Over the past few years, there has been a notable surge in interest regarding Scope 3 reporting by companies.
In fact, there was a 28% increase in Scope 3 categories disclosed to CDP in 2022, as compared to 2019. And the overwhelming majority (92%) of emissions disclosed by European companies in 2022 were Scope 3, with the use of sold products (57%) and purchased goods and services (17%) cited as companies’ key hotspots.
For those not yet familiar with Scope 3, these are emissions that originate from activities both upstream and downstream, involving suppliers, customers and other activities. As opposed to Scope 1 and Scope 2 emissions, where companies have more direct influence in assessing and reducing emissions, Scope 3 emissions present a unique challenge as they often require collaboration and data sharing with various entities or stakeholders in the value chain.
As organisations are increasingly recognising the significance of Scope 3 emissions in their overall carbon footprint, noteworthy trends are emerging in climate-related commitments and carbon accounting.
Let’s delve into some of these key trends shaping the Scope 3 reporting landscape:
Sustainability disclosure requirements are increasing
It’s no secret that the urgency to address emissions is ramping up. As part of the quest for greener future, sustainability disclosure requirements are increasingly coming into force that require organisations to report their carbon footprints, with some enforcing the disclosure of Scope 3 emissions.
Take the Corporate Sustainability Reporting Directive (CSRD) as an example. This regulation will require all large enterprises that carry out business in the EU, including those based outside of the EU, to disclose their carbon footprint starting in 2024, covering Scope 3 emissions too.
Rise in adoption of carbon accounting tools
The proportion of global emissions covered by companies with a target including Scope 3 has more than doubled since 2019. This indicates a growing trend in corporations preparing for regulatory requirements and recognising the importance of addressing their indirect emissions.
In turn, this means that companies are seeking more granular and specific Scope 3 data to effectively monitor their progress. However, a significant challenge in setting robust Scope 3 targets lies in accessing high quality from supply chains.
To address this obstacle, carbon accounting tools are emerging to facilitate the collection and monitoring of emissions data across the value chain. In fact, the global carbon accounting software market size is projected to grow from $15.31 billion in 2023 to $64.39 billion by 2030.
The reason behind this boom is the fact that automating carbon accounting makes tasks like data collection, emissions tracking and analysis a lot more streamlined. Additionally, it enhances transparency, auditability and traceability for carbon reporting. Not to mention that the transformational insights offered by these tools often leads to cost savings too, as the greatest sources of emissions are typically also sources of financial inefficiency.
Companies respond by setting value chain-wide targets
As companies are taking proactive measures to enhance transparency and due diligence by establishing value chain-wide carbon accounting practices, many international corporates are using Scope 3 reporting to engage with their supply chain. This means that, increasingly, companies are asking their suppliers to provide sustainability information, including carbon emissions.
For example, beginning in 2024, Amazon is updating its Supply Chain Standards to require suppliers to share their carbon emissions data and set carbon goals. This is in parallel with Amazon's decarbonisation target to reach net zero by 2040, requiring it to reduce its carbon footprint across the entire business, including its vast global supply chain.
Another example of retailers bolstering their Scope 3 is the recent collective initiative by eight of the UK’s biggest supermarkets, representing approximately 80% of the UK market, alongside WRAP and WWF. As a group, they will develop a consistent framework for the measurement and reporting of the retailer’s Scope 3 emissions.
Scope 3 reporting is here to stay
It is apparent that Scope 3 reporting is not a passing trend. Instead, it’s gaining momentum and recognition for the pivotal role it plays in avoiding the worst effects of climate change.
As more and more companies find themselves under mounting pressure, not only from impending legislation but also from investors and key stakeholders, the announcement and implementation of Scope 3 commitments will rise in parallel.
By staying at the forefront of carbon reporting trends, businesses that fall within these companies’ value chains can not only be prepared for what information they may have to disclose, but also position themselves as leaders in sustainability and boost their own long-term resilience.
For more information carbon accounting and how it can help your business stay ahead of the curve, reach out to our team.