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What is Scope 4? And how to leverage it

4. April 2024

For both investors and startups, the traditional framework for assessing environmental impact has been rooted in the measurement of direct and indirect greenhouse gas (GHG) emissions, known as Scope 1,2 and 3.

However, the promising addition of Scope 4, or “avoided emissions”, is reshaping our understanding of a company’s environmental impact. Scope 4 goes beyond the emissions produced by a company’s operations and indirect emissions from its value chain (Scope 1,2,and 3) to account for the emissions saved by its products or services in the market (Scope 4).

This metric simplifies the comparison of technologies, offering a valuable framework for investors and startups concerning the evolving environmental regulations set by the EU.


The Significance of Scope 4 for Investors and Startups

In a market increasingly attentive to the nuances of climate impact, Scope 4 emissions offer a comprehensive lens through which the value of a company’s green initiatives can be evaluated and promoted.I

For investors incorporating Scope 4 emissions into sustainability assessments enables them to identify and support companies that not only mitigate their own environmental impact but also facilitate wider societal shifts towards sustainability.

For startups, articulating their Scope 4 emissions can serve as a powerful tool for differentiation and a testament to their commitment to environmental stewardship, potentially unlocking new funding opportunities and competitive advantages.

As we delve into the importance, quantification, and leverage of Scope 4 emissions, it’s clear that this metric is more than a mere addition to the sustainability glossary – it is a critical step towards a holistic understanding of a company’s role in line with global sustainability targets.


Quantifying and Leveraging Scope 4 Emissions

The quantification of Scope 4 emissions involves a complex analysis that compares the emissions associated with a company’s product or service against a higher-emitting alternative that it replaces. For instance, the use of bio-based plastic over oil-based, or heat-pumps in place of gas-boilers. It requires a robust methodology to ensure the calculations are accurate and reflect a true comparison.

For startups, particularly those in the clean tech sector, Scope 4 emissions can be a game-changer. They provide a tangible metric that quantifies the environmental benefit of their innovations. Startups can leverage this data in their pitches to investors, product development plans or simply demonstrating their market and environmental potential.

Investors too, can utilize Scope 4 emissions to assess their potential impact of their investments. By funding companies with strong Scope 4 benefits, investors can drive the development of products and services that contribute to systemic change and the reduction of global emissions.


Challenges and Opportunities

One of the key challenges with Scope 4 emissions is ensuring that the data is not double-counted and that the reductions are additional – that is, they would not have occurred without the company’s product or service. This requires a careful and conservative approach to measurement and reporting.

Despite the challenges, the opportunities are significant. For startups, Scope 4 emissions can be part of their sustainability narrative, highlighting how their products or services contribute positively to the environment. This can enhance their brand, attract customers, and provide a competitive edge.

For investors, Scope 4 provides an additional layer of due diligence, allowing them to make more informed decisions and invest in companies that not only reduce their own footprint but also enable others to do the same.

In essence, Scope 4 emissions extend the conversation from how companies are minimizing harm to how they are actively doing good. As we move towards a future where sustainability is central to business strategy, Scope 4 emissions will likely become a staple in the environmental reporting toolkit, offering a forward-looking and clearer picture of a company’s true impact on our planet’s health.

Discover how we at ClimatePoint harness the potential of Scope 4 in our services and explore how you can incorporate Scope 4 into your reporting to enhance your sustainability initiatives.

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ClimatePoint Methodology
The ClimatePoint team, writing about everything impact.