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Big challenges, simple remedies
June 2024
A new report by CDP and Boston Consulting Group (BCG) illustrates upstream Scope 3 supply chain emissions are 26x that of Scopes 1 and 2 combined – with supply chain emissions from manufacturing, retail, and materials sectors alone 1.4x that of the total CO2 emissions of the EU in 2022.
Key messages
1. Corporate supply chain emissions (Scope 3) are 26x that of their operations emissions (Scope 1 and 2).
Retail is the lead sector with supply chain emissions 92x that of their operational emissions. Meanwhile, upstream emissions disclosed through CDP from the manufacturing, retail, and materials sectors alone have a total footprint that's 1.4x the total CO2e emitted in the European Union in 2022.
2. Scope 3 emissions continue to be overlooked.
Only 15% of corporates have set upstream targets for these. Corporates are twice as likely to measure operational emissions, and 2.4x more likely to set targets for these compared to supply chain emissions.
Three significant drivers of action in supply chain emissions are a climate-responsible board, supplier engagement, and internal carbon pricing (ICP).
3. Disclosed upstream emissions from the manufacturing, retail, and materials sectors alone suggest a carbon liability of over $335Bn.
This liability is at risk of being overlooked by both corporates and investors.
4. Scope 3 emission blind spots drive significant unreported risks for both investors, and corporates.
Only half of corporates disclosing through CDP evaluate the financial risks from upstream emissions. However of those that do, a third acknowledge the risk to profit. Despite these risks, fewer than 1 in 10 investors require investees to disclose Scope 3 upstream emission as part of investment policies.
5. Boards have a fiduciary responsibility to manage these risks, and investors must price-in the risks from carbon liability (business operational risk) and demand greater transparency through disclosure.
There are a number of immediate priorities for corporates and investors. For example, Boards should nominate at least one member with climate competence and articulate climate impact considerations (including climate liability) in their Terms of Reference. Meanwhile investors should price-in risk to ensure fair market valuations.
Download the full report to learn more.
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