Mastercard Incorporated (MA) Earnings Call Transcript & Summary

Hello, and thank you for joining today's webinar part of S&P Global Market Intelligence's Demystifying sustainability series. Today, we're talking about Scope 3 emissions. A couple of housekeeping points before we start. We recognize this topic is of great interest to everyone on the call. So thank you very much for joining today but we want it to be interactive. So please feel free to submit questions throughout the presentation or during the Q&A session at the end of the broadcast. We'll do the best we can to capture all the questions and follow up individually if there's some questions that couldn't be answered in the session today. And just let us know if you have any additional questions and check out the cool widgets at the bottom of your screen as well. We want to highlight specifically the related content widget, which includes links to our thought leadership resources. You'll find our webinar replay portal to access the session and other webinars on demand. There'll be a survey, so please take time to fill that out. It lets us know how we're doing and what we can do better. And this webinar provides close captioning in English, please click on the CC icon on the media player, just below to activate it. And last but not least, to schedule a private meeting with any one of our sustainability product specialists chat with us by clicking on the icon at the bottom of your screen. And before I begin, please note that activities of S&P Global Market Intelligence are independent and separate from S&P Global Ratings. S&P Global Ratings maintains a separation of analytical and commercial activities. With that, thank you very much. Let's get started. I am your moderator today. I am Brian Werner. I lead our engagements with corporations and financial institutions for our suite of sustainability solutions in S&P Global Market Intelligence. Presenting with me today is one of my colleagues, Vandana Gaur, Senior Manager, Corporate Analytics at S&P Global Sustainable 1. I'm also joined by representatives from 2 organizations that we've worked with over the years, First, Sharon Vidal, Senior Director, Head of Corporate Social Responsibility at Illumina; and Sia Xeros, Vice President of Environmental Sustainability at Mastercard. When they get to their sections, I will ask them to introduce themselves in even more detail and share their stories. I'm going to pass it over to Vandana in just a moment, so she can take you through, we'll call it, a Scope 3 calculation primer. But before I do, I just wanted to highlight a few things that we're hearing as it relates to Scope 3. Many of you in the audience, I assume we're out in not quite warm or really sunny Phoenix, Arizona, last week at the Annual GreenBiz Sustainability Conference. And Scope 3 was a huge topic connecting to a lot of the other topics that were discussed like pending SEC rules. And so today's webinar, we hope is a nice follow-up to many of those discussions that were out there in the desert. But even if you weren't out there, hopefully, you'll learn a lot about what's going on in the Scope 3 calculation space. Hear from 2 leaders in Scope 3 at different stages of the Scope 3 journey, if you will. But what we wanted to do is we wanted to just see if we could get some insights from the audience, maybe help us frame the discussion a little bit. So we've put together a short poll that seeks to understand where you are in your journey. And as you'll see when I click to the next slide, we really want to know if you're truly starting out or if this is your first encounter ever with Scope 3, and you don't even know what it is, all the way toward those folks in the audience who are really advanced. So the poll is now active on the screen. And if you want to take a moment, submit your response, I'll give it a few seconds, and then I'll post the results up on the screen. [Voting]

Let's keep it about 20 more seconds. I see some answers coming in. There are 10 more seconds. Answers are still coming in. I think you'll be interested when you see these. I'm peeking at the answers right now. All right. Last chance 5, 4, 3, 2, 1. Okay. So not surprisingly, there are some people on the call who Scope 3 is brand new to them. And so we hope that you'll especially appreciate the section of Vandana is about to walk through where she's really going to give a primer on Scope 3 calculations. And then the largest group, more than half are familiar with Scope 3 perhaps overwhelmed by what to do with Scope 3, but know that they need to tackle it because perhaps they're getting questions from investors, from customers, from employees from all of the above and again, hopefully, hearing then in this primer as well as the stories that Sharon and Sia are going to share will really help you frame, okay, this is how I can do it. And then we have folks in the audience that are well along their way. They've done a calculation and they're not quite sure what to do next. And then we have some folks who are probably been doing this for many, many years, might even be engaging with their suppliers, might have procurement at the table. So it's an excellent mix of folks who are in the audience. So with that, I'm going to pass it off to one of my favorite colleagues, who is involved in a lot of our Scope 3 work and Vandana, if you want to introduce yourself a little bit further and then walk us through how we're involved in Scope 3 and how you see companies working with -- through all the information and coming up with a Scope 3 footprint and then even going from there.

