environmental specialist In 32 27-02-2020 F2F
I4 Environmental specialist In 66 27-02-2020 F2F
Business analyst. In 66 27-02-2020 F2F
Project manager Ex 66 27-02-2020 F2F
I5 Environmental specialist In 58 27-02-2020 F2F &
Digital
Environmental engineer Ex 58 27-02-2020
I6 Environmental specialist In 63 02-03-2020 F2F
Strategy manager In 63 02-03-2020 F2F
Sales/Strategy manager In 63 02-03-2020 F2F
Wave 2
I7 Strategy manager In 60 09-03-2020 F2F
I8 R&D manager In 59 10-03-2020 F2F
I9 Sales manager Ex 51 11-03-2020 F2F
I10 Environmental engineer Ex 50 12-03-2020 Digital
I11 Environmental specialist In 53 15-03-2020 Digital
I12 Chief procurement officer In 60 20-03-2020 Digital
I13 CEO In 67 06-04-2020 Digital
I14 Director of Sales In 48 14-04-2020 Digital
I15 Purchasing manager In 68 14-04-2020 Digital
I16 Manager of raw materials In 62 20-04-2020 Digital
I17 Technical Manager Ex 45 27-04-2020 Digital
Wave 3
I18 Academical environmental specialist Ex 53 27-03-2020 Digital
I19 Environmental specialist Ex 23 28-04-2020 Digital
I20 Environmental specialist In 55 04-05-2020 Digital
3.3.1 The first wave
The first wave of data collection consisted of informal interviews each week throughout the project which lasted between 23-68 minutes, we read three internal documents about the current project, attended three presentations, where the first was about the company’s internal processes and emissions, the second one was about calculation methods to use when including transportation emissions and the third about the companies Scope 3 emissions. Except for the informal meetings, six interviews were held with internal stakeholders in the company. The interviews lasted anywhere from 23 to 68 minutes. This wave occurred primarily during the first two months and aimed to clarify practical issues of the studied company. Hence, the first wave overlapped the second and third waves to obtain a deeper understanding of the topics.
The meetings and interviews in the first wave took place face to face (F2F) with exceptions if one or more of the respondents were located elsewhere. Two of the meetings we attended were for observational purposes only where internal personnel discussed the issue between each other,
for us to get an understanding of how different employees interpreted the issues regarding how to manage Scope 3 emissions, see I2 and I5 in table 4.
3.3.2 The second wave
The second wave of data was obtained through 11 out of 20 interviews from both internal and external stakeholders. The first interviews were performed on internal personal where the respondents were asked at the end of each session if they knew someone of interest for our data collection.
1) Had some knowledge about sustainable work and was recommended by a previous interviewee.
2) Knew about the project but had different responsibilities.
To gain insight into the entire spectrum of the studied company it was of importance not only to interview personnel that had an active role regarding the environmental questions, but also downstream and upstream organisations, strategy division, sales, procurements, and management, see table 4. This allowed us to get a broader understanding of various incentives and discouragements that affects the Scope 3 project. The interviews made in this wave were all held digitally except for two because we had to reconsider F2F meetings due to the global outbreak of the SARS-CoV-2 virus. Thus, a large portion of the interviews went through digital communication tools such as Zoom, Teams, and Skype. The three mentioned digital communications tools were prioritised because of the possibility for the interviewers to show their screen online and to share additional relevant information such as interesting projects and short presentations.
3.3.3 The third wave
The third wave of data collection was conducted so that we could verify the data from the previous wave and complement it with additional information, which resulted in three interviews. We chose respondents that were highly knowledgeable within the topic Scope 3.
Both within the studied case company and externally to reduce the risk of getting biased answers for the validation. Additionally, respondents that we found of interest for complementary data were also interviewed.
3.4 Data analysis
Due to the nature of the data gathering, the analysis was made in three steps for each separate wave of data collection. The first wave was exploratory, the second weave contained the bulk of the data that was used for the analysis, and the third wave was to validate the previously collected data.
