When organisations talk about cutting carbon emissions, the focus often falls on what they directly control: fuel use, electricity consumption, and on-site operations. Yet for most companies, the majority of their climate footprint lies elsewhere. This is where Scope 3 emissions come in.

Scope 3 emissions cover all indirect greenhouse gas emissions that occur across a company’s value chain, both upstream and downstream. For many sectors, they account for 70 to 90 percent of total emissions, making them the most complex and most critical part of corporate climate strategy.

What Are Scope 3 Emissions?

Under the Greenhouse Gas Protocol, emissions are divided into three scopes. Scope 3 includes all emissions that are not captured in Scope 1 (direct emissions) or Scope 2 (purchased energy). These emissions occur outside a company’s own facilities but are directly linked to its business activities.

Scope 3 is structured into 15 categories, spanning everything from supplier manufacturing and logistics to how products are used and disposed of by customers.

Upstream Emissions: Before Products Reach the Company

Upstream emissions occur before goods or services arrive at a company’s operations. These categories often represent the largest share of Scope 3 emissions, especially for manufacturing, retail, and consumer goods businesses.

Purchased goods and services include emissions from the extraction, production, and processing of raw materials and components sourced from suppliers. Capital goods cover emissions embedded in machinery, buildings, and infrastructure purchased by the company.

Fuel- and energy-related activities capture emissions associated with producing the fuels and electricity a company consumes, beyond what is counted in Scope 1 and 2. Upstream transportation and distribution include emissions from moving goods between suppliers, warehouses, and facilities.

Additional upstream categories include waste generated in operations, business travel, employee commuting, and emissions from leased assets that are not owned or controlled by the company.

Downstream Emissions: After Products Leave the Company

Downstream emissions occur once products or services move beyond a company’s direct control. These emissions are particularly significant for sectors such as energy, automotive, electronics, and consumer products.

Downstream transportation and distribution cover emissions from delivering products to customers. Processing of sold products includes emissions from further manufacturing or transformation carried out by third parties.

One of the most material categories for many businesses is the use of sold products. For example, the lifetime energy consumption of vehicles, appliances, or electronic devices often far exceeds emissions from their production.

End-of-life treatment captures emissions from disposal, recycling, or landfill. Other downstream categories include emissions from leased assets, franchises, and investments, which are especially relevant for financial institutions.

Read more: Why Real ESG Goes Beyond Reports, Labels, and Public Commitments

Why Scope 3 Is So Challenging?

Scope 3 emissions are difficult to measure because they rely heavily on third-party data, estimates, and assumptions. Companies often lack direct visibility into supplier operations or customer behaviour, making data collection complex and resource-intensive.

In addition, value chains are global and fragmented. A single product may involve dozens of suppliers across multiple regions, each with different data maturity levels. This makes consistency, accuracy, and verification major challenges.

Despite these difficulties, regulators and investors increasingly expect companies to address Scope 3 emissions rather than exclude them.

Why Scope 3 Matters for Climate Strategy?

Ignoring Scope 3 emissions creates a misleading picture of climate performance. A company may appear to reduce emissions internally while its overall footprint continues to grow through its value chain.

Scope 3 emissions are also closely linked to financial and transition risks. Supply chain disruptions, carbon pricing, changing consumer preferences, and regulatory shifts all affect upstream and downstream partners. Companies that understand these exposures are better positioned to manage risk and identify opportunities.

From a net-zero perspective, credible targets are impossible without Scope 3. Most science-based targets require companies to measure, disclose, and reduce Scope 3 emissions where they are material.

How Companies Can Start Tackling Scope 3?

Effective Scope 3 management begins with prioritisation. Not all categories are equally material, and companies should focus first on those with the largest impact and strongest links to business risk.

Supplier engagement is critical. Leading organisations work with suppliers to improve data quality, set shared reduction targets, and support decarbonisation efforts. On the downstream side, product design, efficiency improvements, and circular economy strategies can significantly reduce emissions during use and end of life.

Technology also plays an increasing role. ESG data platforms, lifecycle assessment tools, and supply chain analytics help companies move from estimates to more robust, decision-ready data.

From Accounting Exercise to Strategic Lever

Scope 3 emissions are no longer just a reporting requirement. They are becoming a strategic lens through which companies understand their full environmental impact, resilience, and long-term competitiveness.

As expectations rise, organisations that invest early in Scope 3 measurement and reduction will be better prepared for regulation, investor scrutiny, and the transition to a low-carbon economy.

In climate strategy, what happens outside company walls matters most.

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