Thank you, Brian. I'm Vandana Gaur, I'm the Global Head for Corporate GHG and target setting product at SP Global Sustainable 1. Today, I'm going to talk about Scope 3 emissions. But before that, we receive many interesting pre-submitted questions from the audience. And this really indicates that the audience is well informed about the subject. So yes, for this benefit of the audience, I will start with what does Scope 3 emission is. To explain this, let us take an example of a manufacturing company, which manufactures air conditioners. And they have only one site where they manufacture these air conditioners. So all the fuels which go into the equipment which are used to manufacture that air conditioning, emissions from those fuels are not Scope 1 emissions. If electricity is used to run those equipment, which are manufacturing the air conditioner, emission from that is Scope 2 emissions. Now coming to the air conditioner part. Manufacturing an air conditioner requires multiple inputs like fans, metals, plastics, switch, nut, screws and all that. So manufacturing those companies, this is your upstream Scope 3 emissions. Now once the air conditioner is manufactured, it's ready for shipping. Emissions from shipping that air conditioner to your end customer use of the air conditioner at your customers' facility. And once that air conditioner has lived it shelf life, how it is disposed or discarded? Either it goes to landfill or it is recycled. All this is your downstream Scope 3 emissions. So yes, I would like to take a pause over here and see before moving on to the next slide. So now we know what are Scope 3 emissions. I'm pretty sure that you all might have a question in your mind that okay, fine. We know what is Scope 3, but why it matters? Why we need to measure this Scope 3 emissions and why now? So this slide will explain why it matters to corporates and financial institutions. As you can see from this graph, Scope 3 emission, it is the largest contributor to our company's overall emissions across all sectors. We have mandatory reporting requirements. There are 34 stock exchanges across the group, which has made ESG reporting mandatory for listing. We have SEC guidelines support SEC guidelines which talks about disclosing Scope 1, 2 and 3 emissions. We have TCFD recommendations, reporting recommendation, which again talks about disclosing Scope 1, 2 and 3 emission. Then we have seen that they are around -- as of today, we have around 70 carbon tax regimes, which seems that day by day, the regulations are getting stringent and companies are asked to disclose their Scope 1, 2 and 3 emissions. And measuring the Scope 3 emission, it will help a company to identify the hot spots, which in turn will help in resource and energy efficiency, which you again [indiscernible]. Definitely, there is this green consumerism involved. So customers nowadays they want to engage or associate themselves with the company putting good for the environment and society. Estimating emissions help a company better access to the capital because even investor universe is looking at Scope 1, 2 and 3 emission of your portfolio before making a decision or even the investor community is going for greener portfolio. There is a significant [indiscernible] to the Scope 3 emission in the disclosures like CDP. You get additional points for disclosing your Scope 3 emissions. Even for target setting Scope 3 emission is needed for many sectors and it is also one of the criteria for setting a target. So yes, now we know what is Scope 3 emission, why it matters. In the next slide, I am going to explain how to compute the Scope 3 emissions. To talk about the various approaches of computing the Scope 3 emission, I have taken 2 examples, one from our upstream Scope 3 category. So the most reported and the most applicable category across sector is business travel because all -- whether it is a service sector, whether it is a manufacturing sector, business travel is something which is -- which everyone can associate with. So I'm going to walk you through this and the steps which are involved or the multiple approaches to emission of business travel. First of all, what are the emissions from business travel? So suppose a employee is commuting from office to another destination for business-related activities. GHG emission associated with traveling plus the hotel stay is your emission from business travel. Please note that this does not include your emission from coming to office for work, day-to-day emission for coming to office for work or going back. Now let us talk about the various methods. So GHG protocol has defined 3 various methods to estimate this particular emission. I will talk about the 3 approaches based on the equation. So first is the fuel based method, which is the most accurate method to calculate the emission. The type of data which we need is fuel type and fuel quantity, that you can get from your current vendors or you can reach out to them if they don't have the data, you can reach out to them and ask that, okay, fine. Going further, you need to please collect the invoices and what is the quantity of fuel which has been refueled in your vehicles. Second method is the distance based method for which you need the data related to the mode of transport, which is been [indiscernible] apply appropriate emission factors to get this particular emission from this method. Last but not least, is the spend-based method. This -- in this method, you don't need much of a data. You just need to know what is the most common features on their transport. The thing is that this particular method, the spend-based method is for the companies who are just beginning to estimate their Scope 3 emission. They are first time reporting the emissions. So it's good for organization because in the lack of -- due to the -- if the gap in the data, this would give you approximate emission for your company, but in terms of accuracy, we would like to have fuel-based method first then distance based and then the spend-based. Next, I will take up a downstream category because estimating emission from a downstream category is a bit complicated due to the challenges. I'm taking an example of use of [indiscernible]. We have an elevator manufacturing company. The type of data which we need to estimate the emissions from the use of this particular product, we need to know the total lifetime use of that product. So suppose this elevator manufacturing company has installed elevators into the malls and office, we need to know information about how during the entire day, what is the running time. So it may be 24/7. Every hour, it may be making 5 to 10 trips. And then what is the lifetime? Maybe it gets discarded after every 20 years, so we need to know these information and then we need to know what is the quantity of the -- what are the number of elevators which has been sold in that particular reporting year. We need to know the electricity consumption per use. This information, it seems overwhelming, but it's not because electricity consumption data, it comes from the product specifications. So whenever a manufacturing company makes a product, it has its own product specification. Then -- it all -- company also knows when to discard or dispose of that product, so they know the information related to lifetime. And we get information related to the use like how many runs elevator is making? It comes from [indiscernible] or you can directly reach out to the hotel owners or mall owners or the offices to know the frequency. So by capturing these information, we get to understand and estimate the Scope 3 emissions for use of sole product. So I mean, this is how we compute. There are 15 categories for Scope 3. I mean each category is there in a different way, but this is like a high-level package, which is applied to all the categories in general. And with this, I would again pass it over to Brian.

