How Scope 3 and New Climate Requirements Are Redefining Business Strategy

Why Scope 3 Became a Boardroom Topic—and How a European Ruling Could Shift the Course of Brazilian Business

On May 21, 2025, the European Free Trade Association (EFTA) Court issued an advisory opinion that sent ripples through the global legal-environmental landscape: going forward, no new oil or gas project can be licensed in Europe without quantifying and disclosing its value‑chain emissions. In other words, Environmental Impact Assessments (EIAs) must now include Scope 3 greenhouse‑gas (GHG) emissions from these activities.

This decision reinforces a vital shift: companies can no longer be satisfied with measuring only their direct emissions or energy‑related ones. Today, it’s essential to account for the entire climate impact of operations - especially downstream emissions from end‑user product consumption.

Those involved in sustainability discussions are certainly familiar with the three scopes of emissions. Scope 1 covers direct emissions from sources owned or controlled by the organization. Scope 2 refers to indirect emissions from purchased electricity, steam or heat. And Scope 3 encompasses all other indirect emissions - those occurring across supply chains, transportation, product use and disposal. It’s precisely this third category, often the most significant volumetrically, that has now become legally relevant for environmental licensing in Europe. For fossil fuel–related projects, traceability and estimates of the emissions generated when the consumer burns the product have become mandatory requirements.

The EFTA Court was unequivocal in laying out three binding directives for future environmental licenses: (i) omitting Scope 3 emissions from EIAs constitutes a violation of the European EIA Directive; (ii) national courts must annul permits granted based on incomplete EIAs; and (iii) retroactive "fix‑ups" of flawed studies will not be tolerated.

Although the decision applies directly only to EFTA member states, it draws on the broader European environmental framework and effectively sets a new benchmark for climate diligence - one that is poised to influence regulatory and market standards across the European Union. Historically, when Europe raises the bar on environmental standards, the rest of the world inevitably faces pressure to follow.

Exporting with Traceability and Low Carbon: The New Competitive Must-Have

At first glance, this requirement may seem far removed from the realities of Brazilian businesses. But a closer look at Brazil’s export mix reveals its profound implications. Key sectors (oil & gas, steel, aluminum, cement, agribusiness, paper and pulp) carry significant weight in our external trade and will be directly affected. To sell products in Europe now demands more than price competitiveness and quality - it requires a strong commitment to low emissions, full traceability and proof of deforestation-free origin.

This shift is amplified by three additional European policies set to take effect soon:

• CBAM – Carbon Border Adjustment Mechanism: Beginning January 2026, exporters of products like steel, aluminum, cement, fertilizers and hydrogen will be subject to a "carbon toll" pegged to the EU ETS carbon price.
• EUDR – Deforestation-Free Products Regulation: From December 2025, agricultural goods like soy, beef, coffee, cocoa, paper, pulp and rubber must demonstrate geospatial traceability to ensure they are not linked to deforestation.
• CSDDD – Corporate Sustainability Due Diligence Directive: This law will require large European companies to ensure their global supply chains - including those based in Brazil - are free from climate impacts and human rights violations.

Scope 3 Is No Longer Just a Trend - It’s a Mandate

In this new global setting, Scope 3 is no longer treated merely as an environmental metric; it has become a strategic requirement for market access and continued participation in global supply chains. In oil & gas, for instance, it is estimated that 80–85% of total life‑cycle emissions originate from Scope 3. Overlooking it amounts to ignoring the bulk of the problem.

Ignoring Scope 3 is no longer ignorance - it’s plain negligence.

The EFTA’s advisory opinion clarifies that uncertainty about a product’s end use does not justify non-reporting. Scenario modeling, use-case ranges and robust estimates are acceptable. What matters now is transparency, methodological consistency and a genuine commitment to continuous improvement.

Scope 3 and Financial Risk: What’s at Stake for Brazilian Companies

In Brazil, the topic gains additional traction with the implementation of CVM Resolution 193, which mandates that, starting in 2026, publicly traded companies must publish sustainability reports consistent with the IFRS Foundation’s S1 and S2 standards - standards that explicitly incorporate climate-related risks, including indirect emissions from the value chain.

In plain terms, Brazilian companies that fail to measure, manage and disclose their Scope 3 emissions will not only run afoul of regulatory requirements - they will also expose themselves to reputational damage, reduced access to capital and increased legal exposure.

Furthermore, this regulatory shift trickles down to suppliers and service providers, particularly small and medium-sized enterprises embedded in the supply chains of big exporters. As European buyers become legally liable for traceability and emissions, they inevitably press their Brazilian suppliers to comply.

In this context, we’re seeing the emergence of climate-related clauses in contracts, field audits, satellite-based verification and strict adherence to GHG Protocol inventory standards. Suppliers unable to meet these demands risk being replaced by better-prepared competitors.

Climate Governance: Decisions That Boards Must Make Now

For boards of directors and advisory committees, this is a call to action. Scope 3 is no longer a technical footnote or a problem for tomorrow—it is central to business strategy, governance and risk mitigation. Ignoring climate governance in this new environment can result in tariffs, costly litigation, lost contracts and restricted financing.

Conversely, anticipating these requirements can unlock significant value, including access to green financing, stronger brand positioning and competitive advantage in stringent markets.

Beyond being a compliance necessity, Scope 3 compels a shift in worldview—from farm to factory, from port to end consumer. It requires a move beyond operational boundaries toward full accountability for emissions across the value chain.

CEOs and board members who internalize this will not only ensure their organizations survive in global markets, but they will also be poised to lead the transition toward a fairer, more resilient and regenerative economy.

Sustainability today is not a luxury—it is the baseline for competition… and existence.The future of climate competitiveness begins in the boardroom. The time to act is now.

Dr. Gisele Batista ESG Consultant | ANEFAC Representative on the ESG Working Group – International CFO Alliance | Leadership ESG Mentor | CNPq Researcher & Professor

References

• EFTA Court. The Norwegian State v Greenpeace Nordic and Nature and Youth Norway (Opinion E-18/24), 2025.
• European Commission. Carbon Border Adjustment Mechanism, 2024.
• CVM. Resolution 193/2023 – Adoption of ISSB Standards in Brazil.
• OECD. Mechanisms to Prevent Carbon Lock‑in in Transition Finance, 2023.
• IEA/OECD. Oil and Gas Industry in Net Zero Transitions, 2024.
• FSB‑TCFD. Final Recommendations Report, 2017.