The state of Scope 3: A review of trends and challenges 

February 15, 2024

Companies are motivated to set Scope 3 targets and decarbonize their supply chains, as regulatory demands increase and ESG metrics become widely adopted. However, they continue to face challenges in understanding and quantifying Scope 3 emissions, and over half of companies surveyed by SBTi are behind schedule in meeting their targets.

To understand emergent Scope 3 challenges and trends, we have reviewed recent surveys and reports published by the SBTi, CDP, and GHG Protocol, as well as our own sustainability leader survey. See data source details at the end. 

This blog summarizes the top seven findings on corporate Scope 3 progress and challenges, along with key trends to watch, to help you stay informed when developing your Scope 3 strategies. 

1. The focus on corporate Scope 3 emissions is increasing with recent regulations, motivating companies to set targets. 

62% of sustainability leaders surveyed by Aligned Incentives think the corporate focus on supply chain emissions in 2023 was appropriate and the right move, and 38% believe it needs more attention. 

While regulatory disclosure was not yet a major motivator for developing a Scope 3 inventory in 2022, 60% of the SBTi survey respondents believe compliance to Scope 3 reporting will be required in the future. 2023 saw the release of Scope 3 regulatory frameworks, such as ISSB, CA SB 253, and CSRD/ESRS. 2024 will be an important year for the implementation of many of these regulations. 

The SBTi survey suggests that other motivations for building a Scope 3 inventory and setting a baseline include: 

  • Better understanding their GHG footprint (84% of respondents) 
  • Identifying decarbonization levers (79% of respondents) 
  • Developing a science-based target (78% of respondents) 

2. Only 15% of all new or in-progress Science-Based Targets (SBTs) are Scope 3 specific, and 90% of respondents found Scope 3 targets challenging to set. 

When surveyed by SBTi, 83% of respondents reported the inclusion of Scope 3 emissions in their companies’ GHG inventory. However, according to the 2022 CDP report, Scope 3 targets account for only 15% of all new or in-progress targets, despite the large contribution of Scope 3 emissions to a company’s overall footprint. 

This gap between accounting for Scope 3 emissions in the corporate footprint versus setting a Scope 3 SBT may largely be due to the target-setting methodology. 90% of SBTi respondents found the process for setting Scope 3 targets to be challenging. Furthermore, almost half felt that the consequences of setting but not achieving a target would be higher than not setting one. 

3. Companies demand better alignment between climate reporting and target-setting frameworks, and methodologies accommodating individual circumstances. 

When developing a Scope 3 baseline, SBTi survey respondents found the interpretation of GHG accounting standards to be a major challenge. Over half of respondents (60%) believe there is a lack of target-setting methodologies tailored to individual company circumstances. Methodologies are often not sector-specific and do not allow for company growth. 

Other challenges with the SBTi Criteria include the required Scope 3 target coverage (67% of total Scope 3 emissions for near-term target and 90% for net-zero target) and unclear SBTi Scope 3 requirements (SBTi survey). 

Survey results administered by the Greenhouse Gas Protocol (GHG Protocol) revealed that companies need better alignment with regulatory/voluntary reporting frameworks, target-setting programs, and financial accounting standards. Stakeholders also voiced the importance of having additional GHG Protocol guidance and clarifications, tools, databases, and examples to facilitate implementation, such as open-source emission factors database(s), FAQs, and forums. 

The state of Scope 3: reporting framework

4. Half of the companies are behind schedule to reach Scope 3 science-based targets. 

About half of companies from the SBTi Monitoring Report are behind Scope 3 absolute near-term targets, which is consistent with self-reported results from SBTi’s survey. The Monitoring Report data shows that about one third of companies had a 20% or greater gap behind where they committed to being (given their target deadline) and where they actually are (graph below). This lack of progress, and in some cases regression, can be a deterrent for many companies contemplating whether to set a target in the first place—two out of three respondents report low confidence in their ability to deliver on Scope 3 goals (SBTi survey). 

