When it comes to sustainability, most companies are familiar with Scope 1 and Scope 2 emissions. Scope 3 carbon emissions however – the often overlooked yet most significant part of a company’s carbon footprint – are increasingly becoming a critical topic in the environmental, social, and governance world. In 2024, regulatory pressures and growing awareness are pushing businesses to confront the hidden carbon impact in their value chains, primarily in Scope 3 carbon emissions.

Scope 3 carbon emissions cover all the indirect emissions that occur in the value chain of a company. This includes everything from the production of raw materials to the emissions generated when consumers use or dispose of products. These emissions represent a significant portion of most companies’ total emissions and can no longer be ignored.

What Are Scope 3 Carbon Emissions?

Scope 3 emissions refer to indirect emissions that occur both upstream and downstream in a company’s value chain. These emissions fall into 15 categories. Categories that cover nearly every part of business operations, from purchased goods and services to transportation, waste, and even employee commuting. For example, if a business manufactures electronics, its Scope 3 carbon emissions would include the extraction of raw materials, the emissions from transporting components, and even the electricity used by consumers when charging their devices.

Despite being indirect, Scope 3 carbon emissions often account for over 70% of a company’s total carbon footprint. Microsoft, for instance, revealed that 97% of its total emissions come from Scope 3 sources, while Amazon’s supply chain emissions similarly make up a massive part of its carbon footprint​.

Why Are Scope 3 Carbon Emissions Often Overlooked?

Scope 3 carbon emissions are frequently overlooked for two key reasons.

Complexity

Tracking these emissions requires collecting data from multiple sources within the value chain, which involves suppliers, logistics partners, and sometimes even customers. This complexity makes Scope 3 more difficult to measure than Scope 1 and 2 emissions, which are usually easier to quantify.

Lack of Direct Control

Many companies feel they have limited control over the emissions generated outside their own operations, particularly in their supply chains. For instance, a fashion retailer might not have direct influence over how its suppliers in another country source materials or manage energy consumption.

However, with upcoming regulatory frameworks like the EU’s Corporate Sustainability Reporting Directive (CSRD) and California’s Senate Bill 253, companies will soon be required to report on Scope 3 emissions. Ignoring this significant part of a company’s carbon footprint is no longer an option​.

The Regulatory Pressures Around Scope 3 Carbon Emissions

Starting in 2024, companies will face stricter regulations regarding their Scope 3 carbon emissions. Two critical pieces of legislation are the European Union’s CSRD and California’s Senate Bill 253.

The CSRD mandates that approximately 50,000 companies worldwide, including non-European businesses, provide detailed sustainability reports covering not only their direct emissions but also their Scope 3 carbon emissions. This means that even companies operating outside Europe, but involved in global supply chains, will need to align with these standards​.

In the United States, California’s Senate Bill 253 will require companies with over $1 billion in revenue to disclose their Scope 1, Scope 2, and Scope 3 emissions annually. These regulations aim to promote transparency and ensure businesses are accountable for their entire carbon footprint​.

Why Your Business Should Care About Scope 3 Carbon Emissions

For many companies, Scope 3 carbon emissions are the largest component of their carbon footprint, yet the most challenging to measure and manage. This is particularly true for companies with complex, global supply chains. By addressing Scope 3 emissions, businesses can not only comply with new regulations but also unlock significant opportunities to improve sustainability and reduce overall environmental impact.

Tackling Scope 3 emissions can also enhance brand reputation, improve operational efficiency, and mitigate risks associated with supply chain disruptions. Additionally, as consumer awareness of sustainability grows, businesses that take proactive steps to manage their carbon emissions will stand out from competitors.

How to Start Addressing Scope 3 Carbon Emissions

If your company is only beginning to explore Scope 3 emissions, the process can seem overwhelming. However, by taking incremental steps, you can begin to understand and manage these emissions effectively. Here are some actionable steps to get started:

1. Map Your Value Chain

The first step in addressing Scope 3 emissions is understanding where emissions occur within your value chain. This requires identifying key suppliers and analyzing the processes involved in the production and delivery of your products. Mapping your value chain helps identify which areas are responsible for the largest emissions and where improvements can be made.

2. Engage with Suppliers

Your suppliers play a critical role in managing Scope 3 emissions. Open a dialogue with them to understand their sustainability practices and emissions data. Large companies like Microsoft and Amazon have already made significant strides by requiring suppliers to disclose their emissions as part of contractual agreements​. By engaging your suppliers, you can encourage them to adopt more sustainable practices, which will, in turn, reduce your company’s overall carbon footprint.

3. Start with Estimates

It’s not always possible to get precise data immediately. In the early stages of addressing Scope 3 emissions, it’s acceptable to use industry averages or estimates to understand the broader picture. Over time, as you collect more data, these estimates can become more refined, providing a clearer understanding of your emissions.

4. Leverage Technology

Technology can be a powerful tool in tracking and reducing Scope 3 emissions. Life Cycle Analysis (LCA) software and emissions calculators can help your business gather data and identify hotspots within your value chain. These tools simplify the process of collecting, analyzing, and reporting emissions data, making it easier to stay compliant with evolving regulations.

5. Set Targets and Track Progress

Once you’ve established a basic understanding of your Scope 3 emissions, set clear, achievable goals for reducing them. These targets should align with your company’s broader sustainability strategy. Regularly tracking and reporting on your progress will help keep you accountable and provide insights into areas for further improvement.

The Time to Act Is Now

Addressing Scope 3 carbon emissions is no longer optional. With new regulations coming into effect in 2024 and growing pressure from consumers and stakeholders, businesses must take steps to measure and manage these hidden emissions. By starting today – mapping your value chain, engaging suppliers, and setting achievable goals – you can stay ahead of the regulatory curve and position your company as a sustainability leader.

Taking proactive action on Scope 3 emissions not only helps mitigate climate risk but also strengthens your brand, builds consumer trust, and ensures compliance in a rapidly changing regulatory landscape. Now is the time to understand and manage your full carbon footprint, starting with the emissions that no one talks about.