Author: Inci Hazal Kilic

For the past two years, my most intense agenda has been supply chain emissions and corporate sustainability reports. Reporting supply chain emissions is no longer merely a sign of goodwill; it is becoming mandatory under international regulations, and in most companies, these indirect emissions make up 70-90% of the total carbon footprint.

So what are these Scope 3 emissions?

The GHG Protocol defines corporate greenhouse gas emissions across three scopes: Scope 1 covers direct emissions from facilities and vehicles owned by the company; Scope 2 covers indirect emissions from purchased energy such as electricity, heat, or steam; and Scope 3 covers all other indirect greenhouse gas emissions across the company value chain, from raw materials to the use of the final product. Scope 3 emissions are divided into 15 subcategories, split between upstream emissions entering the organization and downstream emissions leaving it. Depending on the sector, the relevant Scope 3 categories may differ for each company, which can make the calculation complex.

Scope 3 emissions usually make up the largest share of a company’s total greenhouse gas inventory. In many businesses, these indirect emissions from suppliers and extending to product use are very likely to exceed the company’s direct operational emissions. Indeed, CDP’s 2024 report, “Strengthening the Chain,” based on an analysis of 2023 data from more than 23,000 companies, clearly shows where things stand: corporate supply chain emissions are, on average, 26 times higher than operational emissions. This ratio, measured at 11 times in CDP’s 2020 report, has more than doubled in five years under a larger sample and tighter scrutiny conditions. The same report also shows that just the upstream Scope 3 emissions disclosed by the manufacturing, retail, and materials sectors correspond to more than $335 billion in carbon liabilities, and that when properly managed, this area could turn into a $165 billion financial opportunity globally. This ratio shows that a company’s real climate risk lies not within its own walls, but in its suppliers’ energy choices and its customers’ product-use habits.

Scope 3 Strategy in the Climate Economy

Traditional financial planning has, for years, kept environmental externalities outside the accounting records. However, with the acceptance of the principle of “double materiality” in the financial world, a company’s impact on the environment and the impact of changing climate conditions on the company’s financial performance have become an inseparable whole. The most critical indicator of this integration is Scope 3 emissions.

Financial planning tries to forecast future cash flows, risks, and growth opportunities. The Scope 3 inventory provides critical data for these forecasts. For example, as carbon pricing mechanisms such as ETS or carbon taxes become more widespread around the world, the cost of high-emission raw materials will rise. A company that does not understand Scope 3 Category 1 (Purchased Goods and Services) data cannot anticipate future cost increases or budget properly.

Customers have started to prefer low-emission suppliers in order to meet their own Scope 3 targets. Companies that cannot adapt face the risk of losing market share. Each category under Scope 3 offers a different window of risk or opportunity for financial planning. A company should read these categories not merely as emission items, but as a “cost item” or a “risk center.”

The Importance of Digitalization in Supply Chain Management

Categorical complexity and data intensity create a reality that quickly exceeds the capacity of Excel-based manual methods. Assigning the data of dozens, hundreds, or even thousands of suppliers to the correct categories, managing the transition from spend-based approaches to approaches that prioritize primary activity-based data, and producing year-over-year comparable results is now a process that must be supported by software infrastructure.

At Life Climate, we also started from this need in the SCOOP platform, whose methodological framework we developed. We designed an architecture that automatically assigns categories based on suppliers’ activity codes, generates quick results using sectoral emissions intensity factors, and can update these estimates as direct supplier data (primary data) becomes available. The goal here is not only to reduce manual workload, but to produce data with the speed and consistency that can feed into the financial planning cycle. Because Scope 3 data is useful not at the reporting date, but at the moment the purchasing decision is made.

Three Recommendations for Managers

Companies trying to solve all of Scope 3 at once usually fail to make meaningful progress in any category. For Turkish companies under TSRS S2 obligations, I would like to share three practical first steps that can be used in the reporting period when Scope 3 exemptions end.

1. Do not focus on all 15 Scope 3 categories; identify the three that will have the most direct impact on your income statement.

For most companies, these will be Category 1, Category 4 (Upstream Transportation), and depending on the sector, Category 11 (Use of Sold Products) or Category 6 (Business Travel). At the same table with your CFO, clarify which three categories will have the most direct impact on production cost, logistics cost, or market access in the medium-term planning horizon. Look through the lens of CBAM, the national emissions trading system, and customer contracts; the question should not be “which one should I report?” but “which one will affect my budget?”

2. Do not start with broad supplier surveys; request data from your largest suppliers.

A comprehensive ESG survey sent to 200 suppliers returns at an average response rate of 15%, and a significant portion of the responses are unusable. In contrast, a simple one-to-one data request to 10 to 20 suppliers that account for 70-80% of your spend, along with annual electricity consumption, primary production process information, and, if available, their own carbon footprint report, provides a much higher response rate and usable data. The Pareto principle also applies in ESG reporting.

3. Ask your customers now what they want, especially those from the EU.

What kind of Scope 3 data might CSRD, CBAM, and sector-specific customer obligations (SBTi supplier engagement, sectoral initiatives, etc.) require from you in the next one or two years? A one-hour online meeting with your European customers’ sustainability teams eliminates the risk of losing a bid three months from now. When a product carbon footprint request turns into a formal procurement criterion, being caught unprepared costs far more than the brand’s ESG reputation.

Leadership in sustainability no longer belongs to the companies that write the thickest report, but to those that use Scope 3 data as input for financial planning. Companies that place carbon intensity alongside their cost model, include emission performance in supplier selection criteria, and establish their own PCF methodology before the customer asks have already understood this reality. For the rest, Scope 3 is still a reporting obligation; however, in the near future the truth will be that Scope 3 is becoming a performance indicator on the finance director’s desk, not on the sustainability team’s. Who sits at that desk first will determine which companies in Turkey will be regarded as sustainability leaders in the coming period.