Corporates’ Supply Chain Scope 3 Emissions Are 26 Times Higher Than Their Operational Emissions
- Despite the Disproportionate Scale, Supply Chain Scope 3 Emissions Continue to Be Overlooked, with Only 15% of Corporates Having Set a Supply Chain Emissions Target
- Three Significant Drivers of Action in Supply Chain Emissions Are a Climate-Responsible Board, Supplier Engagement, and Internal Carbon Pricing
- In 2023, Disclosed Upstream Emissions from the Manufacturing, Retail, and Materials Sectors Alone Suggest a Carbon Liability1 of over $335 Billion
- Scope 3 Emission Blind Spots Drive Significant Unreported Risks for Both Investors and Corporates
- Onus of Action and Accountability Falls on Corporates (Both Management and the Board of Directors) and Investors
LONDON & BOSTON—In 2023, corporates reported that their Scope 3 supply chain emissions were, on average, 26 times greater than their emissions from direct operations (Scopes 1 and 2).2 According to the new Scope 3 Upstream: Big Challenges, Simple Remedies report, published today by Boston Consulting Group (BCG) and CDP, upstream emissions from the manufacturing, retail and, materials sectors had a footprint 1.4 times the total CO2 emitted in the EU in 2022.
However, supply chain emissions continue to be overlooked, with corporates twice as likely to measure operational emissions3 (Scopes 1 and 2) than their supply chain emissions (Scope 3). Furthermore, corporates are 2.4 times more likely to set targets for operational emissions compared with supply chain emissions. Of the corporates disclosing to CDP, only 15% have set a Scope 3 target.
“These figures highlight that the challenge of effectively measuring Scope 3 emissions is widespread and spans industries,” said Sonya Bhonsle, director of strategic accounts at CDP. “Meaningful strides toward emissions reductions require corporates to evaluate their full supply chain, then raise ambition and take accountability. The first step to driving meaningful change toward a 1.5°C-aligned net zero future begins with disclosure.”
The report identifies the three most significant factors that correlate with ambition and action on Scope 3 upstream emissions:
- Climate-Responsible Board. Corporates with a climate-responsible board, which has climate oversight and competence, are 5x more likely to have a Scope 3 target and a 1.5oC-aligned transition plan
- Supplier Engagement Programs. Corporates that engage with suppliers on climate-related issues are almost 7x more likely to have a Scope 3 target and a 1.5oC-aligned transition plan. However, only four in ten corporates engage with their suppliers.
- Adoption of Internal Carbon Pricing. Corporates with an internal carbon price mandated for all business decisions are 4x more likely to have a Scope 3 target and a 1.5°C-aligned Scope 3 transition plan.
Disclosed upstream emissions from just the manufacturing, retail, and materials sectors in 2023 alone imply a carbon liability1 of over $335 Billion. This liability is at risk of being overlooked by both corporates and investors.
“The responsibilities and incentives to act on Scope 3 emissions for corporates and investors converge on risk management, and their oversight bodies must push for risk quantification and management” says Diana Dimitrova, BCG managing director and partner, and coauthor of the report.
Only half of corporates disclosing through CDP evaluate the financial risks from upstream emissions; however, of those that do, a third acknowledge the risk to profit. Despite these risks, fewer than one in ten investors require investees to disclose Scope 3 upstream emissions as part of investment policies.
Boards have a fiduciary responsibility to manage these risks, and investors must price in the risks from carbon liability (business operational risk) and demand greater transparency through disclosure.
By prioritizing the three significant drivers, corporates can drive a step change in managing Scope 3 upstream emissions.
Download the publication here.
Media Contacts:
Eric Gregoire
gregoire.eric@bcg.com
Toyosi Adebayo
Toyosi.adebayo@cdp.net
Footnotes:
1 CDP disclosed emissions priced at IMF-proposed 2030 price of $75.
2 Based on emissions disclosed through CDP.
3 Scopes 1 and 2.
About CDP
CDP is a global non-profit that runs the world’s environmental disclosure system for companies, cities, states and regions. Founded in 2000 and working with more than 700 financial institutions with over $142 trillion in assets, CDP pioneered using capital markets and corporate procurement to motivate companies to disclose their environmental impacts, and to reduce greenhouse gas emissions, safeguard water resources and protect forests. Over 24,000 organizations around the world disclosed data through CDP in 2023, with more than 23,000 companies – including listed companies worth two thirds global market capitalization - and over 1,100 cities, states and regions. Fully TCFD aligned, CDP holds the largest environmental database in the world, and CDP scores are widely used to drive investment and procurement decisions towards a zero carbon, sustainable and resilient economy. CDP is a founding member of the Science Based Targets initiative, We Mean Business Coalition, The Investor Agenda and the Net Zero Asset Managers initiative. Visit cdp.net or follow us @CDP to find out more.
About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.