The trouble with Scope 3

Peruse any travel website ahead of an upcoming trip and, very soon, you will find yourself being offered residence at ‘Net Zero’ hotels. These lodgings come at a premium, and often with fewer amenities, but bring the promise of a fitful sleep, knowing your travels are actually benefitting the environment. But behind such claims is a complex reality.  

For most companies, the bulk of emissions sit not within their own operations, but across vast, opaque expanse of their far-reaching supply chains. For many businesses, Scope 3 emissions – which include raw materials, manufacturing, transport and disposal – dwarf everything else. And yet, in most cases, the method used to measure this remains little more than an estimation. This creates a gap between the certainty of corporate claims and the uncertainty of the data underpinning them. 

What is causing the greatest environmental impact is not confiscation of complimentary notepads and pens. It is the expansive, fragmented network of activities that make up a company’s value chain. For many businesses, Scope 3 emissions represent more than 80 per cent of total emissions. And yet, in most cases, the methods used to measure them remain imperfect.  

This is not simply a question of incomplete disclosure. It is also a question of unstable data; as companies move from estimating supply-chain emissions to collecting primary data from suppliers, reported figures can shift, at times significantly. 

“You can see 30 to 40 per cent shifts in the data,” says Dexter Galvin, formerly chief commercial officer at CDP. “Not because companies have done anything wrong, but because the quality of the data has improved.” 

This process is known as rebaselining, and is becoming increasingly common. It reflects a transition from approximation to accuracy. But it also raises questions about how early targets were set, and how confidently they can be communicated. 

Despite so-called greenhushing from businesses in recent years and successful lobbying against SEC and EU rules, many will have to begin disclosing more climate and other sustainability data this year, as regulators now try to close these gaps. As of the latest analysis by LSEG, 58 per cent of companies in the FTSE All-World Index disclose some form of Scope 3 emissions data. However, only around a third report the most material categories in their sector, limiting the usefulness of that data. 

“A lot of the data used to set initial targets is secondary data. It’s often crude, out of date and sometimes just wrong”

At the same time, 39 jurisdictions are introducing or developing corporate disclosure rules aligned with the International Sustainability Standards Board (ISSB), covering around 60 per cent of global GDP. Even in the United States, where national regulation remains limited, nearly 70 per cent of large listed companies voluntarily report Scope 3 emissions. 

Investor demand is also increasing, driven in part by the expansion of carbon pricing mechanisms and regulatory frameworks such as the EU’s carbon border adjustment mechanism. Although disclosure is quickly expanding, inconsistencies in methodology and coverage mean the data remains difficult to compare, and, in some cases, is incomplete.  

The underlying challenge lies in the nature of Scope 3 itself, because, unlike direct emissions, which companies can measure and control, supply-chain emissions sit largely outside organisational boundaries. “The average company’s emissions are actually in the supply chain,” Galvin says. “You don’t have direct control of those emissions. They belong to your suppliers and partners.” 

This lack of control makes measurement inherently complex. Companies must rely on data from suppliers – often thousands of them – across multiple geographies and regulatory environments. Those suppliers may use different methodologies, assumptions or levels of detail, making aggregation difficult. 

As a result, many companies begin by using “spend-based” methodologies, applying generic carbon factors to categories of expenditure. These provide a rough baseline but are inherently imprecise. “A lot of the data used to set initial targets is secondary data. It’s often crude, out of date and sometimes just wrong.” 

As companies engage more directly with their suppliers, the picture begins to change. Supplier-reported data is based on actual activity rather than estimates and can reveal significant differences from initial assumptions. This transition improves accuracy but creates volatility, as emissions figures may rise or fall as better data becomes available. When baselines are revised, targets may need to be reconsidered.  

The experience of property company SEGRO illustrates this issue. Like many organisations, it initially relied on estimation methods to calculate Scope 3 emissions. Over time, it has worked more closely with customers and suppliers to improve data quality, leading to restatements of previously reported figures. Around 86 per cent of SEGRO’s emissions sit within its value chain, underlining both the scale of Scope 3 and the difficulty of measuring it precisely. While such revisions can create complexity, they are indicative of an evolving system, rather than of failure.  

