What are Scope 3 emissions and why do they matter?

Understand Scope 3 emissions and why tracking indirect carbon output is crucial for your business’s sustainability and ESG goals.

Why Every Business Must Care About Scope 3 Emissions

Climate change and sustainability are no longer just buzzwords—they are business imperatives. Governments, investors, and consumers are all demanding greater corporate responsibility when it comes to carbon emissions. While many companies have taken steps to reduce their direct emissions, there is one critical area that remains overlooked—Scope 3 emissions.

If your company is serious about achieving true carbon neutrality, ESG compliance, and sustainability goals, you must understand Scope 3 emission accountability and why it matters. Unlike Scope 1 and Scope 2 emissions, Scope 3 covers indirect emissions that occur across your value chain, making it the most challenging—and impactful—part of your carbon footprint.

In this article, we’ll break down:

• What Scope 3 emissions are, and how they differ from Scope 1 and 2
• Why businesses must account for Scope 3 emissions
• How companies can track, measure, and reduce these emissions
• The challenges and benefits of Scope 3 accountability

Let’s dive into why Scope 3 emissions are the missing piece of corporate sustainability and how your business can take action.

What Are Scope 3 Emissions? Understanding the Carbon Footprint Framework

However, let me first provide a brief overview of the three types of GHG emissions before delving into the issue of Scope 3 emissions and their responsibility and consequences.

1. Direct Emissions: These are the emissions that are caused by activities within the company’s control. Some examples include emissions from company vehicles, emissions from production activities within the compound, and emissions from fuel combustion.
   
2. Scope 2 Emissions: These are the emissions that occur as a result of the energy purchased from the electricity grid and other energy utilities. Scope 2 emissions can be reduced by either purchasing renewable energy or reducing the energy used in the organization.
   
3. Scope 3 Emissions: These are all other emissions that are not directly attributable to the company’s operations but are incurred upstream and downstream. They include emissions from suppliers, emissions from the use of the product, emissions from transportation, emissions from employee travel, and emissions from disposal.

Why Scope 3 Matters the Most

Scope 1 and 2 emissions are within the company’s control, while Scope 3 emissions account for over 70% of total emissions. This means that if companies do not include Scope 3 emissions, they are, in fact, not reporting their emissions at all.

Why Is Scope 3 Emission Accountability So Important?

Scope 3 emissions are also known as the ‘indirect emissions’ of a business. They are not included in the balance sheet, but they are very significant externally and for the firm’s sustainability. Below are the reasons why every company should begin to focus on Scope 3 emissions:

• Regulatory Pressure and Compliance:

Today, governments and regulatory authorities around the world are encouraging companies to report their carbon footprint, including Scope 3 emissions. New ESG rules and carbon reporting standards require companies to report and reduce them.

• Investor and Consumer Expectations:
  

Sustainability has become a standard criterion that investors use when investing in various projects. Shareholders also want companies to take responsibility for emissions not only in their own operations but also in the supply chain. Consumers are also becoming more environmentally conscious and prefer to purchase products from companies that are committed to sustainability.

• Competitive Advantage & Reputation Management

The management and reduction of Scope 3 emissions benefit companies that engage in the process. Those who do not achieve this are likely to lose customers, receive bad publicity, and miss out on investments.

• Cost Savings and Efficiency Improvements:

Reducing Scope 3 emissions can also enhance supply chain efficiency, reduce waste, and save costs. Companies that improve their logistics, switch to sustainable materials, and reduce energy consumption can cut both costs and emissions.

• Net-Zero Goals and Climate Action:

Many companies have committed to achieving Net-Zero carbon emissions, but these goals are not very effective if Scope 3 emissions are not taken into account. For a company to be considered sustainable, it cannot afford to overlook the most significant portion of its emissions.

How to Measure and Track Scope 3 Emissions?

Scope 3 emissions are not under the direct control of the company, making them challenging to measure since they are not a direct result of the company’s activities. However, it is possible to track, report, and manage Scope 3 emissions if the right strategy is adopted by businesses.

1. Determine the Emission Sources in Your Value Chain
    

The first step is value chain mapping and the identification of all possible Scope 3 emissions. These may include:

• Supplier emissions – Emissions released during the extraction of raw materials, processing, and manufacturing of products.
• Transport and supply chain – Emissions from the transportation of goods and products.
• Customer emissions – The amount of energy used by customers and the waste generated during the use of the product.
• Employee commuting & business travel – Emissions from flights, car travel, and telecommuting equipment.

2. Collect Information from Suppliers and Affiliates

To gather emissions data, work with suppliers, vendors, and logistics providers. Emissions can be measured at each stage by using supplier questionnaires, industry reports, and LCA tools.

3. Use Carbon Accounting Tools & Standards

The following are some of the global frameworks that can be used to assess Scope 3 emissions:

• Greenhouse Gas (GHG) Protocol – The most widely used tool for measuring emissions.
• CDP (Carbon Disclosure Project) – A reporting system that allows companies to report on their carbon emissions.
• SBTi (Science-Based Targets initiative) – An organization that helps corporations set emission reduction targets.

4. Set Reduction Targets and Action Plans
   Following the measurement of emissions, companies should set concrete reduction targets in line with Net-Zero and ESG goals. This includes:
   
   • Substituting current suppliers with those who have a lower carbon footprint.
   • Optimizing logistics to reduce transportation pollution.
   • Encouraging sustainable commuting options for employees.
   • Designing products that are durable and have a lower likelihood of disposal.

Challenges of Scope 3 Emission Accountability

However, businesses face several challenges when managing Scope 3 emissions:

• Data Collection Complexity: Data must be collected from different suppliers and partners.
• Lack of Consistency: Various industries have different reporting formats, making it difficult to analyze data.
• Supplier Resistance: Some suppliers may not have their own emission tracking system, which can hinder progress.
• Cost of Implementation: Change can be costly in the short term but is beneficial in the long run.

However, businesses that act now will reap the benefits in the future, which is why governments should encourage the use of renewable energy sources.

The Future of Corporate Carbon Accountability

With climate change becoming a reality and sustainability goals increasing, companies can no longer ignore Scope 3 emissions. Businesses that embrace full carbon transparency will be market leaders, while those that do not will fall behind.

Below are some benefits businesses can gain from tracking, reducing, and reporting their Scope 3 emissions:

• Ensure alignment with global climate legislation and sustainable development goals.
• Enhance supply chain efficiency and reduce costs to improve revenue.
• Win consumer trust and loyalty through transparent and environmentally responsible policies.

Taking Action on Scope 3 Emissions

For any organization that is keen on sustainability, ESG compliance, and long-term relevance, Scope 3 emissions cannot be ignored. Source identification, carbon footprint assessment, supplier engagement, and reduction measures are crucial for environmental conservation and organizational performance.

Carbon accountability is not a concept of the future; it is already a reality, and your business must choose whether to lead the change or be left behind. To ensure compliance with global sustainability standards and improve corporate responsibility, businesses can seek expert guidance from certification bodies like IRQS, which provides sustainability assessments and auditing solutions to help organizations achieve their carbon neutrality goals.