What is Scope 3 Supply Chain Emissions?

What is Scope 3 Supply Chain Emissions?

Scope 3 emissions encompass all indirect greenhouse gas emissions that occur across a company's value chain, both upstream and downstream, excluding direct operations (Scope 1) and purchased energy (Scope 2). The GHG Protocol Corporate Value Chain Standard defines 15 categories of Scope 3 emissions, including purchased goods and services, transportation, business travel, employee commuting, waste, and end-of-life treatment of sold products. For most companies, Scope 3 constitutes the vast majority of their total carbon footprint—typically 70–90% or more.

Why It Matters

The arithmetic of climate action makes Scope 3 unavoidable. CDP's 2024 analysis of over 23,000 corporate disclosures found that supply chain emissions average 11.4 times a company's combined Scope 1 and 2 emissions. For sectors like retail, financial services, and technology, the ratio can reach 25:1 or higher. A company that achieves net-zero in its own operations while ignoring Scope 3 has addressed a fraction of its actual climate impact.

The Science Based Targets initiative (SBTi) requires companies with significant Scope 3 emissions—defined as 40% or more of total emissions—to set Scope 3 reduction targets. As of 2025, over 7,000 companies have committed to SBTi, and the Net-Zero Standard mandates that companies reduce Scope 3 emissions by at least 90% by their target year, with limited use of carbon removals for residual emissions only.

Regulatory requirements are catching up. The EU's Corporate Sustainability Reporting Directive (CSRD) requires disclosure of material Scope 3 emissions under the European Sustainability Reporting Standards (ESRS E1). California's Climate Corporate Data Accountability Act (SB 253) mandates Scope 3 reporting for companies with over $1 billion in annual revenue doing business in the state. The International Sustainability Standards Board (ISSB) S2 standard includes Scope 3 disclosure requirements adopted by multiple jurisdictions.

Investor pressure amplifies the regulatory signal. Climate Action 100+, representing over $68 trillion in assets under management, explicitly asks portfolio companies to disclose and reduce Scope 3 emissions. Companies that cannot quantify their value chain emissions face higher cost of capital, exclusion from sustainable investment indices, and shareholder resolutions demanding action.

How It Works / Key Components

Measuring Scope 3 emissions begins with identifying which of the 15 GHG Protocol categories are material to the business. For most manufacturers, Category 1 (purchased goods and services) dominates. For logistics companies, Category 4 (upstream transportation) and Category 9 (downstream transportation) are primary. Financial institutions face Category 15 (investments) as their largest source.

Data collection follows a hierarchy of precision. Primary data from suppliers—actual energy consumption, process emissions, material inputs—provides the highest accuracy but is difficult to obtain at scale. Secondary data from lifecycle assessment databases (ecoinvent, GaBi) and spend-based emission factors offer broader coverage with lower precision. Most companies use a hybrid approach, collecting primary data from top-tier suppliers and applying emission factors elsewhere.

Reduction strategies operate across multiple levers. Supplier engagement programs—such as CDP Supply Chain, which manages disclosure from over 40,000 suppliers—drive awareness and target-setting across the value chain. Material substitution (replacing carbon-intensive inputs with lower-impact alternatives), logistics optimization (modal shift, route efficiency, electrification), product design changes (lightweighting, extended durability), and energy transition support for suppliers all contribute to Scope 3 reductions.

Verification and assurance are evolving rapidly. Third-party assurance of Scope 3 data, while currently limited assurance in most cases, is moving toward reasonable assurance as methodologies mature and regulatory requirements tighten. The ISSB and CSRD both anticipate mandatory assurance of emissions disclosures, including Scope 3, within their implementation timelines.

Council Fire's Approach

Council Fire specializes in helping organizations quantify, disclose, and reduce Scope 3 supply chain emissions through supplier engagement strategies, category-level carbon analysis, and integration with broader climate resilience and ocean sustainability objectives. We bridge the gap between emissions accounting and operational transformation, ensuring that Scope 3 programs drive real reductions rather than producing reports that gather dust.

Frequently Asked Questions

Why is Scope 3 so difficult to measure accurately?

Scope 3 spans activities outside the reporting company's direct control, involving hundreds or thousands of suppliers, customers, and intermediaries. Data availability varies enormously—a multinational chemical supplier may have precise emissions data, while a smallholder agricultural producer may have none. Methodological choices (allocation methods, emission factor databases, boundary definitions) also introduce significant variability. The GHG Protocol acknowledges this uncertainty and emphasizes continuous improvement in data quality over time.

Do companies need to report all 15 Scope 3 categories?

No. The GHG Protocol requires companies to report all categories that are relevant (the activity occurs in the value chain) and significant (the category contributes meaningfully to total Scope 3). Most companies find that 3–5 categories account for 80–90% of their Scope 3 emissions. Focusing measurement and reduction efforts on these material categories is both more practical and more impactful.

How can companies reduce Scope 3 emissions they don't directly control?

Leverage is the key concept. Companies influence Scope 3 emissions through procurement decisions (choosing lower-carbon suppliers and materials), contractual requirements (mandating emissions disclosure and reduction targets), collaborative programs (co-investing in supplier decarbonization), product design (reducing material intensity and designing for circularity), and industry initiatives (sector-wide commitments and shared infrastructure). The most effective programs combine commercial incentives with technical support.