## 5.1 Why Tackle Scope 3 Upstream Emissions as a CEO

For many companies, Scope 3 represents the largest source of emissions, which also means it presents the most significant opportunities to influence reductions. Scope 3 emissions can account for up to 90% of a company’s total emissions, including many of its most significant impacts. For the average global company, upstream Scope 3 emissions are 11.4 times higher than operational emissions.


## Below, we outline 10 reasons why you should take the Scope 3 Upstream Action Plan and kick-start your Scope 3 net-zero journey.

1. Growing requirements from regulatorsAccording to a recent survey among 230+ organizations, conducted by SBTi and BCG, more than 60% of respondents believe that compliance reporting will be required in the future. There is a strong regulatory push to improve data transparency and availability. To stay in compliance with growing regulations, companies will need to take action on sustainability reporting. In 2022, the UK became the first G20 country to legally mandate that the largest UK-registered companies disclose climate-related financial information, in line with TCFD recommendations. In Europe, the Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standard (ESRS) will require large and listed companies to report regularly on environmental risks and impacts; these rules will apply progressively to European Union entities from Financial Year 2024 onwards.3. Attracting and keeping talentEmployees and prospective hires are increasingly assessing company sustainability commitments to determine where to work. Not focusing on sustainability throughout the value chain can lead to losing talent or lowered employee engagement and morale. At the same time, companies need employees who are upskilled and culturally aligned with the sustainability action plan.5. Financial business case for changeAn SBTi survey of corporates shows that the cost of scope 3 decarbonization can limit action. 61% of survey respondents consider cost of decarbonization to be a challenge for delivering a scope 3 science-based target, driven by concern of green premiums. In addition, some respondents are concerned that decarbonization will lead to increased capital expenditure spend e.g., to support R&D or product redesign.However, there is a strong financial business case for a scope 3 commitment. BCG research shows that businesses today are increasingly likely to be held responsible by shareholders for the negative externalities created. Failure to address climate change’s materiality can hinder a company’s ability to create long-term value. Addressing Scope 3 emissions can lead to long-term cost resilience. And according to an IPCC report, several emission-reducing options in the industrial sector are cost-effective and profitable, such as energy and material efficiency.7. Staying relevant in the net-zero transitionMore corporates are rising to meet the net-zero challenge and are beginning to tackle Scope 3 emissions. Most organizations in a survey from SBTi and BCG include Scope 3 in their baselines, with 83% of respondents including Scope 3 emissions in their GHG inventory and 11% planning to do so in the future.In a study commissioned by the World Resources Institute, two-thirds of companies or more reported Scope 3 emissions in most industries in 2021. The number of companies that reported Scope 3 emissions in the public CDP dataset also increased from 936 companies in 2010 to 3,317 companies in 2021.”9. Climate action is urgentClimate action is urgent, and corporations have the potential to enact large-scale change. Catastrophic consequences are possible with inaction. The world is already experiencing changes in global average temperature and an increasing frequency of extreme weather events. As mitigation efforts are delayed, it becomes more difficult and expensive to adapt to increasing climate risks.

2. Growing expectations from investorsAs reporting standards come into effect, investor pressure for company disclosure and climate action will continue to rise. Since Scope 3 emissions are a large source of climate-related financial risk, investors report that Scope 3 estimates are useful for informing their financial decisions. Investors are strongly incentivized to care about Scope 3 emissions. Investors demand corporate action to achieve investors’ own financed emissions targets. In a survey by the ERM, investor respondents ranked the highest potential benefit of climate-related disclosures as better performance in meeting their sustainability goals. Other investors encourage company decarbonization in anticipation of long-term financial benefits of climate resiliency, or in response to perceived climate-related financial risks.4. Growing consumer expectationsConsumer demand for sustainability commitments is increasing. BCG research, surveying approximately 19,000 consumers worldwide, shows that sustainable products and services have higher customer loyalty scores compared to non-sustainable alternatives. Thus, the right value proposition can not only encourage people to act and buy sustainably, but also gain customer loyalty.6. Increase in process efficiency and productivity, leading to long-term sustainable profitsFor companies, the Scope 3 net-zero journey also offers opportunities, including access to finance through innovation grants and fiscal incentives, and access to new markets and revenue through innovation in greener products and services, e.g., hydrogen supply chain or circular steel supply chain.Revenue can also be realized through new opportunities, e.g., from shifting profit pools and green growth. Indirect impacts can also be realized through satisfying the demands of investors, consumers, employees, and other stakeholders, as well as improving company reputation.”8. Maintain competitive advantageIn the net-zero transition, the economy will be transformed as industries make the changes to reduce emissions. According to the World Economic Forum, businesses face both existential risks and enormous opportunities from the climate crisis and clean economy transition. CEOs that proactively address the changing landscape will be able to build a long-standing competitive advantage while playing a vital role in shaping a climate-safe global economy.”10. Collective action is needed for a systemic transformation towards net-zeroReduction measures are necessary to meet net-zero targets, which is required from all business areas. First movers alone are not enough. Industry ambition must also be aligned.Collective action helps exert greater influence within supply chains. Collective investment in future technology solutions may also help accelerate decreases in green premiums and enable faster uptake of low carbon innovations. Several industry leaders are committing to sustainability initiatives, as can be referenced in section 5.2 “What companies are doing.”