How Etsy handles its Scope 3 emissions

Scope 3 emissions can prove challenging for companies to track and report on. But Etsy—an online marketplace hosting 5.9 million active sellers, each of whom choose their own shippers—has reported Scope 3 emissions on its Form 10-Ks since 2019. What’s more, it offsets 100% of its greenhouse gas (GHG) emissions from shipping and packaging, and is working towards reducing those emissions, according to the company.

Why Scope 3 emissions matter. Scope 3 emissions are those released by organizations in a company’s value chain, but not by the company itself. They’re difficult to track, Cynthia Cummis, sustainability and climate expert leader at Deloitte, told CFO Brew, because “they’re not within a company’s ownership or control. They’re emissions that are happening both upstream and downstream from a company’s operations.”

Most companies still don’t report their Scope 3 emissions. Only 24% of the companies in Morningstar’s global database of more than 16,000 corporations reported their Scope 3 emissions in fiscal year 2021.

But it’s increasingly important for companies to pay attention to them. The SEC’s proposed climate rule would mandate that companies that meet certain parameters disclose Scope 3 emissions, and a bill proposed by the California state senate would require all companies with revenues over $1 billion that do business in the state to report their Scope 1, 2, and 3 emissions.

Scope 3 emissions are also important to track because they form an outsized piece of the climate-change puzzle. According to the CDP, a nonprofit organization that oversees a global disclosure system for reporting sustainability data, 75% of a typical company’s emissions are Scope 3. In some sectors, such as financial services, Scope 3 emissions can comprise nearly 100% of a company’s GHG output.

Scope 3 presents reporting challenges. 99% of Etsy’s emissions are Scope 3, Etsy CFO Rachel Glaser told CFO Brew in an email, with emissions from shipping comprising 64% of that category.

As a “two-sided marketplace,” she said, Etsy is “several steps removed from the data for Scope 3 measurement, because [its] sellers run their own businesses and ship directly to buyers.”

The company must “gather data from many different internal and external sources” including suppliers, courier partners, and Etsy employees, she said, and the process “entails collaboration across many teams, and requires us to digest data that comes to us in many different formats.”

Data from suppliers “needs to meet a very high standard,” Glaser said, as Etsy reports third-party assured emissions in its 10-Ks. The company’s “dedicated Strategic Sourcing Team, with support from [its] Sustainability Team” chooses suppliers that are aligned with its goals.

Etsy also uses data such as the distance between shippers and buyers and the weight of packages to help estimate its emissions. The data is assured by accounting giant PwC.

Using carbon offsets responsibly. As a step towards becoming carbon-neutral, Etsy chose to purchase carbon offsets from provider 3Degrees. Carbon offsets are a means by which companies can balance out the estimated monetary cost of the emissions they produce by purchasing the rights to activities that reduce GHG emissions.

Etsy, for instance, funded projects that conserve hardwood forests, develop lightweight auto parts, and produce wind and solar power. In 2022, the company estimated its emissions from transportation at 339,395 tons of carbon, and offset 532,009 tons.

Etsy also noted that it’s using offsets as part of a broader sustainability strategy, the ultimate goal of which is to reduce the amount of emissions it’s responsible for, not just balance them out. It aims to cut Scope 3 emissions by 52% per dollar of gross profit by 2030.

Working with suppliers to cut emissions. Though companies don’t directly control their Scope 3 emissions, they can help suppliers to cut theirs, said Deloitte’s Cummis. For instance, she said, they can educate suppliers, which are often smaller companies with less ESG experience, on topics like “greenhouse gas accounting or target setting,” or share best practices on cutting Scope 1 and 2 emissions. They can also use procurement to change suppliers’ behavior, she said—for instance, by requiring that they meet science-based targets.

Companies can also influence supplier behavior by choosing to do business with vendors whose values align with theirs. For instance, 81% of Etsy’s supply chain spending in 2020 went to suppliers that had GHG reduction goals.

The company also helps suppliers improve the quality of their data, said Glaser, “especially as regulations around emissions data disclosure increase.”

“Ultimately,” she said, “this benefits Etsy and our partners.”