Thank you, Vandana. If we can -- let's keep that slide up just for a moment. What I love about this approach is laying out all the different ways that Scope 3 can be calculated. But they are all acceptable solutions. And Vandana really highlighted something that's really important, and that's looking at the spend-based approach. That's where most companies start out. I think that's where even our speakers have started out in their journey. And I imagine that's where the nearly 56% to 60% of respondents who took our poll earlier, are likely going to head when they move past, I know Scope 3 is important. I need help in starting. They're probably going to begin with the spend-base and then over time, using more granular data to get even more accurate results. One of the questions that was asked ahead of time in the webinar is which of these solutions are going to align with the SEC spending rule or other standards or rules that are out there and everything that we're presenting today is likely going to be fine. It's understood that there's a lot of work that needs to be done, but we don't want to make this -- governments and others don't want to make this so onerous that companies can even just start out. And again, spend base is where many of them start out. Before I pass it off to Sharon, I want to push one more slide that Vandana presented back on the screen. And the image on the right with the clouds and the arrows, that's not our image, it's from the greenhouse gas protocol -- Scope 3 greenhouse gas protocol. And it's an image that I love. It's one of these classic images that practitioners and sustainability have been referencing for years. I have one printed out at my desk and I reference it all the time, and it just tells a simple story if you're wondering what is Scope 3, how does it relate to Scope 1 and 2? Refer back to this image. It's, again, a classic image in the sustainability space. And I encourage you all to have it handy at your desk. So we can take down the slides now because I'm going to pass it off to Sharon from Illumina to talk about your story with Scope 3 and where you began. And if you want to also provide a little bit more of an introduction yourself, that would be great.

Sure. Thanks for having me. I'm Sharon Vidal and I lead Illumina's global corporate social responsibility program. And what that includes for us is all of our ESG reporting, our sustainability efforts. It also includes our philanthropy and volunteering. And for those of you that might not recognize Illumina's name as much as Sia's company Mastercard, Illumina is in the field of genomics, which is an intersection of biology, technology and precision health care. So applications of our technology include sequencing the DNA of COVID, diagnosing and treating cancer of rare disease, and it's even used to protect biodiversity, combat climate change and even support food security. So we have about 10,000 employees globally and a revenue at $4.5 billion. For us, our ESG focus areas are really connected to themes around access and equity to genomics, empowering our community, integrating sustainability, nurturing our people and then operating responsibly. And when we launched our first official sustainability targets in 2020, we started off with just Scope 1 and 2 and while we base them off of the science-based target initiative methodology, we couldn't officially go for verification at the time because we didn't have any data on Scope 3 or any idea how to even start. But we knew it was going to be part of our road map, and we knew that that piece was going to account for a big percentage. So we are currently working through our third round of Scope 3 assessments. We are about to share only for the second time the details of that in our next CSR report because of the timing of when we completed it. So this is going to be really our first true progress update. So I would say we're still early in the journey for Scope 3, but what we found is that our Scope 1 and 2 accounted only for 13% of our footprint. So Scope 3 was 87%, and our most material Scope 3 categories were purchased goods and services, transportation, logistics, capital goods and then investments, employee community and business travel followed. Basically, the big stuff was what we buy and how we move stuff around the world. And while we are still in early stages of our journey, we found that the Scope 3 data was really helpful to direct actions and provide visibility on the next -- excuse me, on the next chapter of our sustainability efforts. So we now have science-based target verification for Scope 1, 2, 3 as well as verification on our net zero targets by 2050. And we know we won't get there without addressing our Scope 3, and we couldn't have done that without access to this data and the guide helping us like S&P through the process.

Great. Thank you, Sharon, for sharing your journey on Scope 3 at Illumina. I'd like to ask the same of Sia to share your journey with Scope 3 at Mastercard. And if you want to introduce yourself a little bit more than I did, that would be great as well.

