CDP: 'Scope 3 Transparency Is A Business Necessity'

CDP's latest report, 'Strengthening the Chain: Industry Insights to Accelerate Sustainable Supply Chain Transformation', sheds light on the growing importance of managing supply chain emissions.

As corporate supply chain emissions (Scope 3) are on average 26 times greater than operational emissions (Scopes 1 and 2), companies have a huge opportunity to reduce environmental impacts and ensure long-term resilience.

CDP's report, funded by HSBC, draws on insights from more than 340 corporate buyers working with their suppliers through CDP’s Supply Chain Programme to identify practices driving climate action.

Scope 3 emissions: A growing business priority

With global disclosure standards and mandatory reporting rules just around the corner and carbon pricing regulations looming, transparency surrounding Scope 3 emissions is fast becoming essential for businesses.

The reality is that firms are waking up to the wide range of climate-related risks they face – from physical damage to transition challenges. At the heart of tackling these risks is the need for resilient, net-zero and nature-positive supply chains.

Corporate supply chain emissions are typically far larger than direct operational emissions. Yet, many companies still overlook their supply chain emissions and the broader risks they pose.

According to CDP’s latest report, only 15% of businesses have set upstream emission reduction targets. That's despite carbon liabilities in sectors like manufacturing, retail and materials being estimated at a staggering US$335bn.

A first step towards addressing this is robust disclosure from suppliers, enabling businesses to measure and manage their climate-related risks and opportunities effectively.

The business case for addressing climate risks

There is a clear financial rationale for tackling climate risks in supply chains.

Companies estimate potential financial losses from supply chain climate risks to be around US$162bn – nearly three times the US$56bn it would cost to mitigate them.

Yet only 25% of companies consider these risks in their risk management processes, suggesting the true costs are likely much higher. Despite the clear business case, many companies are still slow to act. Of the 56% of companies reporting to CDP that have taken steps to reduce emissions, only 15% are focusing on their supply chains.

Encouragingly, where companies do take action, the financial benefits are substantial. Emissions reduction initiatives have generated a combined US$13.6bn in savings, while also reducing Scope 3 emissions.

This suggests that businesses are beginning to understand that climate action is not just about compliance, but can also deliver financial returns. Most initiatives are being driven voluntarily, rather than through regulatory pressure, showing that businesses are ahead of the curve in embracing sustainable practices.

Driving collaboration and supplier engagement

The CDP report highlights the importance of collaboration between buyers and suppliers to reduce emissions.

Suppliers were 52% more likely to cut their emissions when their buyers provided financial incentives, compared to those who only received training. More than 5,500 suppliers have proposed ideas to buyers through CDP’s Supply Chain Programme that could save an additional 193 MtCO2e.

This shows that suppliers are not only willing to reduce emissions but are actively seeking ways to do so in partnership with their buyers.

Despite this, only 13% of businesses include climate-related requirements in supplier contracts and less than 6% require suppliers to disclose climate data.

This is a significant gap in procurement processes that, if addressed, could drive greater transparency and action. By setting clear climate-related expectations for their suppliers, companies can bridge the current gap in data disclosure and better manage supply chain risks.

Lessons from Telstra: Supplier engagement success

A case study from Telstra demonstrates how strategic supplier engagement can drive success.

Telstra’s approach includes setting ambitious benchmarks for suppliers and gradually increasing expectations to help them transition to higher standards. By embedding sustainability into its core values, Telstra ensures strong internal buy-in, with employees across the business supporting the push for greener supply chains.

One of the key lessons from Telstra’s experience is the importance of collaboration.

"One of the best outcomes of this engagement has been opening the dialogue with suppliers," Telstra notes. "It has turned more into a collaboration piece where we can work together to reduce our emissions."

This shift towards partnership allows companies to work alongside suppliers to tackle emissions and align on sustainability goals, ultimately making a bigger impact.

Telstra also recommends modelling supplier selection on industry peers and prioritising suppliers based on procurement spend and emissions.

Setting high targets and engaging more suppliers each year ensures continuous improvement and progress. This approach has helped Telstra foster deeper collaboration with suppliers and enhance its own sustainability efforts.

The way forward

As the CDP report reveals, there is both an environmental and financial incentive for businesses to address Scope 3 emissions.

While many companies are still behind in seizing these opportunities, those that are acting are seeing significant savings and building more resilient supply chains.

By adopting a collaborative approach with suppliers, offering financial incentives and embedding sustainability into procurement processes, companies can make meaningful progress towards net-zero targets and mitigate the growing risks posed by climate change.

The time to act is now – and the benefits are clear.

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