The urgency companies are feeling to quantify and reduce their carbon emissions stems from more than government regulations — it's a matter of long-term business viability. Companies that cannot adapt to a low-carbon economy, and minimize the physical risks posed by climate change will not be competitive in the coming decades as we adjust to the low-carbon economy.  

Investors, customers and business leaders are asking: What is an organization's transition risk, and how will the company mitigate vulnerabilities? Quantifying Scope 3 emissions is essential to answering these questions because it provides a comprehensive view of risk throughout an organization's value chain.  

Scope 3 comprises emissions generated by all of a company's suppliers, distributors and customers, accounting for the majority (75% on average) of a company's greenhouse gases. The supply chain is often the largest contributor, generating more than 11 times the emissions of operations. Because an organization’s business model relies on its suppliers, its transition risk is inextricable from its suppliers' risk. Companies cannot build long-term sustainability unless their vendors do, too.  

Companies can reduce supply chain emissions and mitigate climate risks by first understanding the sources of those emissions. This visibility is achieved with data.  

How to Obtain Supply Chain Emissions Data

Many companies already possess the energy and fuel consumption data needed to quantify Scope 1 and 2 emissions in the form of utility bills and other operational data. Scope 3 poses significant challenges because most information lives outside the organization. Though it’s unlikely that a company will be able to gather complete figures from all external sources, the good news is you don’t need perfect data to start building a mature approach to supply chain management. 

Supply chain emissions are calculated with a blend of internal and external data. Start by collecting essential internal data like supplier spend. Pairing this information with commodity or product averages generates modeled data to begin to identify where risk might exist. As potential emissions hotspots emerge, companies can prioritize these suppliers or processes as their first targets for collecting more primary data. Blending commodity averages with direct supplier data forms the hybrid method for calculating supply chain emissions. The hybrid data approach is the fastest path to meaningfully uncovering the most significant supply chain risks and opportunities. Moving from modeled data to primary data is essential to make Scope 3 actionable. This step is critical to de-risk your business.  

Several organizations can support businesses in gathering primary Scope 3 data outside of individual supplier surveys, including the EPA's Energy Star program, CDP's Supply Chain program and the Responsible Business Alliance’s Emissions Management Tool, as well as carbon management software containing built-in supplier datasets.   

How to Use Supplier Emissions Data

Supply chain emissions data illuminates the greatest climate transition risks in the supply chain, enabling companies to prioritize their efforts to build concrete decarbonization strategies. Logical reduction targets include the biggest vendors by spend and vendors or processes with the most (or most intensive) carbon emissions. For example, an electronics company might prioritize addressing semiconductor manufacturing emissions, and an automaker might target its material sourcing. They may even pinpoint suppliers with an outsized emissions impact compared to suppliers in similar industries. 

Companies may also consider their existing relationships with each supplier to prioritize the partnerships where they have the most influence. In the case of the electronics company, it may be the primary semiconductor customer of a particular manufacturer, giving it greater leverage to ask for or help drive emission reductions. Focusing on such relationships helps organizations accelerate meaningful progress toward supply chain decarbonization.  

Once they establish targets and goals, companies can develop appropriate action plans. Potential approaches to supply chain decarbonization include vertical integration, nearshoring, new partner engagement, supply chain efficiency optimization and, critically, supplier and partner collaboration. 

Because decarbonization requires action across supply chain entities, many organizations create supplier engagement programs. Companies leverage education, technical support, incentives and renewable energy procurement assistance to help partners implement carbon reduction efforts, benefitting both organizations. Collaboration may also result in practices that reduce climate risk or carbon output for the industry at large.  

Remember: Companies don’t need complete or perfect data to start prioritizing and implementing emission reduction strategies across their supply chain. Decarbonization happens not with the flip of a switch but with incremental steps. Even small-scale actions positively contribute to overall change, but we need them to happen soon. 

Business Model Considerations

To weather climate change and the transition to a renewable energy economy, companies must also evaluate their own practices, analyzing:

• Physical risks — Are business operations susceptible to climate-related impacts, such as rising sea levels, extreme weather or weather pattern shifts? 
• Product/service sustainability — Do products or services use sustainable materials and processes? Can they still be produced in a low-carbon economy?
• Product use — Will the product be useable or useful to customers in ten years? How might changing energy infrastructure impact how compelling the product is to customers? 

Organizations failing to adjust business models will inevitably lose partners, investors and customers. And supply chains are critical places for companies to examine potential risk. 

Scope 3 Reporting Requirements

California recently passed the Climate Corporate Data Accountability Act, which mandates Scope 3 reporting for any company with over $1 billion in annual revenue operating in the state. The federal government is poised to enact new Scope 3 reporting requirements, and many companies will already need to report under the EU's Corporate Sustainability Reporting Directive (CSRD). These regulations will impact nearly every business worldwide, even those not directly covered. The interconnected global supply chain means major corporations will require direct emissions data across every tier of their supply chain, compelling companies of all sizes to adopt emissions reporting and management. 

Moving forward, actionable climate data, tangible decarbonization progress and long-term reduction plans will be critical to doing business. Companies with carbon accounting and defined strategies to help partners reduce and report emissions will increase supply chain resiliency and bolster investor and customer confidence.  

Without visibility into Scope 3 emissions, companies lack the data to fully account for and demonstrate their carbon impact and risk to investors and partners. And worse, companies cannot build an actionable strategy to mitigate those climate risks and build a sustainable business for the future. Decarbonization appears daunting, but no step is too small to begin this necessary journey.  

Tim Weiss is co-founder & CEO of Optera.