Absolutely. Thanks, Brian. Thanks, everyone, for having me. So my name is Sia Xeros. I am currently the Vice President for our Climate and Environmental Strategy here at Mastercard. My kind of team's role is all of our greenhouse gas counting, kind of the mission in addition to setting the strategy for our Scope 3 reductions along with is how we're going to achieve net zero and everything else. Mastercard was actually the first company in the payments industry to set a science-based target along our Scope 1, 2 and 3 in 2017, 2018. We also had a -- it was one of the first in our industry to actually announce a net zero target by 2050. We've actually now actually amended that. So our new updated target is a net zero by 2040. We do have SBT approval for our short-term goals. We are aligning our net zero goal to the SBTi initiative as well. So Mastercard is actually a technology company. I think that's one of the best ways to start out the conversation is we're a technology company. We provide the technology to conduct payments over a variety of things as well as other services in that space and sector. So the majority of Mastercard's Greenhouse gas emissions actually do sit within our Scope 3. And actually, the majority of those 80% -- depending on the year, somewhere between 80% and 90%, actually sit within our supply chain. So we include supply chain as all of our capital goods, transportation and logistics, kind of that holistic viewpoint. So our Scope 1 and 2 account primarily for offices as well as data centers and the majority of everything else falls in our Scope 3. We took first of a step into Scope 3, I think important to know is, as Brian was saying, everything was spend based when we did it because we needed to take our first step to understanding the -- I don't want to say the extensive, we needed to know where we were sitting kind of get any information out there because knowing something is better than knowing nothing. Having estimates and using spend-based analysis, having some data and some place to start action was really important. We've now kind of adjusted where we are in our Scope 3 calculation from just spend based to include a variety of different ways that we engage in active our suppliers. As when we refer to start of this journey, it was all spend based. Everything was based on kind of spend. And as we're adjusting our methodology, as we're working with suppliers, our goal is to help our suppliers start their journey, to start their kind of understanding of their Scope 1, 2 and 3. We have a really thorough kind of engagement. Our goal is to actually have our suppliers to respond to us, provide their Scope 1, 2 and 3 emissions, work on their allocation. That's the ultimate goal and have them set their own science-based targets and their own reductions. But what we're doing is we're really trying to both partner with our suppliers in addition to kind of bring them along on the journey. So the more we work with them, the more we kind of help them along their journey and the more accurate data that we're getting, so starting to move just from spend analysis to true allocation. The same way with business travel. So starting to actually work with partners to get really good data. But you don't know where to start unless you take that step back and really understand your Scope 3 emissions and where to start targeting because places -- it gives you a good directional area to start focusing your engagement and practice. So we have a -- from 2016, which is our base year, we've reduced our Scope 3 emissions by close to 40%. We're going to continue down this progression. And our goal, of course, is to have net zero emission by 2040. We can't do that with all -- without the engagement of all our partners and our suppliers. We -- yes, that's where we are and happy to kind of answer any questions and love to bring people along the journey because we can't do this alone. It's going to take everybody to get along. So if we can -- the more information and the more public reporting and the more companies are looking to calculate the Scope 1, 2 and 3, set science-based targets, the better all of the data can be as we can all kind of better understand our Scope 3 together.

Thank you, Sia. Thank you, Sharon. Thank you, Vandana for your sections, your introductions, telling your stories. And Sia, I think you just really hit on something that's -- to me, it's profound, but even though it's so simple, and that's that we can't do this alone. Your Scope 3 emissions are somebody else's Scope 1 and 2 emissions. And your suppliers are also probably somebody else's suppliers. So there's a huge community of working together to try to achieve these lofty goals that we have to reduce Scope 3 emissions. And that's part of the reason we wanted to bring this group together today is to say, there are resources out there. There are stories like those from Illumina, from Mastercard and from other clients that we've worked with over the years, and we want to ensure that we're sharing those stories.

If I can look at some of the questions that have come in and some that we had discussed prior as we were preparing for this webinar. Sia I want to direct the first question to you. You probably hinted at this a little bit or touched on it a little bit in your overview, but just basics, knowing that maybe 60% of the folks who are on this call based on our poll result or unscientific poll result, but let's just say a lot of the people on this call are really early in their Scope 3 journey. They have a lot to consider whether it's Scope 3 or just larger ESG considerations or sustainability projects, limited budget and resources might not even have somebody with sustainability in their title. Where would you suggest that they start?

Well, one thing is sustainability doesn't just sit within one group in an organization. That's actually one great thing about Scope 1, 2 and 3 is the fact that it probably hits everyone from the people who are in charge of your business travel to the facility managers running your building to your leasing, your real estate team. So it kind of touches everybody. So the first step is to make some progress, right, to get something on paper. There are a lot of like a, there's a lot of organizations out there who can help you [indiscernible] . But b, there's also a lot of free tools as well. So just my first step is get something. That's always the biggest thing because if you don't have anything, you can't make adjustments. So you don't know what you need to be focusing on. So start somewhere, look at yourself 1 and 2, start looking at spend-based methodology, start really understanding or even your business, that's something that someone about sustainability to come up. Where does our footprint actually end? Where do -- what do we -- what evolved our value chain to start understanding what you can bring in. For example, there are some things within Scope 3 categories that are most likely not going to be applicable to your organization. You can just start -- I want to say like crossing things up, right? We don't have any I'll give you an example. MasterCard is not a landlord. You do not lease any of our buildings out. So cut that, right off that list. So just start somewhere and start getting that in there. And estimations are okay. Like we -- that's kind of the thing I always hear that a lot of people are like, but it's not going to be perfect. And the answer is, estimations are okay. We're going to have to use estimations even with as long as you know the estimations you're using and your aware of those and kind of even the transparency of those, that's okay. That's kind of the biggest thing is really just start putting things on paper and start crossing it out and estimations will also show you what you should be collecting, right? As you go through the process of starting your Scope 3 journey, you're just like, "Oh, I actually am not" -- I think there was a great comment about like travel. "I'm not actually getting any of my travel data. We just kind of pay for it. So how can I start developing that." So looking even where your data gaps are allow you for improving in your data management strategy.

