The 'Hidden Carbon' Problem: Why Most Companies Are Missing Half Their Emissions

Many businesses pride themselves on reducing their carbon footprint by implementing energy-efficient lighting, switching to renewable energy, and optimizing operations. However, what if we told you that these efforts might only address half of the problem?

Enter Scope 3 emissions—the indirect emissions that occur throughout a company’s supply chain, including the sourcing of raw materials, business travel, employee commuting, product use, and waste disposal. These emissions often account for the majority of a company’s total carbon footprint, yet they are the least understood and hardest to track.

Why Are Scope 3 Emissions So Hard to Measure?

Scope 1 and Scope 2 emissions—those from direct fuel combustion and purchased electricity—are relatively easy to measure and control. Scope 3, however, presents several challenges:

• Complex Supply Chains: Many businesses work with hundreds or thousands of suppliers, making it difficult to track emissions at every stage.

• Data Gaps & Transparency Issues: Suppliers may not have the resources or willingness to disclose their carbon footprint.

• Inconsistent Reporting Standards: While regulations for Scope 1 and 2 emissions are becoming more standardized, Scope 3 methodologies vary widely, leading to discrepancies in reporting.

• Downstream Emissions Complexity: How customers use and dispose of a product contributes to Scope 3 emissions, but estimating this accurately is incredibly challenging.

Without addressing Scope 3, companies risk underreporting their environmental impact, missing climate targets, and facing regulatory or reputational consequences.

Where Are Your Hidden Emissions?

To understand where your business might be overlooking major carbon contributors, consider these key Scope 3 categories:

1. Purchased Goods & Services

The production of materials, components, and products purchased from suppliers generates emissions before they even arrive at your facility. Businesses that rely on global sourcing often have a significantly larger footprint due to transportation and production energy usage.

2. Business Travel & Employee Commuting

Flights, hotel stays, and car rentals all contribute significantly to Scope 3 emissions. Even remote work has an impact, as employees use electricity in home offices.

3. Transportation & Distribution

Both upstream (supplier to you) and downstream (you to customer) logistics create emissions through shipping, warehousing, and vehicle fuel consumption.

4. Product Use & Disposal

What happens after you sell a product? Energy-consuming appliances, electronics, and single-use packaging all have an extended carbon footprint long after they leave your hands.

Why Ignoring Scope 3 Is Risky for Your Business

Many companies fail to fully acknowledge or report Scope 3 emissions, believing that since they occur outside of direct operations, they are someone else’s problem. But regulators, investors, and consumers increasingly disagree. Here’s why neglecting Scope 3 can backfire:

Regulatory Pressure Is Growing

Governments and regulatory bodies worldwide are tightening carbon disclosure rules. The SEC’s climate disclosure proposal and the EU’s Corporate Sustainability Reporting Directive (CSRD) are pushing for more comprehensive emissions reporting, including Scope 3. Non-compliance could result in legal consequences and loss of investor trust.

Investors Are Watching

ESG-focused investors want to know the full impact of their portfolio companies. Businesses with incomplete carbon reporting may struggle to attract sustainable investment or face shareholder activism.

Customers Care About Supply Chain Ethics

More consumers are holding brands accountable for the sustainability of their products and supply chains. Greenwashing allegations and sustainability scandals can cause irreversible brand damage.

How to Start Measuring & Reducing Scope 3 Emissions

The good news? While Scope 3 emissions are complex, they are manageable with the right approach.

1. Prioritize Data Collection from Key Suppliers

Instead of trying to track every supplier’s emissions at once, focus on the 20% of suppliers that contribute to 80% of your carbon footprint. Use sustainability questionnaires, third-party verification (e.g., CDP Supply Chain), or supplier-specific emissions tools.

2. Leverage Lifecycle Assessments (LCA)

Conduct an LCA of your products to understand emissions at each stage of the product lifecycle. This helps pinpoint opportunities to cut carbon within design, materials, or packaging.

3. Optimize Logistics & Transportation

• Switch to low-carbon shipping options, such as rail over air freight.

• Work with logistics partners that offer carbon tracking and reduction services.

• Consolidate shipments to reduce transport frequency.

  
  

4. Engage Employees & Customers

• Offer low-carbon commuting incentives like public transit reimbursements.

• Implement sustainable travel policies that prioritize virtual meetings over flights.

• Encourage product recycling and circular economy initiatives.

  
  

While tackling Scope 3 emissions isn’t easy, ignoring them is no longer an option. Businesses that take the initiative not only stay ahead of regulations but also strengthen their brand, attract investors, and gain a competitive edge.

But navigating Scope 3 complexities requires expert insight and tailored strategies. Want to uncover your hidden carbon footprint and take action? Contact us to discuss how we can help.