5. Insufficient and low-quality data is a top challenge for tracking Scope 3 progress.  

Among SBTi survey respondents with a Scope 3 inventory, 85% reported ‘access to data’ as the top barrier to developing a robust baseline— particularly insufficient access to supplier-specific emissions factors and detailed procurement data. Even if companies can access this data, supplier emissions factors are often not reliable. In fact, only 6% of companies surveyed by SBTi use supplier-specific emissions factors.  

Most companies use high-level spend-based emissions factors from publicly available datasets, or hybrid emission models, to calculate Scope 3 emissions (SBTi and AI surveys). When results are dominated by spend-based emissions factors, they typically lack granularity. However, leaders noted difficulty in performing granular life cycle assessments (LCAs) across all products (AI survey). 

When it comes to insights into supplier emissions, roughly 80% of sustainability leaders reported only having moderate or limited insights into tier 1 supplier data, and two thirds reported either limited or no insights into indirect supplier emissions (tier 2 and above) (AI survey). 

With limited supplier data and reliance on spend-based emissions factors, it can be difficult to track progress and advance toward Scope 3 goals. Over half of respondents (59%) found lack of reliable data to track progress was a major impediment to delivering on targets, and 57% believe the spend-based methodology only lends itself to decarbonization by reducing procurement budgets (SBTi survey). 

6. Companies’ largest barrier to decarbonizing Scope 3 emissions is their inability to influence suppliers, as reported by 4 of 5 respondents. 

Most emissions that companies report to CDP fall into one of two Scope 3 categories—Scope 3.1, purchased goods and services and Scope 3.11, use of sold products (SBTi survey). However, survey respondents note that these categories are typically the hardest to decarbonize. The number one reported challenge in achieving Scope 3 SBTs, which would greatly impact Scope 3 category 1 emissions, is the inability to influence upstream suppliers (SBTi survey).  

SBTi distilled five major factors contributing to the challenge of influencing upstream suppliers. Most notably, fragmentation—71% of respondents believe they have too many suppliers to engage. As one respondent reported, “Our scope 3 footprint comes from many suppliers (500 for 70% of our footprint)” (SBTi survey). With so many suppliers and a large percentage of whom may be in tier 2 or above, it can be challenging to build impactful and efficient engagement strategies. 

Insufficient negotiating power is another key factor. 63% of respondents think they do not have adequate influence over supplier behavior for reasons such as having a small spending share or weak negotiating position. As one respondent commented, “We are not a major customer for many suppliers, so we have limited negotiating power” (SBTi survey). 

7. Nearly 2 of 3 respondents cite the cost of decarbonization as a major challenge, which can be further exacerbated with resource constraints, lack of leadership support, and misaligned business priorities. 

61% of SBTi survey respondents think decarbonizing Scope 3 will require significant cost, a belief largely driven by the concern that purchasing low-carbon products and services will incur a significant green premium. Whether real or perceived, decarbonization costs are limiting corporations. An even higher percentage of sustainability leaders (78%) believe overall resource constraints are a top barrier to accelerating progress (AI survey). 

Decarbonization efforts can also be at odds with company growth, serving as another big challenge for 58% of respondents (SBTi survey). For example, under the SBTi absolute targets, as opposed to the intensity targets, emissions are not decoupled from growth. Companies must balance the constant market demand for profit generation and growth, while simultaneously decreasing their emissions.  

Other times, a lack of organizational incentives to make progress can be a barrier. Almost 1 of 3 respondents (29%) find the limited motivation among company leadership a challenge (SBTi survey). 

2024 outlook 

Despite the challenges companies face in setting and achieving Scope 3 targets, the business landscape indicates a few opportunities to overcome these barriers in 2024. 