One of the things that surprised me when I first started to get into Scope 3 many years ago is I think there's just a natural inclination that my largest amount of spend must be basically the same in terms of the greenhouse gas footprint so -- with Scope 3. So I spend as much and that my biggest vendor must also be my largest contributor to Scope 3. And I quickly realized that almost never happens in the projects we manage when we're looking at spend, the spend-based estimation model. In fact, it's often very small amounts of spend that have an outsized influence on the Scope 3 in terms of the percent that contributes to Scope 3. So Sharon, I want to direct the question to you. That's what surprised me when I first started working in Scope 3. When you first began your journey in Scope 3, what are some of the surprises that you found?

Yes, definitely. I think for us, one finding that we expected was to see the impact of our cold chain. We have some products that ship frozen, which means lots of air transport, extra packaging, dry ice and gel packs. And that definitely showed up with the data meeting our expectations. In terms of surprises, I think there were 2 really interesting findings from our first Scope 3 assessment. The first was how high investments actually showed up as a percent of our Scope 3. We found that the emissions for our investments for that first baseline year was 10% of the impact in our value chain. And it was one of the top 5 areas contributing to that inventory. So following that data, we modified our investment policy, and it eliminated investing in energy and utility sector bonds unless it was associated as a GSS, like a green, social or sustainability bond. And we worked with the finance and treasury team to do some analysis and show we could adjust that approach without any expected impact to our returns. So it helped green our investments without financial impact. So that was one area we didn't necessarily expect to see. The second was actually a bit of a positive find. Within our supply chain, like you said, Brian, we did expect to see correlation with spend at our suppliers especially suppliers that were helping to support the massive amounts of data that's being generated through genomic studies. But what we found was a lot of those suppliers had already invested in renewable energy solutions. So their own Scope 2 improvements were translating to lower emissions on our Scope 3 for those vendors. So I mean it sounds intuitive, but it was great to see kind of the validation of what this is all about, that collectively, our supply chains are connected and that a positive impact within one company is going to positively impact us all.

Great. Thank you. Thank you, Sharon. And there's been a few questions that have come into us as we've been presenting that are very similar in nature that have to do with something like do we need to look at all 15 categories? And Sia said, Mastercard is not a landlord. So we don't need to look at the categories we just cross it off the lift -- the list. Many of the companies don't need to look at category 15 for investments, but you just heard Sharon talk about, sometimes that is relevant. So it really depends on the mix of the things that your company is doing, the activities that you are a part of. Vandana, you can correct me if I'm wrong, but I'm pretty sure we have never calculated to a material threshold, let's say, 1% of Scope 3 emissions every single of the 15 Scope 3 categories because there just isn't a business that really has that much. It's usually for companies like Master -- really for many companies outside of heavy manufacturing or extracted industries. We're looking at Category 1 for goods and services, Category 2 capital goods as the largest share. There are other categories downstream, which I want to get into category 12 a little bit that often show up as they would for companies that make things. But for Mastercard, for S&P Global, our biggest impact from Scope 3 happens upstream and the things that we buy, the business travel that we have, how our employees are commuting to work and so forth. So Sharon, thank you for sharing that information about some of the surprises that you had. Vandana, I wanted to touch on some of the questions that are coming in about downstream emissions specifically for Category 12, end of life for treatment of sold products. I know you talked about it a little bit in your in your section earlier. But could you give a little bit more insight or maybe some guidance to companies who do face a significant part of their Scope 3 story coming from that downstream category?

So this is an interesting a question. So I mean, for calculating category 12 end-of-life emissions. First, we need to know the data points. So coming to the data, we need to know what all products a company is selling. And apart from the product, one should also include the packaging of the product in the end-of-life treatment. So once the product has lived its shelf life, a company needs to know how it is disposed of. So it is either dismantled, sent to landfill, sent to incineration facilities or whether the product is recycled. Best approach is to get the real, actual data for these. In the absence of data, we help companies to model their emissions based on regional mode of disposal for individual select items like plastic say, for example, in U.S., generally, how much plastic goes into recycling, what is the percentage, which goes into incineration, what goes into landfill. So in the absence of data, we take average, but otherwise, I would recommend getting the actual data and then applying the appropriate emission factors to come up with their emissions.

Great. Thank you. Sharon, anything else to add to that as it relates to treatment of sold products. Again, I know it's something that Illumina takes seriously and spends some time on?

Yes. I think in terms of that category for us, I think it means measuring end-of-life treatment and calculating it requires some assumptions. It is challenging, especially for waste data. It's hard enough to get waste data for our own sites, let alone the way that our customers are managing that. The other challenge we have seen is the difference is down to the municipality level on recycling rules. So even if we create a product that is recyclable, it may not be executed at that level in the local municipality. So we have looked at industry standards. The EPA has some waste references. I've seen some companies do survey to incorporate that into the customers to get a little more granular data for us. Since we're still pretty early, we've decided to use the mass of the products and packaging and then use some assumptions and really leaned on a very conservative like worst-case scenario of what that would mean in terms of how the waste is being treated.

Great. Vandana, there's a question that came in, and I think I might have made reference to something like this earlier that our Scope 3 emissions are somebody else's Scope 1 and 2 emissions. So how our company is incorporating Scope 1 and 2 data from their suppliers into their own Scope 3 analysis.

