Scope 3 represents the largest share of a business’s carbon emissions. While reporting on these emissions is not yet mandatory in the UK, it is becoming increasingly clear that addressing Scope 3 is essential for the future success of modern businesses. With growing global pressures to combat climate change and rising support from stakeholders across industries, Scope 3 reporting, though voluntary, is emerging as a powerful tool for businesses to protect their operations, enhance resilience, and stand out in competitive markets.
This article explores why, despite its current voluntary status, integrating Scope 3 strategies is critical for businesses to future-proof themselves in a sustainability-driven market.
Before delving into the complexities of Scope 3 emissions, it’s crucial to understand the broader global context—where we stand in addressing the climate crisis and the challenges threatening progress. Over the past decade, nations worldwide have pursued a more sustainable future through the UN’s 2030 Agenda for Sustainable Development and the Net Zero 2050 goal. However, as the clock ticks down on these targets, it is clear that collective progress is falling short, and legislative pressures will likely intensify to steer efforts back on track.
The Sustainable Development Goals (SDGs), adopted in 2015, were designed to tackle pressing global issues, including poverty, inequality, and climate change, with a deadline of 2030. Of the 17 goals, six are directly climate-focused, such as Goal 13 (Climate Action), Goal 7 (Affordable Clean Energy), and Goal 12 (Responsible Consumption and Production). While progress has been made in some areas, only 17% of the SDGs, including those linked to climate, are currently on track, according to the 2024 SDG report. The setbacks, largely attributed to global crises like the COVID-19 pandemic, geopolitical instability, and escalating natural disasters; highlight the urgent need for renewed efforts and decisive action.
Similarly, the world’s trajectory toward achieving Net Zero by 2050, essential to limiting global warming to 1.5°C, remains precarious. Despite pledges from 107 countries, emissions continue to rise, and the energy sector’s transition to renewables lags significantly. To stay within safe limits, emissions must drop by 43% by 2030. In response, some governments, including the UK, have introduced measures to align with Net Zero goals. For instance, the UK aims to reduce greenhouse gas emissions by 68% by 2030, supported by initiatives like the Great British Energy Bill and the Crown Estate Bill to drive renewable energy investment and infrastructure development.
With the stakes high and climate anxiety growing among the public, governments are expected to intensify legislation. Businesses, in turn, must adopt proactive strategies to address sustainability across their value chains. This is where Scope 3 emissions come into focus, offering a critical pathway for companies to align with future regulations, meet market demands, and remain attractive to investors.
The Greenhouse Gas (GHG) Protocol is a globally recognised organisation that has established strategic frameworks for carbon counting and reporting. The GHG Protocol provides frameworks for governments and businesses worldwide to standardise their approach to carbon reporting, which has been adopted in the UK. For example, large UK businesses are mandated to follow the Streamlined Energy and Carbon Reporting (SECR) framework. Within this framework, they use the GHG Protocol’s guidance for reporting Scope 1 (direct emissions from the company, such as transport fleets) and Scope 2 emissions (indirect emissions, such as those from utilities). Adopting these frameworks has increased awareness of energy use and emissions, encouraging businesses to adopt carbon reduction strategies. With greater awareness and domestic legislation around these scopes, many businesses are already using this carbon reporting method.
However, the Corporate Value Chain, also known as Scope 3, is different. Scope 3 emissions are all the other emissions that occur across a company’s value chain. These emissions are broken down into 15 categories identified by the GHG Protocol, covering both upstream and downstream activities.
Example of Upstream Scope 3 Emissions: When creating a product, manufacturers source ingredients from suppliers. The emissions from collecting these materials and the energy used to create the product fall under the Scope 3 emissions of the businesses buying those goods.
Example of Downstream Scope 3 Emissions: After a product is used by a business, the emissions associated with its disposal and the CO2e from that process are considered downstream Scope 3 emissions.
The key point for Scope 3 emissions is quantifying the emissions that are not directly controlled by the company but are a consequence of their operations. This provides a more holistic approach to carbon reduction strategies. However, Scope 3 is one of the largest and most complex scopes due to its vast range. Accurately reporting on Scope 3 requires collaboration and strategy across the business’s value chain, necessitating data from suppliers who may lack transparency. Unlike Scope 1 and 2, Scope 3 emissions are harder to control for the company, as they need to work with both suppliers and end users.
