Decarbonising Supply Chains: Strategies for Scope 3 Emission Reductions

Executive Summary

As climate change pressures intensify, the focus of corporate sustainability strategies has shifted from direct operations to the broader environmental impact of supply chains. Scope 3 emissions – those generated outside a company’s direct control, across upstream and downstream activities – typically account for the majority of an organisation’s carbon footprint, often exceeding Scope 1 and 2 emissions combined. Yet they are also the most complex to measure, manage, and reduce due to the multitude of stakeholders, varied geographies, and differing regulatory regimes involved.

This paper examines the critical importance of decarbonising supply chains and offers a detailed blueprint for achieving meaningful reductions in Scope 3 emissions. It explores strategic levers such as supplier engagement, data transparency, circular economy models, digital technologies, collaborative industry initiatives, and financial incentives. Drawing on best practices from leading global organisations, it demonstrates how decarbonisation is not only an environmental imperative but also a strategic advantage that can enhance brand value, resilience, and long-term profitability.

The central message is clear: companies must act decisively and collaboratively, embedding Scope 3 decarbonisation into procurement policies, governance structures, and performance incentives. While the journey is complex, organisations that take the lead will be better positioned to navigate regulatory changes, secure supply chain resilience, and meet the growing demands of environmentally conscious customers and investors.

Introduction

The global transition to a low-carbon economy is accelerating, driven by regulatory mandates, investor expectations, and mounting societal pressure. Companies are no longer judged solely on the emissions they produce directly (Scope 1) or through purchased energy (Scope 2). Instead, stakeholders are scrutinising Scope 3 emissions – those embedded within the value chain, from raw material extraction to product disposal.

The challenge is immense: for many industries, Scope 3 emissions constitute between 70% and 90% of the total carbon footprint. Unlike Scope 1 and 2 emissions, which are largely within an organisation’s operational control, Scope 3 emissions depend on third-party behaviour – suppliers, logistics providers, product users, and recyclers. This dependency creates complexity in measurement and management, but also presents an unprecedented opportunity for transformative change.

Decarbonising supply chains is no longer a niche sustainability initiative; it is central to risk management, competitive positioning, and corporate reputation. Achieving Scope 3 reductions requires a blend of strategic vision, robust data systems, cross-sector collaboration, and financial innovation. The following sections outline 15 strategies that organisations can adopt to accelerate progress.

1. Embed Scope 3 Reduction Targets into Corporate Strategy

For decarbonisation to gain traction, it must be a board-level priority. Leading organisations integrate Scope 3 targets into their corporate sustainability frameworks and link them to long-term growth plans. Targets should be science-based, aligned with frameworks such as the Science Based Targets initiative (SBTi), and incorporated into annual business objectives. Embedding targets into strategic planning ensures that emission reductions are not treated as peripheral projects but as core to the organisation’s purpose and competitiveness.

2. Map the Supply Chain to Identify Emission Hotspots

Understanding where emissions occur is the first step to reducing them. Companies should conduct a comprehensive Scope 3 inventory, segmenting emissions by category – purchased goods and services, capital goods, transportation, waste, use of sold products, and end-of-life treatment. Advanced analytics and life cycle assessment (LCA) tools can highlight hotspots and prioritise interventions where they will deliver the greatest reductions. This granular visibility is critical for setting realistic reduction pathways and allocating resources effectively.

3. Engage and Educate Suppliers

Supplier engagement is the linchpin of Scope 3 reduction. Organisations must clearly communicate decarbonisation expectations and provide practical support. This can include training programmes, toolkits, and access to technical expertise. Strategic suppliers should be encouraged – and in some cases required – to set their own science-based targets, report emissions data annually, and implement reduction plans. Long-term partnerships built on trust and transparency can yield greater emissions reductions than short-term transactional relationships.

4. Redesign Procurement Policies to Reward Low-Carbon Practices

Procurement teams wield significant influence over Scope 3 emissions through purchasing decisions. By integrating carbon performance into tender evaluation criteria, companies can favour suppliers with strong environmental credentials. Contracts can include carbon performance clauses, requiring suppliers to meet specific reduction milestones. In parallel, volume commitments or preferred supplier status can be used as incentives for suppliers investing in low-carbon processes.

5. Implement Supplier Data Transparency Platforms

Data transparency is fundamental to measuring progress. Cloud-based supplier data platforms enable suppliers to disclose emissions information, verify it through third-party audits, and track improvements over time. Digital dashboards can provide procurement managers with real-time insights, enabling more informed decisions and identifying suppliers that require additional support. Standardised reporting frameworks, such as CDP’s Supply Chain programme, can facilitate comparability and benchmarking.

