Monitoring and reporting Scope 3 emissions along the supply chain

Whilst companies can monitor and report their own environmental impacts, classified as Scope 1 emissions, it is far harder for a company to monitor and control Scope 3 emissions, the environmental impacts of your supply chain partners, including suppliers and distributors. Yet, organizations should implement processes to monitor Scope 3 emissions to improve sustainability practices and brand reputation, meet stakeholder expectations, reduce costs and be able to address the environmental impact of their entire business operations. Although the  Corporate Sustainability Reporting Directive has been downgraded and ESG reporting is of voluntary nature (Hettler and Graf-Vlachy, 2024), companies still need to  comply with emerging and mutable regulations regarding climate disclosure.

This is a crucial issue because in some industries, Scope 3 emissions may account for 99% of the total emissions (Mejia and Kajikawa, 2024)! This means that your company’s efforts to limit your environmental impact and report it may be ineffective, and yet the monitoring of Scope 3 emission is not a common activity for businesses (Hettler and Graf-Vlachy, 2024).

There are manifold reasons for this failure to deal with Scope 3 emissions: resource limitations and costs are certainly involved but complications can include lack of trust and power issues: an organization may simply lack the power to induce their partners to share data and information on their emissions (Stenzel and Waichman, 2023).

Data technology could facilitate the sharing of social and environmental data but a number of barriers stands in the way of implementing connection, including lack of adequate data and guidelines (Mejia and Kajikawa, 2024).  According to Stenzel and Waichman (2023):

• Legal 7 regulatory challenges, such as who owns the data and has the right to use them. For example, the European Commission article 27 of the Data Act requires cloud computing providers to prevent transfer of non-personal data if this conflicts with EU law.
• Interoperability or the degree to which organizations and in particular their digital systems can work together.
• Data privacy and protection. From emission data it would be possible to gauge information on productive processes and this information can end in the wrong hands and therefore data protection is critical.

Complex interactions among firms are necessary to include carbon disclosure (Mejia and Kajikawa, 2024). A promising avenue is to establish and support interconnected networks of organizations including manufacturers, their suppliers, service providers, universities, local and central authorities. The formation and structuration of these networks needs to be supported by the creation of bonds between operators of these organizations, collaborative links of activities and establishment of resource ties, involving reciprocal investment (Håkansson and Gadde, 2018). Cross-firm management information systems (data, information and more) should support these networks, aided by Digital resources, such as Artificial Intelligence, blockchain technologies, big data analytics, Radio Frequency Identification and Relational Database Management Systems (Liu et al., 2022; Pagoropoulos et al., 2017; Wynn and Jones, 2022).

References

Håkansson H and Gadde L-E (2018) Four decades of IMP research – the development of a research network. IMP Journal 12(1): 6-36.

Hettler M and Graf-Vlachy L (2024) Corporate scope 3 carbon emission reporting as an enabler of supply chain decarbonization: A systematic review and comprehensive research agenda. Business Strategy and the Environment 33(2): 263-282.

Liu Q, Trevisan AH, Yang M, et al. (2022) A framework of digital technologies for the circular economy: Digital functions and mechanisms. Business Strategy and the Environment 31(5): 2171-2192.

Mejia C and Kajikawa Y (2024) Estimating scope 3 greenhouse gas emissions through the shareholder network of publicly traded firms. Sustainability Science 19(4): 1409-1425.

Pagoropoulos A, Pigosso DCA and McAloone TC (2017) The Emergent Role of Digital Technologies in the Circular Economy: A Review. Procedia CIRP 64: 19-24.

Stenzel A and Waichman I (2023) Supply-chain data sharing for scope 3 emissions. npj Climate Action 2(1): 7.

Wynn M and Jones P (2022) Digital Technology Deployment and the Circular Economy. Sustainability 14(15): 9077.