Leveraging Technology for ESG Compliance: How Maritime Companies Can Measure, Manage, and Report Scope 3 Emissions

With the EU's commitment to climate neutrality by 2050, the challenge of reducing emissions from maritime transport is more pressing than ever. 

The Complexity of ESG Goals

Achieving ESG (Environmental, Social, and Governance) goals at an enterprise level is a complex process that asks for a systematic, robust approach. It requires extensive preparation, communication, and coordination across value chains and partners. This complexity is compounded by stringent regulations and the intricate nature of maritime operations. 

Technology can support the maritime industry to simplify this process, providing ship owners with measures to manage their Scope 3 emissions effectively.

The Urgency of Addressing Scope 3 Emissions in the Maritime Industry

Maritime transport, while energy-efficient, is a growing source of greenhouse gas emissions. Without adequate measures, emissions from shipping could grow by up to 130% of 2008 levels by 2050, potentially representing 10% of global emissions by that time and will compromise the objectives of the Paris Agreement, which aims to limit global warming to well below 2°C.

The EU has set a strategy to reduce GHG emissions from shipping, including monitoring, reporting, and verification of CO2 emissions from large ships, setting reduction targets, and implementing further measures in the medium to long term.

The Challenge of Managing Scope 3 Emissions

Why Scope 3 Emissions are Difficult to Measure for Maritime Companies

Scope 3 emissions are the greenhouse gases emitted by the reporting company’s suppliers, customers, and other stakeholders in the value chain and are particularly challenging to measure and manage. These GHGs are not emitted by the reporting company itself but by companies upstream and downstream in the same value chain as a consequence of the activities of the reporting company. 

The purpose of calculating and disclosing Scope 3 emissions is to get better facts on where GHG emissions occur in the intertwined value chains and identify the hotspots where companies can focus their efforts to reduce their overall GHG footprint.

With mandatory disclosure of Scope 3 emissions set to begin in 2025, companies must have access to detailed supply chain information and data to create science-based targets. This is especially difficult for ship owners, given the complex and dynamic nature of maritime operations.

Many Ship Owners Lack the Tools and Data Required to Meet Regulators’ and Financiers’ Expectations

It’s not only regulators that are putting pressure on shipping companies to disclose Scope 3 emissions. Also financial institutions and active shareholders are asking questions that are hard to answer without diligent preparation. 

These questions come from three angles:

• Long-term capital providers: Expecting more carbon taxes and punitive fees in the next decade and wanting to understand the risk exposure in carbon-intensive companies’ profit and loss statements (PnL).
• Capital cost advantages: “Sustainability-linked loans” that give companies that can prove emission reduction a rebate on interest are attractive to investors.
• Financial institutions: Forced to disclose Scope 3 emissions of their investment on an accelerated schedule and expected to pass on the burden of this accounting to their portfolio companies.

To answer the questions of capital markets today and regulators tomorrow, companies must look beyond their own operations and scrutinize the GHG emissions of their suppliers and customers. 

However, the shipping industry has over the years developed into a structurally complex value chain, more easily conceptualized as a “value web” due to its two-way dependence nature making measuring, managing, and reporting Scope 3 emissions particularly challenging.

How to solve Scope 3 emissions Management for Major Shipping Companies

Small ship owners with a high degree of in-house ship management are positioned to handle the coming Scope 3 emissions disclosure requirements with standard IS/IT tools or generic accounting solutions. 

However, the operating model and interlinked value chain of large ship owners make general industry solutions for Scope 3 management a poor fit. Therefore, Arundo has developed CarbonPath, a software-as-a-service that makes the unique aspects of the shipping value chain a first-class citizen, rather than a bolt-on afterthought.

When designing CarbonPath, we’ve put three key aspects of the shipping industry at the center, and built the user experience with those top-of-mind:

• Streamlined collaboration: Ship owners, ship managers, and suppliers can all work together in one application, reducing the use of emails and standalone spreadsheets for exchanging information.
• Leasing/chartering management: The built-in fixture schedule provides an intuitive interface for defining the leasing agreements on a per-vessel basis, which in turn ensures that emissions are allocated to the correct categories as fixtures expire and new leasing arrangements enter into force.
• Vessel location awareness: By keeping track of the location of vessels, CarbonPath can automate the selection of emission factors to match the region of where the vessel is operating and improve the precision of the emission estimate.

To these shipping-specific features, we’ve added the features needed for enterprise-scale Scope 3 carbon accounting, such as:

• Management dashboards and reports: Graphical dashboards allow the compliance team and the company leadership to create self-service reports, shortening the time from insight to action and reducing human labor.
• Calculation method compliance: Support for all calculation methods endorsed by the GHG Protocol (spend-based, average-data, and supplier-specific), with integrations to leading emission factor providers, out-of-the-box support for data quality assessment, and tools for validating supplier-provided emission factors.
• Seamless integrations: Extensive support for data import and export makes it easy to both use data from other systems in CarbonPath, and to integrate information created in CarbonPath in third-party applications and business intelligence platforms.
• Automation: A highly flexible “rules engine” allows CarbonPath users to set up rules that automatically categorize and calculate the Scope 3 emissions of activities that occur in the company’s value chain.
• Traceability: Extensive and configurable change logging, providing the traceability needed for internal compliance controls and external auditing of carbon accounts.

These features and tools have been integrated as a cloud-native software-as-a-service with high priority given to creating a great user experience, and with zero compromises in assuring data security and integrity.

The Road Ahead for Scope 3 Emissions Reporting in Shipping

As the maritime industry faces increasing regulatory pressure and investor scrutiny, the shipping industry needs a timely and effective solution. By managing Scope 3 emissions through leveraging Scope 3 emission software for Maritime, ship owners can not only comply with upcoming regulations but also gain a competitive edge.

Conclusion

Arundo CarbonPath aims to be the software solution that best fits the needs of major ship owners and companies with a similar operating model. The software product was released in 2024 to its first licensed customers, who are now well on track to meet the reporting requirements under the European Union CSRD (Corporate Sustainability Reporting Directive) that enter into force in 2025.

We believe that companies that are ahead of the curve on Scope 3 management will see outsized returns from lower cost of compliance, improved supplier relationships, lower cost of capital, and a stronger brand in the eyes of the general public. 

Contact us today to see how CarbonPath can make a difference for your operations and compliance goals!

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