Scope 3 Emissions: Your Supply Chain Carbon Footprint

Scope 3 emissions encompass all indirect greenhouse gas emissions that occur in a company's value chain, both upstream and downstream. For most organizations, Scope 3 represents the vast majority of their total carbon footprint, often accounting for 70 to 90 percent of total emissions. The GHG Protocol Corporate Value Chain Standard defines 15 categories of Scope 3 emissions, and while companies are not required to report on every category, they must identify and report on those that are material to their business.

Upstream Categories

The upstream categories cover emissions embedded in everything a company purchases and uses. Category 1, Purchased Goods and Services, is typically the largest Scope 3 category for most companies. It includes the cradle-to-gate emissions of all products and services acquired during the reporting period. Calculating these emissions can be done using spend-based methods, which apply emission factors to procurement expenditure data, or supplier-specific methods, which use actual emissions data provided by suppliers. The spend-based approach is simpler to implement but less accurate, while supplier-specific data yields better results but requires active engagement with the supply chain. Category 3, Fuel and Energy-Related Activities not included in Scope 1 or 2, covers upstream emissions from the extraction, production, and transportation of fuels and energy purchased by the company, including transmission and distribution losses. Category 4, Upstream Transportation and Distribution, includes emissions from the transport of purchased goods from suppliers to the company's facilities.

Downstream Categories

Downstream Scope 3 categories capture emissions that occur after products leave the reporting company's control. Category 11, Use of Sold Products, is particularly significant for manufacturers of energy-consuming products such as vehicles, appliances, or industrial equipment. A car manufacturer, for example, must account for all the emissions that will result from customers driving the vehicles over their expected lifetime. Category 12, End-of-Life Treatment of Sold Products, covers emissions from the disposal or recycling of products after use. For companies selling physical goods, this category requires assumptions about waste management pathways and the associated emissions from landfill, incineration, or recycling processes.

Practical Measurement Approaches

Given the complexity and data challenges associated with Scope 3, companies should adopt a phased approach to measurement. Begin with a screening exercise using spend-based emission factors to estimate emissions across all 15 categories and identify the most material ones. Industry databases such as the Ecoinvent database or government-published input-output tables provide the emission factors needed for this initial assessment. Once material categories are identified, invest in improving data quality for those categories through direct supplier engagement, lifecycle assessment studies, or physical activity data collection. For example, rather than estimating business travel emissions from expenditure data, use actual flight distance and class of travel records to calculate more precise figures.

Supplier Engagement and Data Collection

Effective Scope 3 management requires active collaboration with suppliers. Companies should incorporate carbon reporting requirements into procurement contracts, participate in industry initiatives such as the Carbon Disclosure Project supply chain program, and provide guidance and tools to help suppliers measure their own emissions. In the Indonesia context, many suppliers are still in the early stages of carbon accounting maturity, which makes it important to provide capacity building support rather than simply demanding data. Starting with the top 20 suppliers by spend or emissions contribution can capture a significant share of supply chain emissions while keeping the engagement effort manageable.

Setting Scope 3 Reduction Targets

The Science Based Targets initiative requires companies setting science-based targets to include Scope 3 if it represents more than 40 percent of total emissions, which is the case for most organizations. Scope 3 targets can be set as absolute reduction targets or intensity targets, and companies can pursue reductions through a combination of procurement shifts, supplier engagement, product design changes, and logistics optimization. While Scope 3 targets are inherently more challenging to achieve than Scope 1 and 2 targets because they depend on actions taken by other organizations, they represent the most significant opportunity for systemic decarbonization across the economy.