As companies strengthen their climate commitments, Scope 3 emissions remain one of the biggest challenges to measurable progress.
A company can directly manage the energy used in its offices, factories and facilities. However, much of its environmental impact may occur outside its own operations—in raw-material extraction, supplier manufacturing, transportation, product use and end-of-life disposal.
These indirect emissions are known as Scope 3. They are often the largest and most difficult part of a company’s emissions profile.
Understanding Scope 3 Emissions
Corporate greenhouse-gas emissions are generally divided into three categories:
Scope 1: Direct emissions from sources owned or controlled by a company.
Scope 2: Indirect emissions from purchased electricity, steam, heating and cooling.
Scope 3: Other indirect emissions across a company’s upstream and downstream value chain.
The GHG Protocol divides Scope 3 into 15 categories, including purchased goods and services, capital goods, transportation, business travel, employee commuting, use of sold products, end-of-life treatment and investments.
This broad coverage makes Scope 3 important because it captures emissions linked to a company’s business activities even when they occur outside its direct control.
Why Scope 3 Is Difficult to Measure
Scope 3 emissions are difficult to measure because companies often lack reliable supplier-level data and have limited visibility across complex global value chains. Manufacturers may need to rely on estimates, industry averages or spend-based calculations, while differences in reporting boundaries, emissions factors and assumptions can make results difficult to compare.
Recent research highlights that reducing Scope 3 emissions is both a technical and organizational challenge. Manufacturers need better supply-chain data, stronger supplier engagement and effective approaches to identifying reduction opportunities. Artificial intelligence can support emissions analysis and decision-making, but technology needs to be combined with effective governance and collaboration across the value chain. (ScienceDirect)
Improving data quality therefore requires stronger supplier collaboration, consistent methodologies and transparent disclosure of data sources, assumptions and uncertainties.
Scope 3 Also Depends on Product Use
Some Scope 3 emissions occur after a product is sold. A vehicle’s fuel consumption, an appliance’s electricity use or the disposal of a product can all contribute to a company’s value-chain emissions.
Reducing these emissions may therefore require changes in product design, energy efficiency, customer behavior, infrastructure and recycling systems.
The Reporting Challenge
Scope 3 is increasingly becoming part of formal climate-related reporting. Under IFRS S2, companies assess their upstream and downstream value chains and disclose Scope 3 emissions when relevant and material. Companies operating in or connected to Canada should also monitor developments under the Canadian Sustainability Disclosure Standards (CSDS).
Credible reporting requires companies to explain:
•Which Scope 3 categories are included
•How emissions were calculated
•Which data sources and assumptions were used
•Where estimates and uncertainties remain
•How emissions data informs climate targets and business decisions
A reported number is more useful when stakeholders can understand how it was produced.
From Measurement to Reduction
Better measurement is the starting point, but companies also need to connect emissions data with procurement, product development, operations and investment decisions.
Key actions include:
Prioritize material categories: Identify the Scope 3 sources responsible for the greatest emissions.
Engage suppliers: Set clear data expectations and help suppliers improve their measurement capabilities.
Increase primary data: Use supplier-specific information where practical, particularly for high-impact materials and products.
Include climate criteria in procurement: Consider carbon intensity, material efficiency, energy use and circularity alongside cost and quality.
Redesign products: Low-carbon materials, longer product lifespans, repairability and recycling can reduce lifecycle emissions.
Set interim targets: Near-term targets make progress easier to monitor.
Use technology responsibly: Digital platforms and AI can improve data collection and analysis, but data quality and assumptions still require oversight.
Collaboration Across the Value Chain
Scope 3 emissions cannot be addressed by companies working alone. Suppliers need clear requirements and support. Customers need lower-carbon products and services. Investors need reliable and comparable information. Policymakers can support consistent reporting frameworks and incentives for decarbonization.
This is particularly relevant to manufacturing, food and agriculture, retail, transportation, construction and technology, where emissions can be spread across complex value chains.
Better Scope 3 data can also create business value by identifying inefficiencies, improving supplier relationships and supporting the development of lower-carbon products and services.
The Credibility Test
Scope 3 provides an important measure of how seriously a company is addressing the broader impact of its business model.
A credible climate strategy must look beyond owned facilities to the materials a company purchases, the suppliers it works with, the products it sells and the emissions associated with their use and disposal.
Scope 3 accounting will continue to involve data gaps and uncertainty. But companies that improve data quality, disclose their methods clearly and work with value-chain partners will be better positioned to turn climate commitments into measurable progress.
For ESG leaders, the focus is shifting from simply reporting Scope 3 emissions to using better value-chain data to identify and reduce them.
Join industry leaders, sustainability experts and climate innovators at ESGNext Awards and Conference Toronto to explore how organizations can move from Scope 3 reporting to practical value-chain action.