The US Securities and Exchange Commission’s proposed Climate-Related Disclosure Rule, which many expect to be finalized by the end of 2025, has already started reshaping corporate conversations in boardrooms across the country. At its core lies a rather simple, though undeniably weighty, demand: that publicly traded companies provide transparent, standardized reporting of climate-related risks. Of particular significance, and perhaps the most technically challenging component, is the expected requirement to disclose Scope 3 greenhouse gas emissions. This category—often seen as the most elusive—covers indirect emissions arising from a company’s value chain, both upstream and downstream. For most firms, that means grappling with the emissions of suppliers, logistics partners, and even customers.
It’s easy enough to see why Scope 3 has become a focal point. For many sectors, Scope 3 emissions dwarf those generated by direct operations (Scope 1) or purchased energy (Scope 2). A manufacturer may run relatively efficient factories, for example, but source materials with heavy embedded emissions. Yet, quantifying those upstream emissions—let alone doing so with any precision—is a task fraught with data gaps, methodological disputes, and, frankly, operational headaches. There’s no denying that.
So, where should a compliance team begin? One useful starting point is open-source life-cycle databases. Resources like the US LCI (Life Cycle Inventory) Database, or the internationally recognized ecoinvent, provide average emissions factors for a wide range of materials and processes. While no dataset can capture the exact conditions of every supplier’s operations, these repositories offer a practical baseline. By mapping purchased goods and services to standard emissions factors, firms can begin to assemble a reasonable estimate of supply chain emissions. That said, some caution is warranted. Life-cycle data can vary in quality, geographic relevance, and age, so cross-referencing multiple sources or at least understanding the limitations of the data selected is, arguably, a prudent step.
But life-cycle inventories only get you so far. A second, and increasingly important, tool is direct supplier data collection. For larger suppliers, especially those already subject to similar disclosure rules in Europe or under voluntary reporting schemes like CDP, emissions data may be available. For smaller or less sophisticated suppliers, however, such data often doesn’t exist in a usable form. Here, procurement teams can play a pivotal role, integrating emissions data requests into standard supplier questionnaires or contractual documentation. A delicate balance is required—firms must avoid overwhelming suppliers with unrealistic demands, while still pressing for the transparency necessary to build credible Scope 3 inventories. There’s an art to that, one could say.
Integrating these data sources into operational systems is the next challenge. One approach gaining traction is the development of purchase-order-level emissions calculators. The concept is straightforward: link emissions factors or supplier-provided data to individual purchase orders, enabling real-time or near-real-time emissions accounting as goods and services are procured. Constructing such a calculator is no trivial matter, but the broad methodology might proceed along these lines.
Begin by developing a comprehensive materials and services taxonomy, mapped to standardized emissions factors. This may require harmonizing procurement classifications with the categories used in life-cycle databases. It’s not always a neat fit; expect some iterations.
Next, embed data capture fields within the purchasing system. These might include supplier emissions declarations, country-of-origin data, or process information where relevant. The goal is to minimize manual inputs, integrating emissions accounting into standard workflows as seamlessly as possible.
Design calculation logic that applies emissions factors based on quantity, weight, or value, as appropriate to the category. In some cases, hybrid approaches may be warranted—using supplier-specific data where available, default factors where not.
Finally, build reporting functionality that allows aggregation at levels meaningful for SEC disclosures: by product line, business unit, or consolidated corporate total. Flexibility here matters, as reporting frameworks continue to evolve, and firms may need to tailor outputs for different audiences—investors, regulators, or internal management.
All this is easier said than done, of course. Data standardization, integration with legacy systems, and change management among procurement teams are likely to present challenges. Moreover, even as firms strive for precision, they will need to communicate clearly the inherent uncertainties in Scope 3 estimates. This is not about perfection; it’s about reasonable, good-faith efforts to quantify and mitigate climate impacts.
It’s perhaps worth pausing to reflect on a broader point. The SEC’s proposal, while focused on disclosure, is part of a larger trend toward embedding climate considerations into core business processes. As firms map and measure their supply chain emissions, many will discover hotspots of unexpected significance—materials or regions where emissions are far higher than anticipated. That knowledge, if acted upon, could drive shifts in sourcing, design, or logistics decisions. But whether companies will seize that opportunity, or simply seek compliance with minimum effort, remains to be seen.
While much attention is understandably directed toward the technical mechanics of Scope 3 accounting, there is also a strategic dimension. Firms that build robust, transparent Scope 3 reporting systems now may find themselves better positioned as stakeholder expectations continue to rise. Investors, customers, and regulators alike are signaling that climate performance is no longer peripheral. How that plays out in practice will, as always, depend on many factors. What seems clear is that companies ignoring these developments do so at their own risk.