Incentives and Measures for Progress:

Takeaways from Innovation Forum’s Scope 3 Conference

As greenhouse gas emissions and their impacts are often hard to quantify and measure, public and private sectors find one category the most challenging: Scope 3 emissions. Scope 1 and 2 emissions are often in companies’ direct control and sight line, while Scope 3 tends to be described as “everything else.” But pushing indirect emissions aside creates unacceptable risk. Because ecological systems are supremely interconnected, treating modern industrial systems as segmented and unaccounted for can have detrimental impacts.

While the United States does not currently require companies to report their Scope 3 emissions, a domino effect will eventually require them to do so—and quickly. The California climate disclosure laws, as well as the Corporate Sustainability Reporting Directive (CSRD), will demand an overhaul in businesses’ analytical and reporting framework. Although companies often have developed visually engaging annual sustainability reports, these paint a picture that may be more flair than substance.

Innovation Forum’s Scope 3 Conference was intimate in size, which allowed for roundtable discussions with sustainability leaders who are entrenched in the implications of Scope 3 reporting mandates. A few clear takeaways stood out:

Engaging and building capacity with suppliers

As Scope 3 emissions lie upstream and downstream along the value chain, one barrier to measurement is insufficient resources to track these emissions. Supplier education and training is a key first step, yet incentivizing data collection requires a proactive approach that financially compensates these suppliers. A large portion of the players upstream are farmers operating on razor-thin margins, so companies must compensate farmers and cooperatives not only for collecting emissions data but also for implementing measures to reduce emissions in operations.

Leveraging and quantifying risk

Finding financial pressure points was another important consideration for attendees from the public and private sectors. Key questions remain about internalizing physical and transitional risks from the C-suite to Wall Street. The benefits of quantifying Scope 3 emissions lie in the ability to transition supply chains from carbon-intensive sources to renewable and circular systems. A clear knowledge gap exists between finance and sustainability teams, and the merging of these mindsets at Innovation Forum showed the potential of integrating climate into the business case.

Ripple effects of disclosure

As Scope 3’s opaque nature begins to become more transparent for companies, leaders brought up the importance of addressing social issues that emerge as the puzzle pieces come together. For suppliers situated down the value chain, international disclosure mandates threaten their ability to transition to sustainable production methods if they cannot compete on speed or price. This may affect the smallest and most marginalized actors in the supply chain.

Furthermore, leaders at the conference acknowledged that proper levers were needed to address root causes of social harms in the supply chain, such as child labor. Tackling poverty alongside decarbonization efforts is essential to creating equitable transformations. It’s overwhelmingly clear that the public and private sector must work together to share best practices amid a landscape of unknowns. It was promising to see that influential organizations such as Mars, Tony’s Chocolonely, Diageo, and the Science Based Targets Initiative are engaging in these complex discussions at Innovation Forum, and it stands to be seen how productive this multi-stakeholder initiative will be.