Scope 3 emissions are key to decarbonization – but what are they and how do we tackle them?

• Scope 3 emissions – those a company is indirectly responsible for across its value chain – represent the most difficult challenge on the global net zero journey.Scope 3 upstream can represent up to 70% of a company’s emissions across highly complex global value chains – just eight such supply chains account for more than 50% of global emissions.Collaborative action at scale can help tackle these emissions, with multinational corporations stepping up and assisting businesses along their value chains to reduce their carbon footprint.

Make no mistake – we are racing against time with climate change. The latest Intergovernmental Panel on Climate Change report confirmed that we are not responding fast enough to the crisis and are on course to breach the critical barrier of 1.5 degrees Celsius warming within the next two decades. Breaching this limit sets us on a path to cascading climate tipping points, from melting carbon-rich permafrost in the poles to losing almost all mountain glaciers – with up to 10 tipping points triggered below 2 degrees Celsius warming.Over the next few years, we must do everything we can to reduce the climate impact on our societies and economies. We no longer have the luxury of focusing only on 2050 targets; we need urgent and drastic cuts to our emissions with 2025 and 2030 milestones guiding our efforts – and nowhere will these efforts be more challenging, meaningful and rewarding than our scope 3 emissions.

Greenhouse gas emissions from business activity fall under three categories or “scopes.” Scope 1 refers to the direct emissions a company is responsible for from its owned and controlled resources and facilities, for example, those produced by company vehicles or carbon dioxide as a by-product of industrial processes, such as cement manufacturing. Meanwhile, scope 2 covers indirect emissions from using purchased energy from a utility provider, often uniquely from electricity consumption.Both categories are comparatively simple to monitor and tackle. A company can track its electricity use and implement measures to reduce that consumption or switch to renewable sources if feasible. It can switch out its old company cars for electric vehicles or adopt alternative, innovative, low-emission technologies for its industrial processes.Scope 3 emissions offer no such quick fix. They are produced up and down a company’s value chain by suppliers (upstream) and customers (downstream). They encompass the emissions of purchased goods and services – from producing materials, components and parts to transport and distribution. Scope 3 emissions extend to the life-cycle footprint caused by customers using the goods and the waste footprint to dispose of them. As well as being incredibly broad and complex, scope 3 emissions also comprise most of most companies’ emissions. Scope 3 upstream alone can represent 70% of a company’s emissions – which is why they’ve become the focus of one of the World Economic Forum’s flagship decarbonization initiatives, the Alliance of CEO Climate Leaders.

Addressing scope 3 upstream emissions means working to decarbonize entire value chains. The Organisation for Economic Cooperation and Development (OECD) estimates that around 70% of international trade today involves global value chains (GVCs), as services, raw materials, parts and components cross borders – often numerous times – before being incorporated into end-user products, which are then shipped all over the world again. The complexity of these GVCs is staggering – according to research published by the Forum in 2021, just eight value chains are collectively responsible for 50% of global emissions.Another part of the problem is the diversity of suppliers making up GVCs. These could be anything from a family-run business with under 10 employees providing local transport services to a 100+ staffed company manufacturing small parts for a much larger company’s end product, or even a large enterprise with manufacturing activity spanning multiple continents and time zones.The economic picture further complicates the situation – rising costs due to inflation are hitting companies of all sizes and localities. These companies do not often have the resources or knowledge to calculate their carbon footprint, set specific emission reduction targets or implement a reduction strategy. In some cases, business partners or regulators aren’t incentivizing such action as they focus on other priorities.

So, what’s the solution?

Partners across the value chain must come together and act if there is any hope of achieving the speed and scale of decarbonization needed.Tackling scope 3 upstream emissions starts with large, multinational companies with the highest potential to drive and amplify global climate action. These companies can create a “pull” effect for change and initiate the incentives for action along their value chains. They have the resources and knowledge, often including teams dedicated to climate action and sustainability. Those companies must now step up and take responsibility for their value chains and assist lesser-resourced suppliers and partners.The Alliance – the world’s largest CEO-led community dedicated to achieving net zero emissions – is taking on this challenge with its 120+ multinational company members spanning 26 countries and 12 industries.One of the Alliance’s key priorities is tackling scope 3 upstream emissions, which account for 1.3 gigatonnes of its members’ estimated combined annual footprint, according to 2021 data collected from the Alliance’s annual survey results and disclosures to CDP – a non-profit running a global disclosure system. For context, that amount is roughly equivalent to the total annual emissions of Japan.The Alliance is launching an initiative where members will explore how to support other companies along their value chains to analyse their emissions and develop mitigation strategies. The initiative will include a dedicated support hub where members’ and suppliers’ procurement teams can access help to get started. It amounts to an unprecedented effort to scale collaborative action across value chains, including workshops, open lines of communication, and support and cooperation offered by Alliance members to suppliers of all sizes. The task remains extremely challenging. Some Alliance member companies count thousands of suppliers at vastly different stages of readiness to take on decarbonization action. But this is why this collaborative approach is urgent and one of the most significant ways to make progress against global net-zero targets.Every fraction of a degree of warming carries risks of new cascading tipping points for the planetary systems that sustain us – so there is no time to lose. We, therefore, call on companies worldwide to replicate the Alliance’s approach. And it shouldn’t just stop at the executive company level – we need leaders from corporate boards, trade associations, governments and international organizations to understand better and enable action on scope 3.