3.4.1 First wave - data collection and problem identification
The very essence of the first wave was to get a basic understanding of how the studied company worked with Scope 3. This occurred at the studied companies headquarter so that we could efficiently get an understanding of how far they had come in the project. Also, to obtain some knowledge about what incentives and discouragements they were having. This was done by observing, attending meetings, conducting informal interviews, and having conversations with employees. By doing so, we were able to both understand the topic, and note incentives and discouragements talked about, such as increased price and non-standardised boundaries.
We wrote the incentives and discouragements down, discussed them with each other, and formed open questions for the interview guideline. However, it was important to not incorrectly interpret the data obtained in this wave. To tackle this issue, we had weekly dialogues with an environmental specialist from the studied company to ensure that we clarified any uncertainties.
3.4.2 The second wave - thematic analysis: problem mapping
The analysis of the second wave of data collection was done simultaneously as the interviews were conducted. The thematic analysis approach used was Braun and Clarke's (2006) six-phase method, see figure 1.
Familiarising with the data
Whenever an interview was completed we had a short discussion, between 10-15 minutes, to highlight contributions from the interviewee. We also made sure to transcribe all the interviews to get a holistic view of what was said in each interview and to pinpoint relevant quotes that were of interest. If we found something during the interview that could potentially be interesting or beneficial for our purpose and was not brought up for discussion in the first meeting, we made sure to discuss this further. Topics that were found of interest to quote were statements or beliefs about why reporting Scope 3 is important and the benefits of doing it.
Generating the initial codes
In this phase, we listened to the interview recordings and reviewed the transcriptions to generate initial codes. First, we gave an identity number for each interview that was made, from I1-I20.
Then, throughout the transcribing process, we made sure to categorise the quotes of interest that were found to have recurred in other interviews. By doing so, we could gather relevant information for the study from each of the respondents. Those quotes were later put next to each other to check which of them contained similar incentives or discouragements, resulting in
Figure 1: Phases of the thematic analysis 1. Familiarising with the data
2. Generating the initial codes
3. Searching for categories and themes
4. Reviewing the identified categories and themes
5. Defining the identified categories and themes
6. Producing the report
a wide range of codes. Even though we aimed to include only the ones that created some sort of meaning for the study, it resulted in codes being found, either irrelevant or repeating.
Therefore, as the last activity in this phase, we reviewed all the initial codes and excluded the ones which were found to be irrelevant for the study or clustered those being repeated. This finally resulted in 29 codes that were analysed further in the next phase.
Searching for categories and themes
The codes that were generated from the previous phase were at this time studied in a new way.
In this phase, the focus was to categorise similarities and differences among the codes. A chart was used to present all codes, which gave us the possibility to relatively easily move quotes and codes to either cluster them or put them under each other. This allowed us to categorise and set them in different themes when finding similarities between the codes. For example, two codes that were clustered into one were “Becoming an attractive employee” and “Becoming a preferred employee”. The codes and categories were found to be highly relevant in our study if they were unique and could not be clustered into any other code or category. These were then further developed into sub-categories and main categories.
Reviewing the identified categories and themes
When the first set of categories and themes had been created, it was time to review them. This was done by visualising the themes in a four-level thematic map, which reflected the codes, sub- categories, main categories, and themes. This made it easy to see the codes to initial categories and thematise further. The final draft resulted in three main categories for incentives and discouragements: (Incentives: Improved Corporate environmental reputation, Increased competitive advantage and Long-term financial gains) (Discouragements: High uncertainty, Immature industry/technical solution and Low influence outside of the organisational boundary). We made sure that each of the respective main categories was represented by the data that was gathered. If any unjustified main category of code was found, it was re-evaluated by investigating the codes and we read the interview again to understand the context of the quote as well. This was done to find a better way to categorise and thematise. This process was iteratively done each time any changes were made in the thematic map so that the categories and themes reflected the actual data and were relevant to answer the research questions.
