What it takes to gather all the data needed for Scope 3 reporting

Whether it’s due to regulations (paging the 10,000 orgs facing the EU’s new reporting requirements), pressure from stakeholders, or strategic imperatives, many organizations are expanding the scope of their carbon emissions reporting. That is, they’re preparing to report Scope 3 supply-chain emissions, if they haven’t already.

Scope 3 involves upstream and downstream emissions beyond a company’s own operations, including purchased goods, transportation and distribution, leased properties, investment, and employee travel and commuting. Reporting these emissions is much more difficult for organizations because it requires more sophisticated and complicated methods to gather and decipher data, according to experts.

“A whole challenge here is that all of this data falls outside [organizations’] operational boundary,” Alyssa Zucker, senior industry principal at Workiva, told CFO Brew.

Some companies that do business in the European Union have to report Scope 3 emissions to comply with the Corporate Sustainability Reporting Directive, although European lawmakers are in the process of scaling back the requirements. California regulators will require companies doing business in the Golden State to start reporting Scope 3 emissions in 2027, and Canada will require financial institutions to start reporting Scope 3 emissions in 2028.

One passenger glaringly missing from the Scope 3 regulatory train is the US government. The SEC last year dropped Scope 3 from its climate reporting rule, and has all but abandoned what was left of that rule after it stopped defending it in court.

Other companies may feel pressure to report Scope 3 emissions not from regulators, but from investors or competitors.

Organizations that decide to skip Scope 3 reporting requirements risk fines from regulators as well as reputational damage, according to Sasha Matovic, North America regional lead at the Partnership for Carbon Accounting Financials (PCAF).

“If investors are looking at [climate disclosures] and are scrutinizing what you’re putting out there, [skipping them] is not great for your reputation,” Matovic said at Workiva’s annual conference in September.

Measuring Scope 1 direct emissions and Scope 2 indirect emissions from energy purchases might feel like a cakewalk compared to Scope 3. It’s easier to gather data that’s internal or comes in the form of an electric bill, Zucker explained. Tracking Scope 3 emissions requires data from outside parties, meaning the quality of and access to that data “is very much outside your control.”

Imagine, for instance, working for a lender that writes commercial vehicle loans. Scope 3 emissions would include emissions from all the vehicles purchased with loans your firm wrote, according to Zucker. “It’s incredibly challenging” to get that kind of information, she explained.

Fortunately, there’s a standard for that. Enter the Greenhouse Gas Protocol, which sets global greenhouse gas accounting and reporting standards for organizations to follow. There are also sector-specific standards like those PCAF designed for financial institutions.

These standards provide a “hierarchy” of measuring emissions “that start with really broad estimates” and get more precise as organizations’ data collection gets more sophisticated, Zucker said. The ramp-up in methodology means “that it’s going to take you a fair amount of effort, and time, and investment” to gather more granular data.

The roadmap to Scope 3 success. The data gathering may be complex, but it’s certainly not impossible. Take Ikea, for example. The global furniture retailer reported approximately 21 million tons of Scope 3 emissions in fiscal year 2024. Sources included business travel, food ingredients (Swedish meatballs, anyone?), and customers using its products at home.

But how exactly does Ikea figure out the carbon footprint of something like emissions related to product usage at home, which makes up roughly 17% of its entire greenhouse gas inventory? Ikea noted that this number came from how much energy its lighting, appliances, and electronics require, plus emissions from burning its candles. The company multiplied the energy consumption required of a product “with that of the national electricity grid” for the country where the product was sold. It calculated the carbon footprint of its candles by multiplying the weight of the wax “by the specific emission factor for combustion for the specific wax.”

There’s also a huge strategic payoff. Often, companies will start reporting their supply chain emissions because of regulations. But after that headache of data gathering and reporting is over, some organizations find “they can make more informed decisions” with all this data in front of them, according to Zucker. “That kind of shift toward the strategic advantage is what we see as you are able to build some capacity around this and unlock the value beyond compliance,” she said.

Take the clean energy transition as an example.

Matovic said Scope 3 “financed emissions are a good measure of transition risk” for financial institutions. This is particularly relevant at a time when AI data centers demand massive amounts of energy, and sustainable sources are “the cheapest and quickest way to deploy energy.”

Ikea uses its emissions data to track its climate goals. The company says it’s committed to cutting its value chain greenhouse gas emissions in half by fiscal year 2030, and by “at least 90%” by 2050, compared to its 2016 emissions. That can’t be done without measurement.