6. Prioritise Low-Carbon Materials and Product Redesign

Material choice has a profound impact on product lifecycle emissions. Switching to low-carbon materials – recycled steel, bio-based plastics, or certified sustainable timber – can significantly reduce embodied carbon. Product redesign for durability, modularity, and repairability can extend product lifespans and reduce emissions associated with replacement cycles. Engaging R&D teams early ensures that emissions considerations are embedded in innovation pipelines.

7. Optimise Logistics and Transportation

Transportation is often a major contributor to Scope 3 emissions, particularly in global supply chains. Strategies include shifting from air to sea or rail freight, consolidating shipments, and optimising routes through AI-enabled logistics software. Partnering with logistics providers that invest in low-emission fleets, such as electric or hydrogen-powered vehicles, can further reduce transportation-related emissions.

8. Leverage Renewable Energy Across the Supply Chain

While Scope 2 emissions relate to an organisation’s direct energy purchases, encouraging and supporting suppliers to switch to renewable energy can significantly reduce Scope 3 emissions. This can be achieved through power purchase agreements (PPAs), renewable energy credits (RECs), or co-investment in on-site renewable generation at supplier facilities.

9. Promote Circular Economy Practices

Circular economy models – where waste is minimised, and materials are reused or recycled – can radically cut Scope 3 emissions. Closed-loop systems for packaging, take-back schemes for end-of-life products, and industrial symbiosis (where one company’s waste becomes another’s raw material) are practical examples. These approaches not only reduce emissions but can also generate new revenue streams and strengthen supplier relationships.

10. Adopt Carbon Pricing Mechanisms

Internal carbon pricing assigns a monetary value to each tonne of emissions, influencing investment and procurement decisions. By factoring carbon costs into total cost of ownership calculations, companies can make low-carbon options more financially attractive. Some organisations extend this principle externally, rewarding suppliers that achieve emission reductions with preferential payment terms or co-financing for decarbonisation projects.

11. Collaborate through Industry Alliances

Collective action can overcome individual company limitations. Joining industry alliances such as the Clean Cargo Working Group, the Sustainable Apparel Coalition, or the 1.5°C Supply Chain Leaders initiative enables companies to share best practices, harmonise reporting standards, and create pooled demand for low-carbon solutions. Collaboration can also increase suppliers’ willingness to invest in decarbonisation, knowing that the market demand is collective and sustained.

12. Utilise Digital Twins for Supply Chain Simulation

Digital twin technology – virtual models of supply chain networks – can simulate the carbon impact of different sourcing, production, and logistics scenarios. This allows companies to test decarbonisation strategies in a risk-free environment before implementing them in reality. By integrating cost, carbon, and resilience metrics, digital twins enable more balanced decision-making.

13. Build Resilience through Supplier Diversification

Climate-related disruptions can jeopardise supply chain continuity. Diversifying suppliers to include those with strong climate adaptation and low-carbon credentials can reduce both emissions and operational risk. This approach also mitigates dependency on suppliers in regions with carbon-intensive grids or limited decarbonisation infrastructure.

14. Integrate Emission Metrics into Performance Management

To drive accountability, carbon performance should be integrated into supplier scorecards, executive performance reviews, and incentive structures. Bonuses or other rewards tied to emission reduction milestones can align individual and organisational priorities, ensuring sustained focus on Scope 3 decarbonisation.

15. Monitor, Report, and Communicate Progress Transparently

Transparency builds trust and credibility. Regular public reporting on Scope 3 targets, progress, and challenges signals commitment and invites stakeholder collaboration. Case studies, supplier success stories, and quantified results can inspire industry peers and encourage suppliers to deepen their engagement.

Conclusion

Scope 3 emissions represent both the most daunting challenge and the greatest opportunity in corporate decarbonisation efforts. While their complexity stems from being embedded in vast, multi-tiered global supply chains, their reduction can deliver outsized climate impact.

Decarbonising supply chains requires a multi-pronged approach: embedding clear targets in corporate strategy, mapping emission hotspots, engaging suppliers, redesigning procurement policies, leveraging technology, and fostering collaboration. It demands investment, innovation, and a willingness to rethink traditional business models.

The organisations that lead in Scope 3 reductions will not only help avert the worst impacts of climate change but will also gain competitive advantage through enhanced brand value, supply chain resilience, and alignment with evolving regulatory and investor expectations.

The time to act is now. Decarbonisation is not a future goal – it is an immediate business imperative that requires bold leadership, robust collaboration, and a relentless commitment to systemic change.