Companies in all industries are working to decarbonize their operations, but many overlook their largest source of emissions. For most firms, Scope 3 upstream emissions from their suppliers are, on average, 21 times higher than their direct Scope 1 and 2 emissions. Yet few take meaningful action.
A recent report by BCG and EcoVadis, a leading provider of sustainability ratings and intelligence, identified five actions companies can take to manage their Scope 3 emissions—with supplier engagement being the most effective. These actions are helping companies reduce emissions, mitigate future climate risks, and deliver strong ROI on decarbonization investments.
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The High Cost of Inaction
Despite the significant share of emissions from suppliers, only 24% of companies reporting on the EcoVadis platform disclose their Scope 3 upstream emissions. Moreover, just 8% have set targets to reduce those emissions, and only 3% are on track to meet targets aligned with the Science Based Targets initiative.
This translates to significant business risks. According to the latest emissions disclosures from over 4,500 firms, companies report more than 13 gigatons of Scope 3 supply chain emissions to EcoVadis annually. If left unaddressed, these emissions could trigger costs of more than $500 billion in annual transition liability by 2030 (at a projected price, aligned with the EU’s Emissions Trading System, of $76 per ton of CO2e).
However, companies have an opportunity to proactively reduce emissions while building resilience to climate risks. Early measures can help decarbonize at a low cost while delivering returns of three to six times their investment.
Five Actions to Manage Supply Chain Emissions
Our analysis identified five actions companies are taking to manage Scope 3 supply chain emissions:
- Engage suppliers. Partnering with suppliers to increase transparency and mitigate climate risks makes companies nine times more likely to set and deliver a Scope 3 decarbonization target.
- Measure results. Tracking emissions in line with leading reporting standards, down to the level of individual products, increases the likelihood of achieving a target by a factor of four.
- Create accountability. Designating a climate-aligned leadership team to embed accountability drives a four-fold increase in the likelihood of achieving targets.
- Plan. Defining a company-wide low-CO₂ roadmap improves the odds of achieving a target by a factor of three.
- Fund the program. Allocating a decarbonization budget delivers a two-fold increase in the likelihood of achieving a Scope 3 target.
Three Steps to Kick-Start Supplier Carbon Engagement
Engaging suppliers is the most effective lever for reducing Scope 3 emissions, and companies can begin without much preparation. We propose a three-step process to get started:
- Generate a baseline of supplier emissions using primary data or industry benchmarks.
- Segment and prioritize suppliers by their emissions footprint, climate risk exposure, and strategic importance to the business.
- Act decisively by training, incentivizing, and offering partnerships to suppliers—especially those with high emissions, high climate risk, low climate maturity, and high strategic value.
As the report highlights, Scope 3 emissions have a material impact on organizations and there is a clear business case for action. Companies that adopt the right approach, with a focus on supplier engagement, can generate an attractive ROI on decarbonization investments and mitigate future climate risk.