Scope 3 can represent up to 90% of a company’s carbon emissions, making it one of the biggest opportunities for carbon reduction strategies. Unlike Scope 1 and 2 emissions, which are mandated in UK legislation, Scope 3 is not yet legally required but is encouraged and often included in voluntary reporting frameworks. This means businesses should proactively adopt Scope 3 frameworks into their strategies. However, due to its vast reach and associated complexities, many businesses are reluctant to start. With rising pressures from both legislation and the public, implementing Scope 3 reduction plans is no longer just a nice-to-have but a strategic advantage.
Risk Reduction: Previous actions have not always achieved the necessary carbon reductions, leading more countries to include Scope 3 emissions in their legislation. Tackling this largest scope can dramatically reduce CO2e and align countries with international climate goals like NetZero. For example, in 2023, the EU implemented the Corporate Sustainability Reporting Directive (CSRD), targeting large to mid-sized companies with significant activity in the EU. This mandate requires comprehensive reporting across Scope 1, 2, and 3 emissions between 2025-2028. Including Scope 3 emissions underscores the importance of addressing carbon across the entire value chain, increasing transparency, accountability, and preventing greenwashing. Although Scope 3 is not yet mandatory in the UK, there is clear momentum towards making it a requirement. The UK government has been gathering information on Scope 3, indicating interest in future legislation. Starting the foundation for effective Scope 3 reporting now can future-proof UK businesses from potential disruptions, fines, and non-compliance.
Strength in Supply Chain: Scope 3 requires businesses to work across their value chain, providing a comprehensive understanding of their strengths and weaknesses. It offers better visibility into suppliers, not only through data and carbon footprint but also in risk management, addressing potential supply chain disruptions, regulatory changes, and resource scarcity. Scope 3 fosters a more resilient and collaborative supply chain.
Stakeholders and Investors: Quantifying a business’s largest share of carbon emissions is crucial for investors to assess resilience, climate risks, and market opportunities. This data is increasingly important to investors, with more UK investors asking for Scope 3 data to evaluate their capital risk and identify the best solutions for these emissions.
Market Edge: Legislation is not the only area of society driving efforts to address climate change. Around 74% of UK residents feel worried about climate change, and in response, 3 out of 4 UK adults have made lifestyle changes to tackle it. This societal shift has led to more consumers supporting the green consumerist movement, seeking businesses that share their values and work towards reducing CO2 emissions. In fact, UK consumers no longer view sustainability as optional for businesses. About 82% of respondents believe it is a business's responsibility to protect the environment. This increase in green consumerism is expected to grow, especially with generations like Gen Z and Millennial's, who are more driven by sustainable practices, becoming the largest consumer market share.
By addressing Scope 3 emissions, businesses can gain a competitive edge, enhance their reputation, and meet the growing demand for sustainability from customers and stakeholders. This approach also helps build long-term relationships with more eco-driven generations.
Currently, in the UK, Scope 3 emission reporting is not mandatory. This varies from country to country, with many international legislations encouraging businesses of certain sizes to use this reporting method. Scope 3 is often used by companies wanting to showcase their sustainable commitment.
Even in UK legislation like the Streamlined Energy and Carbon Reporting (SECR) framework introduced in 2019, Scope 3 is mentioned. For quoted companies, Scope 3 reporting is voluntary but strongly encouraged. The lack of a mandate is potentially due to the challenges and complexities associated with Scope 3 reporting.
However, the UK government is already researching Scope 3 emissions, suggesting a future interest in adding it to legislation. Although Scope 3 is not yet mandatory in UK legislation, it is often included in many voluntary reporting frameworks or standard-setting bodies, like the International Sustainability Standards Board (ISSB). The ISSB standards state that companies adopting these standards must report on all three scopes of emissions under its Climate-related Disclosures Standard (IFRS S2).
Scope 3 reporting plays a pivotal role in achieving modern global sustainability goals. Legislative developments like the EU’s CSRD are setting a precedent for other nations, with the UK already signaling interest through its growing research and communication around Scope 3. This indicates that pressures from both legislative bodies and stakeholders across the value chain are only set to intensify.
For businesses, integrating Scope 3 emissions into their carbon strategies is not just about staying ahead of potential regulatory demands. Despite its complexity, addressing Scope 3 emissions enables companies to align with consumer values, respond to public demand for climate action, and position themselves as innovators in a competitive marketplace.
By proactively embracing Scope 3 reporting, businesses can not only contribute meaningfully to global climate goals but also future-proof their operations, increase resilience, and solidify their reputation in an increasingly sustainability-driven world.