The prominence of Scope 3 becomes even more significant when viewed through the lens of net-zero commitments. According to the Science Based Targets initiative (SBTi), companies cannot credibly claim to be on a path to net zero without addressing emissions across their entire value chain.  

To align with global climate goals, businesses must cut emissions across Scope 1, 2 and 3 by around half before 2030, and by at least 90 per cent before 2050. Only then can any remaining emissions be neutralised through permanent carbon removal. “A company cannot set a net-zero target without a comprehensive greenhouse gas inventory, including relevant Scope 3 emissions,” says Alexander Killeen, climate communications lead at SBTi. 

In practice, however, this requirement collides with the realities of data availability. Companies are expected to define long-term targets based on emissions inventories that may still rely heavily on estimates.  

“Engaging suppliers builds resilience”

SBTi provides standards and validation services to assess whether targets align with climate science. But it does not currently track companies’ progress against those targets, instead expecting organisations to disclose emissions and progress through annual reporting and platforms such as CDP. The result is a system in which targets are rigorously defined, but the data underpinning them remains uneven. 

The challenges of Scope 3 reporting are not purely technical, however. They also reflect the evolving nature of sustainability as a discipline within organisations. 

“Sustainability is often not someone’s full-time job,” says Will Richardson, who works with companies on carbon reporting. “People are doing it alongside other responsibilities, and there’s a lack of understanding of the methodology.” 

This can lead to inconsistencies simply due to uneven expertise. In some cases, companies rely on external consultants who may themselves lack deep technical knowledge. In others, reporting tools embed assumptions that are not fully understood by users. 

Richardson points to examples where emissions are calculated using carbon factors derived from different geographies, producing distorted results. “If the underlying data is wrong, then the outputs are wrong.”

Few sectors illustrate the Scope 3 challenge more clearly than tourism. The industry accounts for roughly 8 per cent of global carbon emissions, while contributing more than 9 per cent of global GDP.

Hotels, in particular, sit at the intersection of multiple emissions sources, from construction and energy use to food supply and guest travel. As a result, direct emissions often represent only a small proportion of their overall footprint. This creates a gap between ambition and measurement. Net-zero claims may be easy to communicate, but the accounting required to support them is complex, and, in many cases, still evolving.

For corporate communications teams, this evolving landscape presents a particular challenge. On the one hand, there is pressure to communicate clear, compelling sustainability narratives. On the other, the underlying data is complex, dynamic and subject to revision. “It’s not about having perfect data,” Galvin says. “It’s about having the best data you can to drive action.”

That nuance can be difficult to convey. A net-zero claim may imply a level of precision that the underlying data does not yet support. At the same time, emphasising uncertainty risks undermining credibility. The result is a tension between clarity and accuracy, particularly in consumer-facing sectors.

If there is a unifying theme in corporate climate strategy today, it is the shift from sustainability as a moral imperative to sustainability as a business risk. Companies are increasingly framing climate action in terms of resilience: the ability to withstand shocks, whether from energy price volatility, regulatory change or physical climate impacts.

Scope 3 is integral to this shift. Galvin says engaging suppliers will enable businesses to build resilience; by engaging suppliers on emissions, companies gain greater visibility into their supply chains, identifying vulnerabilities as well as opportunities for improvement. 

The picture that emerges is one of progress, but also of transition. Scope 3 reporting is becoming more sophisticated, more widespread and more central to corporate strategy. But it is also, by its nature, iterative.

“Companies are expected to set targets based on a full emissions inventory, even as large proportion of that depend on estimates”

As estimates give way to measurement, baselines are revised and targets are recalibrated. For stakeholders, this raises important questions about how to interpret corporate disclosures. A net-zero target may be credible in its ambition, but the data underpinning it is likely to evolve.

The question is not whether Scope 3 data is perfect – it is not – but whether it is improving. For now, corporate climate reporting remains a system in transition, where ambition often exceeds measurement.