Taking responsibility and harnessing collaboration: The keys to unlocking Scope 3 emissions reduction

As the urgency to combat climate change and safeguard the environment intensifies, manufacturing and industrial companies worldwide are stepping up their commitment to achieving net zero by 2050 or earlier.

Although many companies have set targets to reduce their direct emissions (Scope 1) and emissions from purchased energy (Scope 2), they have yet to address the indirect greenhouse gas emissions within their upstream and downstream value chains (Scope 3). These emissions account for an average of 70% of the industry's greenhouse gas (GHG) emissions, making it an important issue that needs to be tackled.

According to Science Based Targets initiative’s (SBTi) latest Scope 3 survey, 50% of respondents self-report being “off track” for delivering their Scope 3 target – despite 40% of them indicating that executives are directly accountable for decarbonization.

Scope 3 emissions are defined by the Greenhouse Gas Protocol and extend far beyond a company's immediate operations, encompassing the entire lifecycle of its products or services. They include, for instance, emissions from procurement of raw materials, transportation, product use and end-of-life.

Because Scope 3 emissions account for a substantial portion of a company's total carbon footprint – often exceeding the combined impact of Scope 1 and Scope 2 emissions – it is crucial that companies take responsibility for addressing their scope 3 emissions, both upstream and downstream, rather than leaving the challenge solely on their suppliers and consumers.

This is all the more critical that, according to CDP, the combination of Scope 3, category 1 – which refers to purchased goods and services – and Scope 3, category 11 – which refers to the use of sold products – exceeds 70% of reported Scope 3 emissions.

According to the latest CDP report, those two categories are the ones that companies find the hardest to decarbonize, and organizations disproportionately fail to disclose details of their value chain action.

Only 16% of organizations could share details on their supply chain engagement strategy, while 11% could share details about their portfolio of low-carbon products and services.

Nevertheless, early adopters can find some advantages: by proactively managing Scope 3 emissions, they can enhance their reputation, attract environmentally-conscious customers and consumers, motivate employees and maintain a competitive edge in the evolving market landscape.

Failure to address Scope 3 emissions will not only lead to missed opportunities for growth and innovation, but also to reputational risks and financial implications as countries worldwide start to mandate the disclosure of Scope 3 emission data for larger businesses.

For example, the EU’s Corporate Sustainability Reporting Directive (CSRD) will require it as of 2024, and the US is considering it through the Securities and Exchange Commission.

Given that Scope 3 emissions from one company intersect with emissions from other companies, the strategies to mitigate these emissions must leverage collaboration and synergies across the entire value chain.

With a systemic collaboration approach, the efforts taken by companies to mitigate its Scope 3 emissions – such as re-designing products or shifting to a circular business model – can drastically reduce emissions within the inventories of other companies.

Of course, addressing Scope 3 emissions doesn’t come without challenges. Data availability and quality, difficulty in interpreting accounting standards, cost of decarbonization and the ability to drive, support and co-innovate with suppliers on decarbonization in multi-tier supply chains are common hurdles.

Despite the difficulties and challenges posed by Scope 3 decarbonization, industry coalitions and initiatives are emerging as powerful catalysts for change, allowing stakeholders to foster knowledge sharing, provide guidance and pave the collaborative way for a collective impact.

As an illustration, some initiatives address the Scope 3 accounting challenge by creating more granular guidance for their lifecycle assessment and product carbon footprint, building on existing GHG Protocol and ISO standards.

For instance, the WBCSD Pathfinder Framework provides supplementary data models and data exchange rules across sectors. Similarly, Catena X in automative, Together for Sustainability in chemicals, Global Logistics Emissions Council in electronics, and The Eco Beauty Score Consortium in cosmetics define relevant sector-specific guidance.

Other examples of innovative coalitions include Glass Futures, which tackles fuel technologies and carbon capture utilization and storage demonstrations, and the CEMBUREAU- European Cement Association, which addresses cement value chain decarbonization including clinker, cement, concrete, construction and (re)carbonation, and leveraging research and development on low clinker cements, biomass, hydrogen, etc.

In 2022, the World Economic Forum’s Centre for Advanced Manufacturing and Supply Chains established the Industry Net Zero Accelerator initiative, in partnership with Cambridge Industrial Innovation Policy (Institute for Manufacturing, University of Cambridge), Capgemini, Rockwell Automation and Siemens to support industries in accelerating their decarbonization journey.

Following the publication of our first white paper, The No Excuse Framework to Accelerate the Path to Net Zero Manufacturing and Value Chains, which was presented in January at the World Economic Forum's Annual Meeting in Davos, we are now collaborating with our growing community of industry executives on demystifying Scope 3 emissions reduction journey through knowledge dissemination and best practices sharing.

In parallel, we are working on scaling existing initiatives, as illustrated by the product carbon footprint (PCF) data exchange pilots in collaboration with the Estainium Association; and COSIRI – the first maturity index assessing sustainability site-level implementation and a powerful tool to accelerate Scope 3 mitigation through flash suppliers’ sites assessments.

As we stand at a critical juncture in the fight against climate change, taking responsibility and harnessing collaborations are paramount to address Scope 3 emissions.

By recognizing the interconnectedness of our actions throughout the value chain, we can not only accelerate the path to net zero but also unlock multiple opportunities to drive sustainable transformation.

The urgent need to accelerate the path to net zero cannot be achieved without step-changing Scope 3 emissions reduction. Hence our call for companies to unite, share knowledge, and drive collective action. Only together can we succeed.

We thank the Industry Net Zero Accelerator initiative’s team – Amira Tantaoui El Araki, David Leal-Ayala, Edouard Henrio, Eric Enselme, Maria Basso, Scheile Preston, Tobias Ebi, Xiaoming Zhong – and partnering organizations – Cambridge Industrial Innovation Policy, Capgemini, Rockwell Automation, Siemens – for their contribution to the initiative.