Managing Scope 3: Turning a Challenge into an Action Plan

Scope 3: The Underutilized Lever in Your Carbon Footprint Assessment

Scope 3 covers all of a company's indirect greenhouse gas emissions generated throughout its value chain.

It therefore includes the following programs … 

• Upstream: procurement, logistics, travel
• and downstream: distribution, use, and end-of-life of products.

It complements Scope 1 (the company's direct GHG emissions, such as heating its facilities and emissions from company vehicles) and Scope 2 (indirect emissions related to purchased energy used in the production of a product or service).

Scopes 1, 2, and 3 thus cover all of a company's greenhouse gas emissions.

Scope 3 emissions generally account for the majority of a company's total emissions—up to more than 98% for some of Tennaxia's clients. 

Although only Scope 1 and Scope 2 emissions are required to be reported under the GHG Protocol methodology, Scope 3 emissions are a key driver in any decarbonization strategy.

The purpose of this article is to guide you through this strategy.

Why Are Monetary Ratios No Longer Enough?

To estimate Scope 3 greenhouse gas emissions, the simplest method is the spend-based method, also known as the monetary approach.

For many Scope 3 emissions categories, it is difficult to obtain precise physical data (kg of purchased materials, km traveled, etc.). However, all companies have accounting data available. Monetary ratios therefore allow for a quick estimate based on purchases. They have been very useful in making Scope 3 calculations more accessible.

The monetary ratio estimates greenhouse gas emissions based on an amount spent: Estimated emissions = Expenditure (€) × Monetary emission factor (kgCO₂e/€)

For example, if a company spends 100,000 € on consulting services and the associated emission factor is 0.05 kgCO₂e/€, then the estimated emissions for this expense item amount to 5 tCO₂e.

The advantage of these monetary ratios is that they are easy to implement.

But this method quickly reveals its limitations.

1- By definition, monetary ratios measure spending, not physical reality. 

However, a single expense can correspond to very different situations: 

• purchase of 100 k€ worth of steel produced in a coal-fired blast furnace
• vs. purchasing 100 k€ worth of steel produced using low-carbon electricity.

The monetary ratio will assign similar emissions even though the actual footprint is different.

2- They are sensitive to price fluctuations 

If prices rise, Scope 3 emissions will increase mathematically, even though actual emissions remain the same.

3 - They do not prioritize socially responsible suppliers or track actual cost reductions

Let's consider two suppliers: 

The monetary ratio will assign the same footprint to both suppliers, without favoring the one that:

• is investing in decarbonization
• uses renewable energy
• or improves its industrial processes

This method therefore obscures what we are trying to measure: the actual effort toward decarbonization.

That is why the GHG Protocol encourages a shift toward supplier-specific data for material categories.

The recommendation is to use monetary ratios only as a last resort. Priority should be given, in the following order, to: 

1. Supplier-specific data (the most accurate).
2. Physical data (kg, km, kWh, etc.).
3. And finally: monetary ratios (€/kgCO₂e or kgCO₂e/€).

The CSRD/ESRS, the ISSB (IFRS S2), auditors, and credit rating agencies all currently accept estimates based on monetary ratios for Scope 3, but expect a gradual shift toward primary, traceable, and auditable data.

As for investors, they are primarily focused on the credibility of the procurement decarbonization plan.

To be credible and turn Scope 3 into a tool for decarbonizing the value chain, it all starts with data collection.

That's what we're going to look at now.

Methodology: Collecting and Validating Supplier Data

In many cases, the largest portion of Scope 3 emissions stems from purchases of products and services.

You should start by identifying the suppliers that account for 80% of the emissions calculated using the monetary method (Pareto principle): raw materials, industrial components, outsourced production, and logistics.

For each strategic supplier identified in this way, the goal is to move from monetary data to physical data:

• quantities of materials purchased in metric tons or cubic meters,
• actual energy consumption,
• energy mix used in production,
• Distances and modes of transportation.

When these physical data are multiplied by appropriate emission factors, the resulting data are, on average, three times more accurate than those obtained using the monetary method.

For suppliers who are already engaged in a carbon assessment process or following an SBTi reduction pathway, you can directly collect their Product Carbon Footprint (PCF)—the verified carbon footprint of their products or services.

Platforms like Tennaxia make it easier to collect this data using customized questionnaires to centralize, standardize, and ensure the reliability of supplier data, while reducing the administrative burden on both sides.

By incorporating this data into the criteria for selecting and evaluating suppliers (alongside price, quality, and lead times), it will help inform purchasing decisions.

Thus, a procurement manager who has access to the actual carbon footprint of their suppliers will be able to make different decisions: accept a higher price from a low-carbon supplier, include carbon reduction clauses in contracts, or decide to support a strategic supplier rather than replace them.

This is how Scope 3 evolves from a reporting exercise into a tool for managing the value chain.

From Calculation to Reduction: Engaging Your Supply Chain

According to a report published in 2024 by the Carbon Disclosure Project and BCG, a Supplier Engagement Program is one of the most effective strategies for reducing Scope 3 emissions.

In this guide, the SBTi recommends a five-step approach:

1. Identify the suppliers with the highest emissions and those that are most strategic
2. Set clear expectations: measure their GHG emissions, establish climate goals, and develop a decarbonization roadmap
3. Provide them with training and resources as needed
4. Organize data collection: customized questionnaires, reporting platform. And track progress using reliable indicators and data
5. Gradually integrate climate performance into business relationships through incentive mechanisms: ESG criteria in requests for proposals, supplier ratings, business preferences for committed suppliers, etc.

The key message is that reducing Scope 3 emissions depends less on improving calculations and more on establishing a sustainable supply chain: transforming the supply chain by encouraging a growing number of suppliers to adopt their own emissions reduction targets that align with the pathways for limiting global warming.

However, in reality, buyers have few tools at their disposal to require their suppliers to reduce emissions.

This is where the setting an internal carbon price will come in handy: it’s a tangible way to incorporate environmental considerations.

An internal carbon price makes it possible to incorporate climate considerations into procurement processes by assigning an economic value to GHG emissions.

Instead of comparing bids solely on price, quality, and lead times, you add a hypothetical carbon cost that reflects the climate impact of each option.

As a result, a product with a higher carbon footprint becomes objectively less competitive, even if its listed price is lower.

For example,the SNCF has implemented an internal carbon price to rate its suppliers. 

This competitiveness mechanism sets off a virtuous cycle by promoting products and services that perform better in terms of GHG emissions. It also helps motivate your strategic suppliers to commit to decarbonizing their processes, using renewable energy, prioritizing recycled materials and the circular economy, and so on.

You work together with your service providers to develop your reduction plan.

As a result, this approach reduces exposure to sensitive geographic areas and dependence on fossil fuels, while strengthening your relationships with your strategic service providers.

Scope 3 as a driver of value chain resilience.

Scope 3 is therefore much more than just a matter of compliance or reporting.

Mapping and managing Scope 3 emissions means gaining a better understanding of the value chain's dependencies and vulnerabilities.

This approach makes it possible to: 

• to identify critical dependencies
• to anticipate transition risks
• to reduce exposure to carbon-based resources
• to enhance the maturity level of suppliers
• to strengthen ties with its strategic service providers
• to improve transparency and traceability
• to prepare the value chain for the consequences of climate change

Thus, Scope 3 is not just a carbon footprint indicator.

It is a key driver of your decarbonization strategy, as well as a tool for managing risk and building resilience across the value chain.