What is Carbon Risk, and how does it work?

The Carbon Risk is an easy-to-use carbon emissions hotspotting tool. It can help you quickly identify your Overall risk (Carbon) across your network to prioritize high-risk partners for engagement so that you can take the necessary steps to tackle your Scope 3 emissions.

Carbon Risk is available to requesting companies with the Carbon Action Manager in their subscription.

How is the Overall risk (Carbon) calculated?

The Carbon Action Manager considers representative indicators and factors developed by EcoVadis to calculate the overall risk related to the carbon activity of your trading partners.

See how it’s calculated on the graph below:

carbon emissions risk calculation.png

The factors taken into consideration to calculate the Overall risk (Carbon) are:

  • Inherent risk (Carbon): an estimation of carbon-related risks, comprising the GHG intensity risk (75%) and transition risk (25%).
  • GHG intensity risk: an estimation of how much a company may contribute to global GHG emissions, considering the company’s industry and country.
  • Transition risk: estimating the company’s ability to face societal and economic shifts towards a low-carbon future. Depending on the nature, speed, and focus of these changes, transition risks may pose varying financial and reputation risk levels to companies.
  • Procurement risk: an estimation based on high-level purchasing information about your own spend and criticality levels over the different partners in your network. You can provide this information voluntarily to refine the final overall risk calculation to your particular situation. If you choose not to disclose the procurement information, the overall risk will be calculated solely based on the inherent risk.

Similarly to what you may know from IQ Plus, each risk factor and the final overall risk calculation is expressed in one of the following six risk levels: Very low, Low, Medium-low, medium-high, High, Very high.

Frequently asked questions

Do my partners need to provide any data? 
No, we won’t ask your partners to provide any data to calculate the overall risk. The Carbon Action Manager calculates risk using information about your partners’ industries and countries. 

What is the source data you use to calculate the risk?
For the source data, check the references at the end of this article under the Frequently asked questions section.

Can I risk-profile all my trading partners with the Carbon Action Manager?
Yes, you can risk-profile all your partners across your supply chain.

Why do some of my trading partners have undefined risks?
EcoVadis Carbon Action Manager risk methodology covers a comprehensive set of countries and industry sectors. However, it does not assign risk levels to a very limited number of industry sectors, such as military organizations, religious organizations, NGOs or membership organizations. For such industry sectors, “undefined risk” will be displayed. 

Does this methodology assess physical risks of climate change?
No, for now, the Overall risk (Carbon) does not assess physical risks of climate change. 

Why does the industry have a higher weight than the country?
Because industry is not dependent on location and provides a clearer outlook on activities that contribute to climate change, in most cases, economic activity is more decisive than location regarding carbon emissions.

Why does the GHG intensity have a higher weight than the transition risk?
Supply chain decarbonization is currently a common goal of most leading companies. Therefore, we have designed our methodology to clearly focus on supporting supply chain decarbonization by concentrating more on GHG emissions proxies. However, we have decided to factor in long-term supply chain resilience with the transition risk to provide a more holistic approach to carbon-related risks.    

References