Scope 3 emissions make up around 75% of a company’s total carbon footprint, with industries like food, beverage, and tobacco pushing this number even higher.
Value chains produce emissions that are 26 times higher than operational emissions. Most companies focus on cutting emissions in their facilities, but the real carbon impact happens elsewhere.
Companies see their largest carbon impact from purchased goods and services (Scope 3.1) adding to the total footprint, but measuring and managing these value chain emissions is a difficult process, unlike Scope 1 and 2 emissions. This mainly happens because most companies don’t deal well with data availability, supplier differences, and complex supply chains.
The financial risks are massive. The Carbon Disclosure Project warns that supply chain environmental risks could cost businesses trillions of dollars over the next five years, and corporate buyers might face additional costs if these expenses move down the supply chain.
This piece walks you through the quickest ways to understand, calculate, and reduce your Scope 3 emissions. You will be presented with useful steps to tackle a significant part of your company’s total emissions.
Understanding what you measure helps you reduce your carbon footprint effectively. Let’s look at the emissions throughout the value chain and see why certain categories need more attention.
Scope 3 emissions encompass all indirect greenhouse gas emissions throughout your value chain that your organization doesn’t directly own or control. These emissions result from both upstream activities (such as purchased goods and materials) and downstream activities (like the use and disposal of your products).
The Greenhouse Gas Protocol splits Scope 3 emissions into 15 distinct categories. These categories cover purchased goods and services, business travel, employee commuting, waste generation, transportation and distribution, investments, and the use of sold products. Yale University’s Scope 3 emissions made up 57% of their total footprint in 2022. Harvard’s estimates show these emissions are nowhere near their Scope 1 and 2 emissions combined.
Ownership and control create the main distinction between these emission scopes:
Scope 3 emissions make up the biggest portion of an organization’s total carbon footprint. McKinsey reports they represent about 90% of a company’s total emissions, while other sources put this figure between 75% and 90%.
Category 3.1 (purchased goods and services) leads the pack in contributing to an organization’s carbon footprint. The category covers all cradle-to-gate emissions from products and services your organization buys—everything from raw materials and intermediate products to office supplies and professional services.
This category stands out because it shows which companies purchase emissions from suppliers versus those they directly control. Companies that tackle Scope 3.1 emissions can better participate with suppliers, develop lower-carbon materials, and build stronger supply chain resilience.
Organizations need methods that balance accuracy with practical implementation to calculate scope 3 emissions. The GHG Protocol gives several calculation approaches that companies can tailor to their needs and data.
The spend-based method turns financial data into carbon emissions by multiplying the money spent on products or services by emission factors. To cite an instance, see every dollar spent on a product converts to a specific amount of CO₂e. This approach makes use of information from the accounting systems, which makes it available to most organizations.
This method gives a full picture to spot carbon hotspots, but it comes with limits. The biggest problem is that it doesn’t show actual emissions cuts from suppliers because companies can only reduce emissions by spending less. It also doesn’t work very well when there’s inflation or economic volatility.
This approach uses industry-average emission factors based on how much organizations physically buy. They measure emissions based on mass, volume, or units of products instead of tracking financial data.
The average data method gives better results than the spend-based approach because it looks at product-level rather than industry-level emissions. To name just one example, it can tell the difference between a MacBook’s and a Chromebook’s carbon effect. But companies often don’t keep track of physical quantities, so they must change how they store this information.
This method gets product-level emissions data straight from suppliers and is the most accurate approach. Suppliers must provide cradle-to-gate GHG inventory data for their products or services.
Yes, it is specific about the actual value chain. In spite of that, they just need lots of resources to build and keep supplier relationships. It also faces issues when data is confidential, inconsistent, or incomplete across your supplier network.
The hybrid approach mixes different methods to balance complete coverage with accuracy. A coffee company might use supplier-specific data for its top 10 suppliers (85% of purchases) and use average-data or spend-based methods for smaller suppliers.
This approach lets us focus resources on high-impact categories while quickly handling smaller emissions sources. The approach works well, but it needs to be carefully implemented because wrong hybrid methods can give misleading results.
Companies face tough obstacles when they try to measure scope 3 emissions. Of the most prominent issues is the inaccuracy of data and quality during measurement.
Many suppliers don’t have enough resources to track emissions, while others provide incomplete data. Companies end up struggling to create proper reduction plans without reliable primary data.
Companies can’t easily combine and compare emissions data from suppliers because they lack standard collection methods. Upstream suppliers are nowhere near ready to calculate specific product carbon footprints. Each supplier tends to use their own calculation methods, emission factors, and reporting standards. Some suppliers have the data but don’t want to share it because they worry about confidentiality or their reputation.
Supply chains with multiple tiers create complex networks. Companies must depend on their direct suppliers to get information about other suppliers. The biggest sources of carbon emissions usually exist way beyond the reach and influence of Tier 1 suppliers. Companies might waste resources on ineffective actions if they can’t see these deeper supply chain levels.
Before companies start rolling out their practical way to reduce their value chain’s environmental effect, they need to analyze which key suppliers are the biggest emission sources and come up with a prioritization of the high-impact categories.
When setting out sustainability goals, companies should be able to match them with the global climate commitments. To avoid just science-based targets, they need to motivate suppliers to participate with environmental criteria and offer them financial incentives when they hit their targets. Receiving documents such as Environmental Product Declarations (EPDs) or Life Cycle Assessments (LCAs) is helpful, as it provides accredited data on a product’s environmental effects throughout its lifecycle.
Once there are solid emissions data, it is wise to look for materials with lower carbon footprints. Upstream scope 3 emissions are 11.4 times higher than direct operational emissions. This makes material choices a big deal in reducing the carbon footprint.
An effective carbon accounting platform helps track emissions and model different scenarios, giving clear visibility of the supply chain while measuring progress toward reduction goals.
Scope 3 emissions reduction is a chance to take meaningful climate action within an organization. These emissions substantially overshadow direct operational effects. The journey to measure and reduce these emissions brings challenges, but the business case grows stronger each day.
In spite of supplier inconsistencies and data availability challenges, there are practical ways to overcome these obstacles. Companies that manage their value chain emissions today will gain competitive edges while helping achieve global climate goals.
Success requires steadfast dedication and persistence. For more insightful guidance on how to understand and measure your organization’s carbon impact and actionable steps on Scope 3 emissions today, enroll in the Climate and Carbon Reduction Business Strategy to learn how to shape environmental outcomes and business success in coming years.