So when you manufacture a product or a company who is into a service sector to purchase certain good for their ongoing operations. Suppose -- taking the example of air conditioner, we procure so many items to build an air conditioner. The components, which are coming, they are coming from your suppliers. Supplier is manufacturing those at their own facilities. So emission from manufacturing of those companies is your supplier's Scope 1 and Scope 2. But when you calculate your Scope 3 emissions, you include those Scope 1 and Scope 2 emissions into your Scope 3 Category 1 and 2. And the way to do is to apportion either based on the number of products, which you purchase from that particular supplier or apportion it by the spend or expenditure because their particular suppliers, total scope-free emission, many multiple other vendors like you must have procured the same component from that supplier. So all the whole entire Scope 3 emissions of that particular supplier is not assigned to you, but it's only the portion of the emission based on the quantity of product or the spend you have on that supplier

Great. So Sia touched on this a little bit when she was giving her overview, but it's a question to both Sia and Sharon. How do you work with your suppliers? So you've both conducted your Scope 3 footprints, you've gotten past the -- well out of the starting blocks. What types of things do you share with them -- with your suppliers about the work that you've done? How do you bring them on board. Could you talk to us about that a little bit?

Sure. I could take that first. So I would say our kind of engagement model for our suppliers has grown and changed and evolved really over kind of like the last few years. So one thing -- one way we definitely do this is we invite a lot of our suppliers are actually the top suppliers accounted for 90% of our top greenhouse gas emissions to report through the CDP. So one of the reasons we select that is most people are already -- if you are a public company, a lot of people are already reporting through the CDP and as well as a nice way to kind of collect data on your holistic environmental kind of strategy and component around climate. So looking at other things. So we really encourage kind of our suppliers to respond to that. We actually not only -- we think it's a key part of this because one step in your journey is to actually start reporting emission. So start looking at it. We've actually said one of our compensation targets for our entire organization is tied to how many respondents we get from our suppliers to CDP. So it's one way that we actually get our business owners and our kind of everybody in the organization. Every kind of employee touches a supplier in one way or another to be actively involved in helping us produce our Scope 3. We kind of have a second piece of this, which is our engagement can be anywhere from taking them the first steps in their process. So helping them calculate their Scope 1 and 2. We partnered with a variety of different organizations, SME Climate Hub, I'm happy to kind of list all of them if you want to know. We use some of these kind of external things to engage our suppliers to really help them even look at their Scope 1, 2 and 3. Once we're they're further along in our journey, we've also been kind of helping and guiding them, help them set science-based targets as well as all the way to what I would call like collaboration. So typically, sometimes they're called interventions. We call them collaborations, where we actually sit together with they're technically called interactions. So we don't like that. I don't like that term because it's actually not a negative thing. No one's sitting them down on the couch, and intervening with their Scope 1 and 2, but finding joint ways that we can collaborate together to reduce emissions, not just based on Mastercard emissions, but long term like their own greenhouse gas missions. So maybe it could be around renewable energy. Maybe it's around actual projects in the way that they're providing services to Mastercard. So we engage anybody depending on where their journey from the first step, but, hey, let's even get so 1 and 2 calculated, to setting science-based targets. So that's had an at zeal to actual true reduction projects, and that's how we really engage. We actually have a -- as I said, ingrain now into our business with our compensation, ESG compensation modifier. Several get a modifier for their end of year bonus tied to some of our ESG compensation. So another way that we are engaging with our suppliers is that they know how kind of an important it is to Mastercard. So that's one active way that we've been doing it. We also have a very, very close relationship with our procurement team [indiscernible] we partner very, very closely with to ensure that all of this has kind of brought on in helping develop those suppliers as we move forward in our journey. It's not easy.

Sharon, how are you working with suppliers, understanding that aluminum -- Illumina is a little bit earlier in the Scope 3 journey than Mastercard.

Yes. I mean, similar philosophy. We do have targets that are specifically linked to a category of strategic suppliers. We do evaluation criteria as part of business reviews. There's expectations upfront in our code of conduct, diverse supplier program. The philosophy itself is really more one of partnership more of a carrot than any kind of stick working towards improved targets. We have shared some of the data from our Scope 3 with specific strategic suppliers. And we had one case where what we had estimated because that individual supplier had not shared anything externally was based on estimates. And when we provided what had been measured, they were showing internally a much lower number. And so that drove them more incentive to share externally. And the second year, that specific supplier, their numbers were actually lower. So there is tremendous value in the data, whether it's an estimate or actual. And in some cases, these companies are doing better than they think they are if we can promote that transparency. I think there's a lot of opportunity there.

Thank you now. Vandana, if somebody really is starting out and they don't have the resources to hire consultants to subscribe to data sets. Sia has mentioned there are some free tools that are out there, but they just want to learn about Scope 3. They've attended this webinar. So what should they do next? What skills do you do will best prepare them for getting even more knowledge before they're ready to commit to working on this full speed?

Yes. I mean, to get started, one needs to know the basics, and there are this GHG protocol. WRED, they have a free tool for estimating the Scope 3 emissions, which is basically a sectoral average, which you can get from there. And then there are certain documents. And just reading those as well as collecting the data. So you can start with baby steps like Sia mentioned that nothing is perfect, and you have to like start somewhere to get there. So just to start like even if it is not the actual or granular data, you can start with spend. There are spend registers readily available in the company. You can get that information, apply a sectoral average factor to get at least near about emission numbers so that you have this something approximate to what your actual is. So yes, I mean, starting from there, you can start collecting data gradually and build upon that.

