In 2024, carbon emissions hit a record high, with more than 41 billion tonnes of planet-heating CO2 pumped into the Earth’s atmosphere. From aviation to agriculture, every industry contributed a share of those emissions, mainly through the use of fossil fuels.

If the world is to start reducing emissions and reach net zero in the second half of the century, as promised under the Paris climate agreement in 2015, we need to know exactly where those emissions are coming from. Crunching the data offers up estimates of which sectors release the most greenhouse gases – but this is a far harder task at the corporate level.

There are the major fossil fuel firms, both state-run and private – such as Shell, Saudi Aramco, ExxonMobil or Coal India – which we know play an outsized role. But according to the World Bank, 90% of global businesses are small and medium-sized enterprises.

Understanding their environmental impact – and how they contribute to the emissions of larger companies further up the value chain – is complex but essential if climate action goals set by both governments and the private sector are to be met, experts say.

While businesses have long been aware of the need to curb their emissions, the process of collecting data on their supply chains, and knowing what to do with it, can serve as a barrier to action. And without regulation to make companies set and meet targets to reduce their carbon pollution, monitoring and analysing emissions has so far been a voluntary effort.

Problem with a wide scope

The first attempt to properly account for company-level emissions started almost 25 years ago with the Greenhouse Gas Protocol. Its corporate standard was developed in 2001 in response to the UN’s Kyoto Protocol on limiting the emissions of wealthy countries, and covered reporting of the seven greenhouse gases covered by that agreement.

The GHG Protocol was formed by two non-profit organisations: the World Resources Institute and the World Business Council for Sustainable Development. Its work has become a standard bearer in the field of carbon accounting, with its guidance used by thousands of corporations, and updates to its rules closely followed.

The protocol’s lasting contribution was to create the concept of ‘scopes’, which separate a company’s emissions into three distinct categories. Scope 1 covers all emissions from direct sources a company owns or controls. Scope 2 is indirect emissions from purchasing energy. Scope 3 emissions are all other indirect emissions within a company’s supply chain.

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Defining Scope 3 – and how to adequately account for and offset those emissions – has proved a difficult task. These emissions can include everything from business travel to a company’s financial investments. The GHG protocol has 15 separate categories on Scope 3 emissions, reflecting the wide range of where they might be found.

These categories are themselves divided into ‘upstream’ and ‘downstream’; for example, upstream could include the use of any vehicle a company doesn’t own but is in the service of its business. Downstream can cover activities such as how products are treated at the end of their life.

“Scope 3 has proven to be one of the most challenging topics to be addressed among the business community,” said Ramiro Fernandez, campaign director at Race to Zero, a UN-backed climate campaign. “For years the climate business community has been developing methodologies and metric frameworks to account for the emissions of companies’ value chains.”

The knottiness of the issue means that many companies are reluctant to engage with tackling this category of emissions. A 2024 survey of 300 large public companies by consultancy firm Deloitte found that while three-quarters disclose their Scope 1 emissions, and around half Scope 2, the figure falls dramatically to 15% for Scope 3.

Threat to 1.5C goal

Sustainability experts warn that ignoring Scope 3 emissions is self-defeating and puts at risk the Paris Agreement goal of limiting global temperature rise to 1.5C above pre-industrial times, given that an estimated 75% of the average company’s emissions fall into that category, according to CDP, a non-profit that helps businesses disclose their environmental impact.

“If we fail to address Scope 3, corporate net-zero pledges cannot be achieved,” said Sanda Ojiambo, CEO and executive director of the UN Global Compact, a voluntary initiative supporting sustainability in business.

“Most business-related emissions come from Scope 3, which means neglecting them keeps us on a dangerous path to exceeding 1.5C [of global warming],” she added.

The Science Based Targets initiative, originally set up to ensure that corporate climate plans are in line with the Paris Agreement, has approved 7,000 targets over the past 10 years. Notably, the initiative requires all companies to include Scope 3 emissions in their long-term emissions reduction targets.

Ojiambo told Climate Home the UN Global Compact is working with thousands of businesses to ensure that Scope 3 emissions are “no longer an afterthought but a core pillar of corporate climate strategies”.

