Companies continue to pursue scope 3 reporting, despite regulatory and data collection challenges

Dive Brief:

• The complexity of reporting scope 3 emissions — indirect emissions that are generated within a company’s value chain —  is the result of a web of data quality, traceability and standardization challenges, companies participating in a Reuters webinar last week said. 
• Speaking on what could improve scope 3 reporting, Holly McHugh, vice president of sustainability and social impact at Toronto-based jewelry brand Mejuri, said data should be made “more transparent, accurate and streamlined”  and companies should adopt more “open, industry-wide approaches.” McHugh added that navigating a complex regulatory landscape is a priority.
• LinkedIn, among other companies, is beefing up internal carbon impact monitoring mechanisms to assess the indirect impact of company-wide operations, such as food programs and business travel, the professional networking platform’s Global Director of Sustainability Melanie Larkins said Thursday.

Dive Insight:

The Jan. 23 webinar also hosted experts from apparel company Kontoor Brands — which houses jeans manufacturer Wrangler under its umbrella — and environmental nonprofit Ceres. The discussion centered on how companies can develop a robust scope 3 emissions strategy that aligns with their overall business goals.

Scope 3 emissions reporting has long been marred with challenges, especially as companies account for the carbon impact of third-party suppliers and value chain components such as delivery trucks, business travel and waste from company operations. Scope 3 often makes up the majority of a company’s total emissions, according to the U.S. Environmental Protection Agency.

Discussion of scope 3 reporting comes amid a wave of regulatory obligations in recent years, including the European Union’s Corporate Sustainability Reporting Directive, which requires some companies to report their scope 3 emissions starting this year. In addition to CSRD, California’s Climate Corporate Data Accountability Act — which mandates emissions reporting for companies operating within the state that generate more than $1 billion in revenue — will require businesses to start disclosing their scope 3 footprint starting 2027. The Security and Exchange Commission’s climate-risk disclosure rule, however, stopped short of requiring companies to disclose scope 3 emissions after the agency received backlash over its original 2022 rule proposal. Though the climate rule was finalized in March last year, it was immediately met with several legal challenges. The SEC stayed the rule in April as it continues to work through the lawsuits.

Meanwhile, as the newly inaugurated Trump administration continues a deregulatory agenda in the U.S., there are concerns around how a less ESG-friendly political climate might affect companies’ reporting requirements, including those pertaining to scope 3 emissions. 

Strategies for scope 3 reporting

LinkedIn is working to manage scope 3 impact through an activity-linked carbon fee, which is used to offset the impact of the company’s business travel activities. To do so, it’s using a tool called Tripkicks, which helps employees understand the carbon impact through travel emissions calculations at the point of sale. The carbon fee, which must be paid by business units, functions as a way to hit units’ bottom lines and acts as a mechanism to shape buying decisions, Larkin said

“It allows us to help employees better understand their carbon impact before they travel. It helps us see ISO-certified CO2 figures, so that we can really understand the impact of [a certain] flight,” Larkin said. “What is the impact of this trip? How might I change this trip to be a little less carbon intensive?”

LinkedIn spent an estimated $30 million in U.S.-booked airfares in 2023, according to a report from trade publication Business Travel News.

For third-party suppliers, the company has created a sustainability resource hub with tools, resources and documentation, the company’s sustainability director added.

Kontoor said it is working to get suppliers to implement a more efficient production method that shows a lower carbon impact than traditional methods. This production method, which is called open-end spinning, where fibers are spun into yarn using a high-speed rotor, is considered less carbon intensive than traditional ring spinning. 

“We found that if we can help our suppliers convert just 50% of our products to open-end spinning instead of ring spun, we can reduce our scope three emissions by 6%,” said Megan Moore, Kontoor’s manager for sustainability analytics and global textile procurement.

Meanwhile, Mejuri is working to improve traceability of supply chains in its jewelry production efforts, particularly for products made from recovered minerals from abandoned mines (salmon gold), and for lab-grown diamonds.

“Not all lab-grown diamonds are created equal. Many of the lab-grown diamonds out there are grown in these little nuclear reactors that are being fired by coal towers,” McHugh said. “They’re not necessarily better unless you’re getting one [that is] made from renewable energy.”

Mejuri is working with SCS Global Services to ensure its diamonds are certified as having net-zero impact, in addition to collaborating with third-party suppliers. McHugh noted that free third-party traceability tools can help suppliers offer more visibility into their supply chains.

“We were really excited to partner with SCS to get the sustainability-rated diamonds,” McHugh said. “That commitment is directly tied to our scope 3 emissions and directly tied to the work that we get to do with our suppliers, because we’re working with every single one of them on what their emissions look like, and having regular conversations with them,” she said.

A key challenge with scope 3 reporting, according to Mejuri’s sustainability head, is the development of common standards, including “a clear consensus between standards and industry groups across jewelry and other industries that are using a lot of precious metals.” 

The road ahead

Scope 3 reporting continues to be a priority for companies, despite regulatory uncertainty against the backdrop of a new and potentially less ESG-friendly U.S. administration, analysts say.

“Many companies are continuing to advance their greenhouse gas measurement and reporting capabilities, particularly around scope 3, as part of their broader business risk management and operational efficiency strategies,” Maura Hodge, KPMG U.S. sustainability leader, told ESG Dive Monday. 

“What we’re seeing in the market is that this work is increasingly being driven by multiple factors: investor demands for transparency, supply chain resilience planning, and opportunities for innovation and cost savings. Companies are taking a long-term view of these initiatives and integrating them into their core business operations,” she added.