Great. We're just going to take a brief pause for a second, and we're going to put up another poll. And that's would you like to be contacted to learn more about Scope 3 and other sustainability solutions. Hopefully, you've learned a good bit from this webinar, but there's a lot of questions that have come in. I'm counting 73 questions that have come in just as we've started this webinar and a few dozen that came in before the webinar. So we can't get to everything. But certainly, if you have additional questions, please feel free to fill out the poll bits that's on the screen now. Maybe at the risk of asking Sia and Sharon to repeat some of what they've said earlier. I'm going to ask a question. Where do you want to go next in your Scope 3 journey? Sharon, let's begin with Illumina.

Sure. Well, I would say we're inspired by companies that are further along in the maturity process like Mastercard and many others, and we're still in the early stages. So there's lots of opportunities. But for us, we're eager to go deeper with suppliers and educate them, partner with them and start to see some data, more direct data where there are estimates. I'm excited to see some of the long-term projects that have come out of our data from Scope 3 that take a couple of years to implement and see an impact. So I'm excited to see those come to fruition. And then on the process side, I would say, related to one of the comments earlier on hot topics of SEC or other mandatory regulatory requirements coming. We are working on enhancing the data collection piece, internal controls and preparing for future mandatory disclosures.

Sia, how about you? What do you think is next?

Yes. I mean honestly, our progress and the continuation is the goal towards let's just put SEC reporting and the reporting and regulatory reporting. And I kind of this is one of the things that is difficult, right? I think there were some questions. But like they go hand in hand, but they're a little bit different. So our goal here is with our net and our supply chain has really progressed towards our net zero goal, really seeing great reductions, really partnering with our suppliers to set science-based targets to get reductions have them set net zero goals and have them work with our suppliers because we only really work with our top 1 supplier. As I said, we're a technology company. I'm not reaching out to the miners. I'm not reaching out to the transformer -- although we have conversations, I'm not reaching out to the transformer manufacturer. These are not things that are directly in our supply chain. So we're really trying to influence our direct suppliers to start engaging with their suppliers, setting those science-based targets and continue towards that net zero reduction. And of course, how can we collaborate? How can we form these partnerships with not only our suppliers, but potentially other people, other customers of that suppliers? How can we continue our partnership for reduction of Scope 3. And then I think on the other hand, it's going to be the same thing of balancing how we're going to be able to publicly report these data, knowing that it's a new journey for everyone with the SEC and the EU regulations that are coming out.

Thank you. There have been a few questions that have come in that sound similar, so I'll try to synthesize them together. And that's recognizing that as we've discussed today, companies want to begin. They want to perhaps begin with the categories where they have the most access to information. We see in our experience that business travel or employee commuting are 2 categories that companies often go to first because it's, number one, it's easiest to describe internally. You can see your employees driving to work or taking the train. You can see your employees flying around the world. You often might work with one of those travel websites that automatically calculates the footprint for you, and you might just need to fill in a few gaps. But the question really is, that's not sufficient, but there's companies out there that are saying, we've got Scope 3 handled, but when you dive into the data, you realize they're only actually talking about that, which is easiest to calculate. So the message that I think, and hopefully, my colleagues would agree, is it's important to begin with what you can easily get to, maybe not even need to hire any external resources to help you with that, but also represent your story accurately to say to your investors, to your customers, to any other important stakeholder who's asking you for this information, we are on a journey. We began with what we have the most access to, but it's not our full story. We have seen over the years that certainly some companies say, again, we've got Scope 3 figured out, but if you dive into the information, which is now even more readily available than it had been before, you realize that there's still a lot more work to be done. So the message again is begin with something but represent your story accurately because you want to indicate that you're on a journey. Any feedback from my colleagues on the panel who probably saw some other questions come in that might add to what I just said?

Sorry, go ahead, Sia.

No, no. Go ahead, Sharon.

I was just going to say, in addition to that, I would say if you're starting with that, don't forget to continuously improve. So while that might be a good starting point, know that there will need to be an evolution. I think one of the benefits of Scope 3 is the internal employee engagement opportunity because many times, employees around the organization may feel like Scope 1 and 2 tie to the facilities, how much renewable energy we're going to buy, I really have no control over that. But when you start including Scope 3, it will touch every piece of your organization. So an individual employee can make a difference on their commute, on their choice about business travel, on the suppliers that they select, where those suppliers are at. So I think it's a tremendous way to engage internally. And to remember the holistic footprint of that value chain is more than just the supplier piece. Sia?