Comment: SBTi’s rigid emissions rules don’t reflect business reality

In tech we trust

The thorny challenge of reducing Scope 3 emissions has given rise to a host of solutions aimed at making it easier. Ways to tackle the problem include engaging with suppliers, investing in data collection and using technology to track emissions across the whole life cycle of products.

German software company SAP, for example, is attempting to integrate carbon data with financial data to create a “green ledger”. This system assigns carbon emissions to a company’s transactions, with a dashboard showing the impact of greenhouse gas intensity on operating income, gross margin and net revenue. The hope is that this process will generate real-world numbers rather than relying on estimates, as most businesses do today.

James Sullivan, global head of product management at SAP Sustainability, said the software will “change business practice… to accurately account for, analyse and report carbon footprints”. The ledger is the latest in a range of data-driven services the company and its peers are putting into the market to help businesses wrestle with emissions that are beyond their immediate control.

Locating accurate data on all Scope 3 emissions – and then calculating how they have reduced over time – can seem like a Herculean task. Where data gaps exist, the GHG Protocol advises using secondary data based on industry averages, government statistics, or public databases that are representative of a company’s activities. But using such generic data at scale may not provide an accurate picture of emissions or the impact of corporate action to stem them.

Sullivan believes that better data is key to solving the Scope 3 puzzle. “A major advancement is the widespread understanding that managing Scope 3 emissions requires high-quality data and transparency into supply chains,” he said. “It is crucial for businesses to integrate sustainability data into core business processes.”

Getting ahead of competitors

Companies like SAP are confident their technological solutions are having a tangible impact on that front. Sullivan pointed to one of its customers, Martur Fompak International, a Turkish supplier of seats for the automotive sector. As a result of using SAP’s technology, Sullivan said the company has reported a 52% reduction in transportation-related carbon emissions and a 34% decrease in emissions linked to its automotive seats.

Martur Fompak achieved this, in part, through tracking emissions across its products’ entire lifecycle, from where the materials were sourced to where they were sent and used. The software analysed the carbon footprint of different fabrics and suggested lower-impact alternatives. It also provided real-time monitoring of the company’s energy consumption at more than 600 work centres, and created new delivery routes for its drivers.

Ojiambo noted that many large companies are making emissions reductions a condition of doing business with them and weaving such criteria into their procurement contracts. This could give suppliers like Martur Fompak a major incentive to lower their emissions in order to gain a competitive edge.

“Suppliers are feeling the pressure, but the smartest ones see this as an opportunity rather than a burden,” she added.

Business contribution to NDCs

The current global political climate has made sustainability concerns a convenient punchbag, with US President Donald Trump’s anti-green agenda already encouraging many companies to scale back their environmental ambitions. Across the Atlantic, the European Commission is planning to water down a package of sustainability rules originally intended to be world-leading.

The mood music is not exactly positive. According to the Financial Times, some participants at January’s World Economic Forum in Davos reported that ambition around tackling Scope 3 emissions was “crumbling” among business executives.

This comes at a time of record heat and more frequent extreme weather events, when scientists are concerned at the pace of change in the Earth’s climate and its effects. To tackle this, countries are due to submit stronger national climate plans by September, including emissions reduction targets for 2035, as required by the Paris Agreement.

These plans, known as Nationally Determined Contributions (NDCs), are a clear example of where businesses could play a bigger role in supporting government efforts to fight climate change but currently lack the capacity, partly due to a lack of data and other resources.

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Tom Cumberlege, a director at The Carbon Trust, who leads the consultancy’s work on value chain analysis and strategy, said NDCs that are able to leverage both public and private funding for implementation “could be a win-win” for governments and businesses.

“It can reduce the risk of investing in projects – such as energy efficiency improvements or renewable assets in the supply chain – and contribute to effective emissions reductions at a national level,” he explained.

Achieving NDC targets will require businesses to align their own climate action plans with those of governments and their suppliers. “Companies have an increasingly important role to play in engaging and supporting their own value chain to be part of the contribution [to NDCs],” said Fernandez of Race to Zero.

“Transitioning to net zero requires a whole of society approach,” he added. “Even with all the uncertainties and lack of clarity, companies have to reduce their Scope 3 emissions if we want to have any chance of remaining within the 1.5C threshold.”

The post Neglecting ‘Scope 3’ emissions could sink corporate climate action appeared first on Climate Home News.

Neglecting ‘Scope 3’ emissions could sink corporate climate action