In a world that’s grappling with the increasing effects of climate change, the urgency to cut carbon emissions is at an all-time high. Businesses have a special responsibility to drive change by decarbonization; this means addressing emissions across the value chain.
Greenhouse Gas (GHG) Emissions are classified into Scope 1 (direct emissions), Scope 2 (indirect emissions), and Scope 3. Among these, Scope 3 emissions are both the largest and most elusive.
They include everything from the carbon footprint of suppliers providing raw materials to the emissions from a product’s disposal at the end of its lifecycle. While Scope 1 and 2 are easier to measure using established frameworks, Scope 3 remains a blind spot for many. These hidden emissions account for up to 90% of a company’s total carbon footprint, particularly in sectors such as oil and gas finance, where they can be as high as 80% and 99.8%, respectively, and can very well be regarded as the ‘hidden culprit’ of emissions.
The reason this poses such a challenge is that it lies outside a company’s immediate control. The GHG Protocol divides them into 15 categories, ranging from upstream emissions related to the production and transportation of materials to downstream emissions from product use, disposal, investing, and franchising. This wide net complicates it.
Unlike 1 and 2, which are mandated for disclosure, Scope 3 emissions reporting remains voluntary in most countries. In the U.S., the SEC has introduced a Final Rule that requires publicly traded companies to report their Scope 1 & 2 emissions, while Scope 3 is only required if deemed material or if the company has set specific emissions targets. In the UK, while there are regulations encouraging broader environmental reporting, such as the Streamlined Energy and Carbon Reporting (SECR) framework, Scope 3 emissions reporting is largely voluntary.
India, through its the Business Responsibility and Sustainability Reporting (BRSR) framework encourages companies to disclose their Scope 3 emissions, but as of 2023, only 51% of India’s top 100 listed companies reported this data. The voluntary nature of Scope 3 reporting, combined with the lack of uniform standards, creates inconsistencies that hinder progress in tackling these emissions.
A major roadblock is the quality of data provided by third-parties. Many suppliers, particularly smaller ones, lack the resources or expertise to calculate their emissions accurately. This often results in companies relying on generic emission factors or industry averages, leading to poor-quality data. In some cases, suppliers may not measure their emissions at all, either because they don’t prioritise it or due to concerns around confidentiality. In complex global supply chains, each partner may use different calculation methodologies—such as spend-based or hybrid approaches—resulting in inconsistency or inaccuracy. This “chain of assumptions” can create a domino effect in poor data.
PepsiCo, for example, struggles to manage Scope 3 emissions, which account for 75% of its greenhouse gas footprint. The primary challenge is inconsistent data from third-party suppliers in agriculture, packaging, and transport. To tackle this, PepsiCo launched its pep+ (PepsiCo Positive) agenda, working closely with suppliers to enhance data accuracy and set Science-Based Targets (SBTs). It is also focusing on sustainable agriculture practices with farmers to enhance yields and soil health while reducing GHG emissions.
Despite the hurdles, companies must develop robust strategies. The 2024 World Economic Forum’s report Decarbonizing Supply Chains: A Scope 3 Playbook for India offers a
comprehensive framework for this, recommending steps such as creating a Scope 3 baseline, setting science-based targets, and fostering cross-departmental collaboration to drive the effort.
Structured engagement programs, like PepsiCo’s supplier partnership plan, can help businesses support their suppliers in setting and achieving decarbonization targets. However, the lack of a universal framework for measuring Scope 3 emissions continues to be a stumbling block. The solution lies in adopting standardised practices for reporting emissions.
Information is power. With better data, companies can make informed decisions that align with their net-zero ambitions. The BSRS in India have made ESG considerations a priority in boardroom discussions, pushing companies to be more transparent and credible when it comes to sustainability reporting, especially as the country strives to achieve net-zero by 2070.
The focus should be on liaising with suppliers who provide verifiable Life Cycle Assessment (LCA) data and demonstrate a strong commitment to sustainability. Furthermore, encouraging suppliers to work with trusted verifiers ensures the data’s accuracy and reliability.
In a world where supply chains span countries, the power of collaboration cannot be understated. By working with suppliers whose ethos aligns with sustainability, supported by verifiable data and certified practices, businesses can reduce emissions while fostering transparency and accountability throughout the supply chain.
The Alliance of CEO Climate Leaders has launched an action plan focused on supplier collaboration to tackle upstream Scope 3 emissions. The initiative includes creating a supplier support hub that offers guidance on baseline emissions, target setting, and decarbonization strategies.
Collaboration also involves working with suppliers who are committed to broader Environmental, Social, and Governance (ESG) goals. This can mean partnering with
organisations that prioritise biodiversity, social impact, and ecosystem health, going beyond compliance and actively contributing to positive social and environmental outcomes.
Tata Group, for instance, has long been committed to sustainable development and community welfare, and driving supply chain sustainability through capability-building workshops and ESG-focused engagement with partners. Their efforts in education, healthcare, and rural development demonstrate how corporate initiatives can create lasting positive impact.
Companies that prioritise working with similar responsible suppliers not only improve their own sustainability profiles but also foster resilience within the communities they touch. Every choice can create a ripple effect, where the impacts extend far beyond.
While Scope 3 emissions are a tough challenge, the way forward is clear: collaboration, consistency, and a shared commitment to sustainability. By uniting on these fronts, companies can spark real, lasting change and build a future that’s both sustainable and equitable.
