COP28: Why firms need to start measuring Scope 3 emissions now

Deadly wildfires on the islands of Rhodes and Maui, hail storms that sent ice flowing through the streets in Italy, and a heatwave in the US that may have killed as many as 300 people in the city of Phoenix as temperatures topped 43C for 31 consecutive days. 

The extreme weather patterns that have ravaged the Western world this summer are a stark reminder of the urgent need to respond to global climate change. 

Companies have long faced pressure to play their part by measuring and disclosing their corporate carbon footprint to investors and the wider public. 

These have typically been divided into Scope 1 emissions – Green House Gases (GHG) a company creates itself, for example, from its industrial combustion processes or by using fossil fuel powered vehicles – and Scope 2 emissions, which are produced on its behalf when it buys energy to electrify, heat or cool its buildings. 

Now there are growing calls for firms to do the same for greenhouse gas emissions occurring up and downstream in their value chains. 

The number of firms currently disclosing these Scope 3 emissions is comparatively low. After all, the process is entirely voluntary. It is also fraught with ambiguity and complexity. 

Accurately reporting the emissions data for 15 different business activities across the lifecycle of a product, as well as for employee travel and commuting, is a time-consuming and challenging task. 

On top of this, many companies fear the arduous process could backfire if disclosing Scope 3 emissions produces unfavourable new insights on their total environmental impact compared to their smaller direct carbon footprint.

Indeed, my research with my colleagues Stephen Brammer and Jens Roehrich, of the University of Bath, suggests that when firms begin the process of measuring Scope 3 emissions their data increases year-on-year, even when controlling for the growth of the firm. 

The risk of a subsequent backlash from activists and investors creates a strong deterrent for other companies to follow suit.  

Yet there are good reasons why we should expect Scope 3 emissions to follow this initial trend. As businesses begin measuring their indirect emissions on an annual basis, the efforts they invest in providing a more accurate picture is likely to reveal exactly that – a larger figure summarising GHG emissions from all elements covered under the wide-ranging scope.  

While many companies initially rely on their own estimates or widely available conversion tables to provide Scope 3 emissions data, over time they are likely to move towards more accurate figures based on data directly obtained from their suppliers and customers. 

To achieve this, organisations employ a variety of formal and informal processes of collecting such data from their different supply chain partners. This includes, for example, firms requesting emissions data during tender stages and later demanding annual updates, enforcing this through their supply contracts.  

Why Scope 3 emissions are difficult to measure

As these vendors and buyers begin to up their game in terms of more accurately accounting for their own Scope 1 and 2 emissions, the overall effect is that the emissions reported under Scope 3 are equally prone to increase. This is primarily the result of making more comprehensive efforts of measuring such emissions, rather than emissions actually growing. 

The same investors, analysts, and other stakeholders who demanded that these companies disclose their Scope 3 emissions – to better assess their risk exposure and efforts to move towards net zero emissions – may become concerned if that data is taken out of context, without recognising the relative stage of Scope 3 emissions disclosure a company is in. 

However, our results also suggest that after about five or six years of reporting Scope 3 emissions, businesses begin to show year-on-year improvements compared to firms that are at an earlier stage in this journey. 

It turns out that greater experience of Scope 3 emissions disclosure, combined with a broader approach towards engaging suppliers and customers in the process of measuring and reporting GHG emissions data, are also essential to drive performance improvements by identifying and implementing technological and organisational changes. 

In other words, companies face a paradox. On one hand, measuring and engaging with supply chain partners initially reveal a larger footprint. But over time, the same processes are necessary precursors to a wider transformation towards net zero. 

Firms must become comfortable with navigating this paradox by anticipating that their best efforts will initially make them look worse if taken out of context. They should prepare to manage this effectively with clear communications. 

Equally, outsiders must take this into account and avoid comparing Scope 3 emissions footprints without acknowledging that businesses may be at different points on this journey. 

Finally, firms should remember that their efforts will eventually enable them to demonstrate reductions in emissions, especially if they are calculated as changes over time rather than annual emissions footprints.  

We don’t yet know whether it is possible to speed up the journey, so organisations don’t have to wait for five years before emissions are likely to fall. However, organisations may be able to accelerate the wider transition towards sustainability by sharing the insights they have gained from measuring and reducing their own footprints. 

It is also likely that companies will experience similar tensions in other complex and ambiguous sustainability areas of their supply chains, such as the Carbon Disclosure Project’s new annual and voluntary survey on firms’ plastic waste. 

If so, the lessons learned on Scope 3 emissions should help organisations to manage their own and stakeholders’ expectations accordingly. 

Further reading: 

Dahlmann, F., Brammer, S. and Roehrich, J. K. 2023. Navigating the “performing-organizing” paradox : tensions between supply chain transparency, coordination, and scope 3 GHG emissions performance. International Journal of Operations & Production Management.

Stubbs, W., Dahlmann, F. and Raven, R. 2022. The purpose ecosystem and the United Nations Sustainable Development Goals : interactions among private sector actors and stakeholders. Journal of Business Ethics.

Frederik Dahlmann is Associate Professor of Strategy and Sustainability and teaches Business & Sustainability on the Global Online MBA and Executive MBA.

Learn more about being an ethical leader on the four-day course Behavioural Science for Ethical Leaders and Negotiators.

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