Defining the identified main categories and themes
In this phase, the quotes had been put together into codes and the codes had been clustered into sub-categories. These then became main categories based on their similarities. For example,
“Improve environmental image” and “Increase corporate environmental legitimacy” became the main category “Improved corporate environmental reputation” because they are both linked to the brand of the company and the judgment of the viewer. The main categories were, at the same time, connected to the research questions so that the relevance was both highlighted and motivated.
Producing the report
The last phase of the thematic analysis was to compile and present the thematic map in the report and present samples of the data and putting it in context with the research questions. The final version of the thematic map was presented in the report, see figure 2. The final design of this map resulted in four layers. The first layer is presenting the final versions of the codes, the second layer is presenting the sub-categories, the third layer is presenting the main categories, and lastly, in the fourth layer, the themes are presented. The findings revolving around the themes are then discussed by bringing forth relevant samples from the data set in the Result and analysis chapter.
3.4.3 Third wave
The third wave of data collection was analysed with the same method used in the second wave to complement and confirm the results from the previous wave. Hence, this wave worked as a supplement of data for the second weave. However, the interviews here were conducted through open discussions rather than in a semi-structured way. The reason for this was to confirm or invalidate findings from the second wave.
3.5 Quality improvement measures
According to Lincoln and Guba (1985), the trustworthiness of a qualitative report is based on four different measurements: credibility, transferability, dependability, and confirmability.
Credibility refers to how the user data and methods of the analysis address the intended focus (Polit and Hungler, 1999). To ensure credibility, we made sure to present all quotes used in the analysis. These quotes were gathered from a wide range of stakeholders in different positions, both internally and externally. Furthermore, the methods used to analyse the findings are described, and we have had external parties perform peer reviews on the study, which was seen as beneficial (Shenton, 2004). This was done by a group of students and a supervisor, both academically and from the studied case company that guided and gave input continually during the entire project. A limitation during this study was that the project group was not able to physically meet for a majority of the time throughout this study due to the pandemic. The
communication was, therefore, not optimal, which could affect the credibility of the project negatively.
Transferability refers to the extent that the findings of the study can be transferred to other settings or groups (Polit and Hungler, 1999). Since this study only focused on Swedish companies, incentives, and other findings in reporting, Scope 3 emissions may differ from other countries, due to different sets of consumers, regulations, and culture. However, since the reduction of CO2 needs to occur sometime in the near future, firms around the world will face similar incentives in the years to come if regulations do not drive these incentives.
According to Granheim and Lundman (2004), dependability refers to how the data changes over time. To make sure that the findings were as consistent as possible, we made sure to use the same interview guide for all respondents. The interviewees contained a wide range of stakeholders, both internally and externally. Even though the interviews were conducted for two months, we got updated weekly on what progress and finding the studied case company made. By doing so, we could make sure that the data was relevant throughout the study.
Confirmability refers to how bias the data is and is defined by Tobin and Begley (2004) as the following: “Confirmability is concerned with establishing that data and interpretations of the findings are not figments of the inquirer’s imagination but are derived from the data.”. To acquire this, we made sure that all interviews were transcribed and then coded purely based on the saying from the respondents. Something that could be seen as a negative in terms of confirmability was that we had a continuous dialog with the supervisor at the studied company.
This could, arguably, result in some level of biased on how we treated the data. However, being continuously peer-reviewed upon by the opponent groups and the academic supervisor was considered to counteract this.
4 RESULT AND ANALYSIS
In this chapter, the empirical data and analysis are presented. The chapter is divided into two subchapters. The first subchapter presents the incentives and discouragements when workings towards setting a Scope 3 boundary, which answers RQ 1 and RQ 2. This sub-chapter also presents the resulting analysis on how each separate category of incentives is affecting the Scope 3 boundary. The second subchapter presents a guideline, based on these findings, on how the Scope 3 boundary could be set.
