Why spend-based calculation penalises companies that invest in decarbonising

Many Scope 3 inventories start from invoices: they are what is at hand. You take the amount of each purchase, multiply it by a factor in kgCO₂e per euro and add it up. It is quick, but it has a side effect that almost nobody sees until they look at a specific case.

How does spend penalise companies that decarbonise?

A spend-based factor assumes price is a good proxy for emissions. That is only true on average and in aggregate. For a specific product, price depends on brand, margin, exchange rate, inflation or volume, and also on the supplier’s investments.

Think of two suppliers of the same part. One has switched to a process that uses less energy and its price is slightly higher, because it invested in the improvement. With a spend-based factor, that supplier shows more emissions: it charges more. With a physical factor, the part weighs the same, uses the same material, and the calculation captures the energy actually used, so the improvement shows.

Is it a small distortion?

It depends on the case, which is why we should not generalise. In an egg pilot, the spend-based method inflated the footprint nine times compared with the physical calculation. That is the figure for one specific case, not a general rule: for another product the difference may be smaller, or go the other way. What is general is the cause. Spend measures money, and money is not a physical property of the product.

What changes with a physical factor?

A physical factor starts from what the product is: material, weight, process (including its energy) and transport. That has three practical consequences:

• It does not depend on price. Two identical products have the same footprint even if they cost differently.
• It reflects improvements. A change of material, process or energy appears in the result.
• It can be explained. Each value traces back to a node of the calculation, so a customer or auditor can follow it.

For the full comparison, see physical vs spend-based factors.

When is spend still fine?

As a first approximation. If you only have invoices and need to know where to start, spend gives an order of magnitude and helps you prioritise which purchasing categories to look at first. A sensible rule is to use it to decide where to dig deeper and leave the physical calculation to decide which products or suppliers to choose.

How do you start moving to a physical calculation?

1. Pick the purchases that weigh most or the ones your customers ask about.
2. Gather the technical documentation: drawings, data sheets, bill of materials.
3. Calculate with physical factors and, where the documentation is unclear, apply the most conservative factor.
4. Improve with supplier primary data when you want to reflect real process or energy changes.

For purchasing, see how it applies to Scope 3 for purchased goods.

How do you know whether your inventory depends on spend?

• Most values are calculated as amount times a kgCO₂e-per-euro factor.
• If a supplier raises its price, the footprint of its product rises with it.
• You cannot explain a value without pointing to a sector average.
• A supplier that has invested in a cleaner process looks the same as before, or worse.
• Nobody can point to the material, process and energy behind each figure.

If you recognise two or more of these symptoms, your inventory is describing money, not product.

What changes in purchasing decisions?

With a spend factor, every comparison between suppliers is contaminated by price: the cheapest looks the cleanest, and the one investing in cutting emissions looks the dirtiest. That leads to decisions that work against the very goal of the inventory. With a physical factor, the comparison is made on what matters: material, weight, process (including its energy) and transport.

How do you move from spend to a physical calculation without stopping the inventory?

1. Use spend to prioritiseRank categories by weight and choose where to start.
2. Pick the key productsThe ones that weigh the most or that your customers ask for.
3. Calculate with physical factorsFrom drawings, data sheets and bill of materials.
4. Improve with primary dataAsk key suppliers for their energy, origin and transport.

How does Xain do it?

Xain calculates with physical life-cycle factors from the product technical documentation, relying on recognised databases such as Ecoinvent, DEFRA/BEIS, worldsteel, AGRIBALYSE (ADEME) or ICE and on its own physical library. A procurement Scope 3 takes less than 10 minutes of your work and results arrive in 1 to 2 weeks. If you want to see how your inventory would change, tell us about it.