  • Increasing reporting interoperability: In 2023, regulators began collaborating more to align climate frameworks with consistent, comparable language and disclosures. Commitments like CDP’s alignment with European Sustainability Reporting Standards and SBTi’s work to enhance target-setting guidance signified a regulatory move towards making different reporting approaches more interoperable.  
  • Enhancing data quality and supplier engagement with software: The growth of Scope 3 solutions and uses of Generative AI are helping companies to improve their climate data collection process and efficiency in accounting. Advances in carbon accounting software are also addressing challenges in obtaining high-quality supplier data by better leveraging secondary data, while also targeting engagement and structuring primary data collection with suppliers. 
  • Regulatory focus on product footprints: There is increased regulatory pressure from initiatives such as the European Union’s Green Deal and Circular Economy Action Plan for companies to collect and report product carbon footprints (PCFs). Companies can use tools such as Digital Product Passports (DPPs) to support this push from regulators while also engaging with their suppliers, validating net zero product claims, and boosting sales and brand reputation. Industries such as batteries and vehicles, textiles, and electronics and ICT will be the first adopters of DPPs by 2030, with the EU Battery Regulation proposed for 2026. 
  • Earning “green premiums” from decarbonized supply chain: Decarbonizing products and services costs on average 10-30% more than carbon intensive alternatives. To justify these additional costs, companies are increasingly focused on leveraging a green premium as they set prices for B2C and B2B sales. The percentage of end consumers that value green products is increasing—66% of US consumers will pay more for sustainable products. Similarly, businesses are making purchasing decisions based on product footprints, not just cost, as companies are under pressure to reduce their scope 3 supply chain emissions. 

Data sources 

  • 2023 Aligned Incentives survey (AI survey): Data finalized January 2024. In December 2023, AI surveyed sustainability and ESG leaders from enterprise companies with >$1B revenue. Primary industries include apparel and footwear, food and agriculture, manufacturing, and Information and Communication Technologies.  
  • 2022 Catalyzing value chain decarbonization (SBTi survey): Published February 2023. In September 2022, the Science-based Target Initiative (SBTi) surveyed roughly 230 organizations across industries and geographies. 85% of surveyed companies were already committed to or had validated SBTs. 
  • 2022 CDP Global Supply Chain Report: Published March 2023. This report focuses on tracking companies’ action on nature impacts across supply chains in 2022. 
  • 2023 GHGP Summary of Stakeholder Survey Responses: Published December 2023. This draft report gives a summary of written responses from the Greenhouse Gas Protocol’s Corporate Standard Stakeholder Survey, which was administered from November 2022 to March 2023.  
  • 2022 SBTi Monitoring Report: Data finalized August 18, 2023. SBTi published a monitoring report dataset showing the progress of 2,079 organizations that had set SBTs as of December 31, 2022. 

About Aligned Incentives 

Aligned Incentives offers AITrack, a sophisticated environmental and carbon accounting software powered by Generative AI, set apart by its ability to produce granular Scope 3 insights at scale. 

  • Data: Our core database covers supply chain activities extensively, with 350,000 modeled agricultural/industrial commodities and processes, enabling accurate and efficient development of inventories for carbon, as well as water and biodiversity. 
  • Accounting & reporting: By producing Scope 3 footprints based on process LCAs, companies can assess and report emissions across multiple supply chain tiers within a few months. AITrack can adapt to evolving reporting frameworks and regulations, ensuring compliance and transparency. 
  • Supplier & stakeholder collaboration: AITrack offers role-based and secure access to information tailored to various stakeholders, streamlining communication across divisions and with key suppliers. 

This combination of features, paired with our LCA expertise, makes AITrack a powerful ally in setting and achieving your sustainability goals. Schedule a customized demo to learn more. 

Hannah Wear

Hannnah Wear is a Strategy Associate at Aligned Incentives with a background in climate consulting, policy research and analysis, and strategic funding and management in philanthropy. She is pursuing an MBA in Sustainable Solutions at Presidio Graduate School and previously studied international sustainable development in Thailand.