4.1 Incentives and discouragements to work towards setting a Scope 3 boundary
Figure 2 consists of 29 codes that are defined by the quotes. The codes thereafter are presented as 12 sub-categories, followed by six main categories, which later are thematised into incentives or discouragements.
Figure 2: Final version of the thematic map
4.1.1 Improved Corporate environmental reputation
Improved environmental image
One of the incentives found was to communicate already well-performed sustainable efforts.
This means that companies do not necessarily want to become more sustainable, but instead try to find a way of drawing value from well-performed activities. The incentives for improving the environmental image were commonly found in most of the interviews. This was found to be because the data that was gathered came solely from one company. This company operates in a country where environmental regulations are stricter than in many other countries in terms of Scope 1 emissions, which was also acknowledged by (Hickmann, 2017). Scope 1 emissions from buyers and suppliers are Scope 3 emissions of the reporting company, hence the incentive which was explained by I18 “...Swedish companies look good from a sustainable perspective due to the regulations we have.” Therefore, reporting emissions from these regional suppliers will most likely result in better Scope 3 numbers than competitors outside of the region.
To become an attractive employee which is also discussed by I18, “It's also about attracting competent employees. The top three requirements today is to work in sustainable companies among younger generations” were also found to be an incentive to report Scope 3 emissions.
This finding could be connected to earlier literature on transparency and legitimacy, where those incentives increase trust (Cordova et al., 2018; Dienes et al., 2016), and hence conclude that it attracts employees. It could be an incentive because of the increased environmental awareness among the younger generation who value sustainability.
Another found incentive is that trends show that stakeholders are getting more interested in sustainable questions now than before, which is also acknowledged by earlier literature (Dianes et al., 2016). However, what was found to differ was that companies are starting to map the CO2 emissions of their business partners to benchmark these with other organisations, even though it is acknowledged as not suitable, according to GHGP (2011).
Wanting to change the way society views the company is another identified incentive. The reason for this is, because the metal processing industry is often regarded to be consisting of non- environmentally friendly organisations, yet their function is crucial for the global economy (Asif
& Chen, 2016). Hence, the affected society would prefer these organisations to operate elsewhere. According to Dienes et al., (2016), the solution is to be transparent with the CO2 emissions. This correlates with our findings, which suggest the importance of obtaining a “license
to operate” from the society by working progressively with sustainable questions. Hence, increasing the incentive to report Scope 3 emissions.
Increase corporate environmental legitimacy
The findings show that the reporting company would like to influence its business partners so that they too reduce their emissions, which I19 explains with the following, “If we are in the forefront with working towards reducing Scope 3 emissions, we then can always influence business partners to reduce their emissions”. This is found to be a reason for companies to strive for a sustainable supply chain as a whole. Being able to show that a particular supply chain delivers low CO2 emission products would increase the attractiveness for other potential stakeholders as well (Fantozzi & Bartocci, 2016). I16 explained that “It is of importance, for our investors as well because trends show them being very focused on sustainability.”
The finding also shows that the reporting company wants to communicate its Scope 3 emissions to increase credibility. Earlier research has identified it to be an important voluntarily reporting incentive which our findings align with (Cordova et al., 2018).
How incentives connected to Improved corporate environmental reputation affect the Scope 3 boundary
The incentives discussed above affect both the upstream and the downstream boundary. If a company wants to increase corporate environmental legitimacy and environmental image to the fullest, then the reporting company should be transparent with all emissions. Upstream emitters provide stakeholders with information about the reporting companies suppliers' efforts, and downstream emitters provide information about the impact of sold products, even if the reporting company cannot take any responsibility for them. However, the data has to be precise.
Otherwise, it could affect their reputation negatively. For example, if companies decide to report emissions that do not match reality, they could become a subject of greenwashing (Delmas &
Curuel‐Burbano, 2011). This then speaks for excluding emissions occurring in organisations where their influence is low and thus have limited possibilities of putting the necessary pressure to obtain the correct data. Therefore, the downstream emissions are seen as unsuitable to include in the Scope 3 boundary based on this category of incentives.
