In today’s interconnected world, a company’s ESG (Environmental, Social, and Governance) impact doesn’t end at its front door, it goes far into its supply chain. From raw material sourcing to final product delivery, every link in the chain carries its own emissions, labor practices, and sustainability risks. That’s why supply chains have become a key area of focus in ESG reporting.
As regulations tighten and stakeholders demand greater transparency, organizations are under pressure to not only account for their direct operations but also disclose the hidden impact of their suppliers. Yet, collecting accurate data across complex, global supply networks remains one of the toughest challenges in ESG reporting, particularly when it comes to Scope 3 emissions.
Understanding the Link Between Supply Chain, ESG, and Scope 3 Emissions
ESG reporting has moved beyond corporate promises and glossy brochures. Today, it demands hard numbers, especially when it comes to emissions. And nowhere is this more difficult, or more critical, than in the supply chain.
In this blog, we examine why supply chain carbon footprint data remains elusive, explore how companies are currently tracking Scope 3 emissions, and offer a realistic take on what’s required to improve ESG reporting accuracy.
Why the Supply Chain Is Central to ESG
When companies commit to reducing their environmental impact, their attention often turns inward, cutting emissions from their facilities, switching to renewable energy, and reducing unwanted business travel. These efforts target Scope 1 and Scope 2 emissions, which fall within a company’s direct control or relate to purchased electricity.
But emissions reduction doesn’t stop at the office door. Your company’s ESG performance isn’t just about what happens inside your own facilities. It’s also shaped by what happens across your entire value chain, making Scope 3 emissions a critical component of enterprise ESG reporting.
38% of businesses cite access and collection of supply chain ESG data as a top challenge.
Understanding Scope 3 Emissions: How the Supply Chain Ties into It
In carbon accounting, emissions are classified into three “scopes” under the GHG (Greenhouse Gas) Protocol:
Scope 3 is where your supply chain’s carbon footprint lives. It includes:
Upstream emissions: From suppliers producing goods and services you buy
Downstream emissions: From the use, transportation, and disposal of your products
“Scope 3 emissions are 11 times higher than their direct (Scope 1) emissions.”
Source: Thomsonreuters
Why Scope 3 Emissions Are the Toughest to Track
If you’ve ever found yourself checking off all the ESG boxes but still feel like something’s missing, this is probably why Scope 3 emissions are the hidden iceberg beneath your carbon footprint. And they might just be 11 times higher than your direct emissions.
They are hard to track because you can track your own consumption of energy or fuel. But following emissions from dozens or hundreds of suppliers in various geographies? That is a different story altogether.
84% of companies do not monitor their full supply chain for ESG risks, and 70% do not know what data to track.
Data & Illustration: Deloitte
Here’s what makes Scope 3 emissions tracking a minefield:
Limited visibility into supplier data: Few firms have direct visibility into their upstream and downstream suppliers’ emissions procedures. Smaller suppliers typically don’t track emissions at all.
Fragmented supply chains worldwide: As operations become more global, mapping emissions across various jurisdictions, vendors, and transport modes gets more challenging.
Corporates’ supply chain scope 3 emissions are 26 times higher than their operational emissions.
Source: CDP.net
Inconsistent practices: Those suppliers that do disclose emissions will likely have different assumptions, reporting periods, boundaries, or emissions factors making aggregation nearly impossible without significant manual effort.
No regulatory consistency: Whereas regulations such as the EU’s CSRD and the U.S. SEC’s Climate Disclosure Rule are forcing Scope 3 reporting into the limelight, there is no international standard mandating suppliers to report emissions in an identical manner.
How to Tackle Scope 3 Emissions in the Supply Chain
Let’s break it down into something more manageable. Here’s how firms are actually making headway in converting Scope 3 mayhem into something organized and usable:
1) Begin with a Map
Start by mapping out your entire value chain. What activities qualify as upstream and downstream emissions? Which suppliers or materials contribute most significantly?
You can refer to the GHG Protocol’s Scope 3 categories as your guide. This will enable you to target the most material ones first.
2) Engage with Your Suppliers
Yes, it seems daft. But some firms miss this step and head straight to estimates. Contact suppliers, particularly your biggest or highest-risk ones, and tell them why this is important in the context of their business.
Don’t simply request figures. Provide context. Make them see how reporting emissions can also help them.
3) Segment Suppliers by Readiness
All vendors are not equal. Some will already have established ESG systems. Others are starting from scratch. Develop a tiered system:
Tier 1: High emissions impact, ready to report, then gather actual data
Tier 2: Willing but inexperienced, then provide assistance, templates, or tools
Tier 3: No data available, then use spend-based estimates and flag for future improvement
4) Use Tech to Your Advantage
There are plenty of ESG platforms available. A good one can automate data collection, use consistent emissions factors, and highlight inconsistencies in your existing process. Just keep in mind: tools only work as well as the data and supplier relationships driving them.
5) Don’t Let Perfect Be the Enemy of Progress
You won’t have high-quality data from each supplier immediately. That’s fine. Use estimates and make it more refined on the fly. Most firms employ a hybrid model: rough estimates initially, followed by progressively finer, activity-based data as relationships become more established.
Only 11% of companies have a comprehensive third-party data visibility and tracking system for environmental performance.
Why This Isn’t Just About Compliance
ESG reporting is so much more than just compliance and prevention of regulatory risks. If it’s done right, it drives sustainable business growth, strengthens stakeholder relations, and makes you ready for the future.
Let’s face it: Collecting supply chain emissions data is no easy feat. But it’s one of the most impactful moves you can make for enhancing your ESG reporting credibility.
By enhancing visibility into your Scope 3 emissions, you can:
- Reveal hotspots in your supply chain
- Establish better, more transparent supplier relationships
- Get ready for future regulations
And lastly, show investors and customers you’re serious about reducing your full carbon footprint to establish yourself as a sustainable, future-first brand.
Final Thoughts: Supply Chain as the Backbone of ESG Success
For years, the supply chain has been fragmented and their impact, largely inconspicuous. But all that’s changing quickly. With evolving regulatory standards demanding full carbon disclosure, Scope 3 emissions tracking has emerged as the mainstay of ESG reporting. Organizations are now strengthening supplier relations, investing in tools and training, and redefining what accountability means in an interlinked economy.
Breaking the supply chain data dilemma is perhaps the strongest lever companies possess to create high-quality, forward-looking ESG initiatives.