I was going to say -- the only thing I was going to say is everybody is still like even the most in their most advanced Scope 3 journey that you would consider out there are advanced, there's still learning, and there's still improvement that's going on. So evenly, you would be like, "Wow, I wish I was -- had it together so as X company, it seems they have everything together." There's still improvement in that area. There always will be improvement because we're all on the -- as a said, we're all on the journey together. So the more companies who are looking at Scope 1 and 2, the more companies who are looking at Scope 3, the better these -- this information is going to get out there. But also it's just a progress. Like your business may change, right? So what was in 2016 may not be the way your business operates in 2040. There is a lot of years between 2016 and 2040. So it's constantly that improvement of making sure that you're accurately capturing everything else and kind of reevaluating. You make sure that you're just being transparent. I think that's the biggest word that comes out. And I think it's in the true sense of kind of everything is -- the CDP to everything kind of like CSR reports, sustainability reports, public disclosures, is the transparency. And I think that's what it is. So just being transparent about why you're looking at certain things, why you're not looking at certain things, why you -- why it's a journey where you are in that journey, where the risks and everything else comes from. That's where I think we're going to progress that it's always a journey. No one has it. Unless I'm wrong, if someone has it figured out, please let me know. But I don't think anybody has it figured out. So there's always going to be a journey, we're always going to be making progress.

And one of the things that I know can be intimidating for anybody at the start of their journey is we use a lot of acronyms. We use a lot of abbreviations in this space. We've mentioned a few today. So CDP, a long time ago known as the Carbon Disclosure Project, now simply CDP is a wonderful organization that's collecting information on behalf of investors for things related to climate and water. And that's a source of a lot of information related to Scope 3. We mentioned GRI. We mentioned World Resources Institute, WRI, I believe one or both of those are the -- I think WRI as a source of the arrows and the clouds in partnership with the GHG protocol, the greenhouse gas protocol. So lots of acronyms. I'm not sure if we mentioned TCFD, but also one of the most said 4-letter acronyms in the space right now. That's the task force on climate-related financial disclosures, which is related to this conversation as well. And one of the things that has come up in the questions, and I think we've heard it from both -- from everybody, Vandana, Sia and Sharon is investments. So the majority of this conversation has really been about the impact of Mastercard's Scope 3. So their spend, their travel or Illumina's spend and travel and downstream emissions and how S&P Global is helping companies look at this. But the investor space is increasingly very interested in Scope 3. Because if you think of a bank, if you think of an asset manager, they're, in many ways, similar to the profile of Mastercard, of S&P Global. They're not making anything. They are running a lot of offices. They have a lot of data centers, perhaps some banks have retail footprint. But for them, the majority of their emissions are captured in Scope 3. But for them, it's category 15, their emissions are their finance emissions. So they are essentially financing the emissions of other companies. A lot of the techniques and strategies that we use to help individual companies understand their Scope 3 are applied on the investor side as well. That's probably an entire other webinar to go into the techniques in even more detail, whether we're talking about equity portfolios or debt portfolios or real estate, you name it. And perhaps that's a topic that we'll have in a future webinar. But certainly contact us if you have any questions about that, and we're happy to go into that in more detail. With just a few minutes left, I just wanted to turn it over to each of my panelists, if you just want to say some parting words to the audience, something that stood out from this webinar, something that you realized, "Oh, I wanted to say this." I'll begin with -- unless somebody raises their hand. I'm going to begin with Sharon because your orange background stood up on my screen the most.

Yes, the floating head too. I would just say that opportunities like this I continuously learn from peers that are on the space. And I think collectively, this is such a new area that we are all learning together. So wherever you are on the journey, there are people you can help along the way, and there are companies you can model where you want to aspire to be. So just know wherever you are, there's a path forward.

Vandana.

Yes. Thanks, everyone, for joining. So yes Scope -- as Sharon and Brian, everyone mentioned that Scope 3 is a journey. Yes, indeed, it is a journey, and there is a new learning every step and see, measuring Scope emissions expecting everyone so apart from the employees who are engaged, you reach out to your suppliers and ask them to reduce their emission. You reach out to your customers and customers also reach out to you for developing and introducing greener products. So I mean, all the stakeholders are, in a way, interacting with each other to reduce the overall global Scope 3 emissions. So that is the thing.

And then lastly, Sia.

Going last is hardest. I would say, echoing kind of what everybody else had and I don't know want to repeat, but I also want to say that in this space, I find it kind of the most collaborative and don't feel like reach out to understand how other companies are doing this or have questions. I mean feel free to reach out to me on LinkedIn or my e-mail address even myself. But everybody is collaborative, and we're all trying to figure it out together. That's kind of my biggest takeaway is that no one has the answer, but everybody is willing to have those kind of conversations with you and kind of things I learn all the time because I'm like, "Oh, I didn't think about it that way, with the companies who are doing it differently." So really encouraging kind of like that collaboration because as I think I said earlier, we're all in this together, not one company is going to solve the problem. And I think we all need to be partners in all of this. Again thank you for having me.

Well, thank you. And we covered a lot today. If you have any follow-up questions, please use the contact us widget, and we'll be happy to assist for those who wanted us to review something that we didn't get to or you need to go back to it, this session was recorded, and you'll receive a link to the on-demand version by the end of the week. And we'll be closing out the webinar in just a second. When it closes, there'll be an evaluation form. We'd love your feedback, so we can continually improve this. And lastly, I'd just like to say thank you to Vandana to Sia, to Sharon for presenting. And thank you for the time that you took in preparing for this webinar, and we hope it was rewarding for all of our participants. So thank you very much, and enjoy the rest of your day.