Scope 3 Greenhouse gas (GHG) emissions, the indirect emissions that occur throughout a company’s supply chain, both upstream and downstream, are often the largest contributor to a company’s carbon footprint.
A recent report by CDP, in collaboration with the Boston Consulting Group (BCG), titled “Scope 3 Upstream: Big Challenges, Simple Remedies” (June 2024), reveals that these emissions, particularly those originating from upstream activities, can often significantly exceed those from direct operations. On average, upstream Scope 3 emissions are 26 times greater than emissions from direct operations.
Despite their large scale, many companies continue to overlook supply chain emissions. The report states that companies are twice as likely to measure operational (Scopes 1 and 2) emissions and 2.4 times more likely to set targets for those emissions compared to supply chain emissions (Scope 3 GHG emissions). Only 15% of companies disclosing through CDP have set upstream Scope 3 targets. The report emphasizes the urgency of addressing Scope 3 emissions, especially those originating upstream in the supply chain.
Emissions data transparency and supplier engagement: Procurement’s key to success
The report highlights the importance of data transparency and supplier collaboration in achieving Scope 3 emission reductions. It states that engaging suppliers is crucial for aligning climate goals across the entire supply chain. Procurement teams can leverage their purchasing power to initiate a positive feedback loop and drive change across their suppliers, strategically engaging high carbon contributors first. The first step is to create transparency in supplier emissions data, enabling procurement teams to set targets and establish contractual obligations for suppliers aligned with their reduction targets. To help enhance this transparency, Supplier.io now embeds CDP’s Climate Scores, Scope 1-3 emissions metrics, carbon intensities, and science-based targets into Supplier.io’s platform. This integration empowers procurement teams with the information needed to strategically engage with suppliers and drive meaningful emissions reductions. To learn more about the Supplier.io and CDP partnership and the CDP climate data available in Supplier.io’s platform, watch the webinar, Unlock the power of CDP data for net-zero and supply chain sustainability
The boardroom’s role in Scope 3 decarbonization
Another key finding of the report is the pivotal role that corporate boards play in driving climate action. Companies with climate-responsible boards, those with climate oversight and at least one climate-competent member, are 4.8 times more likely to set targets for reducing their Scope 3 emissions. This highlights the importance of having board members who understand the risks and opportunities associated with climate change and can guide their companies towards a more sustainable future. Procurement teams can advocate for greater board-level engagement on climate issues. By highlighting the financial and reputational risks associated with unaddressed Scope 3 emissions, procurement can help elevate climate action to a strategic priority within the boardroom, leading to increased support for Scope 3 reduction initiatives.
The power of internal carbon pricing
A powerful tool highlighted in the report is internal carbon pricing (ICP). ICP assigns a monetary value to carbon emissions, serving as a powerful lever for change. By factoring the cost of carbon into decision-making processes, companies incentivize low-carbon choices, drive innovation towards sustainability, and effectively manage their Scope 3 GHG emissions.
For procurement teams, ICP provides a valuable framework for aligning sourcing strategies with corporate sustainability goals. By assigning a monetary value to carbon emissions, ICP helps procurement teams evaluate the true cost of goods and services, including their environmental impact. This comprehensive cost assessment encourages more informed purchasing decisions that favor suppliers with lower carbon footprints. As a result, procurement teams can prioritize more sustainable suppliers, driving emissions reductions throughout the supply chain. Despite its clear advantages, only 14% of companies currently utilize ICP, representing a missed opportunity to accelerate the transition to a low-carbon economy.
Investors: A catalyst for procurement-led Scope 3 decarbonization
The CDP report also highlights a concerning gap between corporate and investor perceptions of risk. While many companies acknowledge the financial risks associated with upstream emissions, investors are not adequately pricing these risks into their valuations. Only half of corporates evaluate the financial risks from upstream emissions, resulting in a significant gap in the ability to foresee, proactively manage, and mitigate risks from their supply chains. Companies with a defined process for identifying, assessing, and responding to climate-related risks are four times more likely to foresee upstream climate-related risks that could have a substantive impact on their business. This disconnect could lead to significant financial losses for investors and missed opportunities for companies to reduce their emissions.
This disconnect presents a unique opportunity for procurement teams to leverage investor interest in ESG factors and advocate for greater resources and support for supply chain decarbonization initiatives. By highlighting the potential financial risks that investors are overlooking, procurement can make a stronger business case for investing in supplier engagement, data collection, and emissions reduction strategies. Additionally, sustainable procurement leaders can partner with finance and investor relations to highlight the company’s proactive approach to managing Scope 3 GHG emissions. This collaborative approach supports corporate sustainability goals and positions procurement as a strategic driver of value.
The path forward for Scope 3 GHG emissions reductions
The report concludes with a call to action for both corporations and investors. For corporations, the immediate priorities include setting Scope 3 GHG emission targets, improving emissions data transparency, engaging with suppliers, nominating climate-competent board members, and implementing internal carbon pricing. Investors, on the other hand, need to demand greater transparency from companies on their Scope 3 GHG emissions and incorporate climate risk into their investment decisions.
The report concludes by emphasizing that the challenge of addressing Scope 3 GHG emissions is significant, but by focusing on these key areas, companies and investors can work together to drive the systemic change needed to achieve a net-zero future.
You can read the full CDP Report – Scope 3 Upstream: Big Challenges, Simple Remedies
For more information on improving transparency of supplier emissions data, watch the CDP and Supplier.io webinar Unlock the power of CDP data for net-zero and supply chain sustainability