Nirupama Singha |
India’s ambitious net zero target for 2070 is a transformative call for industries to rethink emission strategies and embrace a holistic, end-to-end approach towards environment sustainability. For industries, this means extending their emissions accountability beyond traditional boundaries to include Scope 3 emissions, which encompass their whole value chain footprint, from raw material extraction to product use and disposal. Unlike Scope 1 (direct emissions) and Scope 2 (indirect emissions from energy consumption), Scope 3 represents all other indirect emissions that are critical but often challenging to measure.
In India, the Securities and Exchange Board of India (SEBI) has mandated sustainability reporting for the top 1,000 listed companies by market capitalization through the Business Responsibility and Sustainability Report (BRSR) framework. This framework requires companies to disclose their Scope 1 and Scope 2 greenhouse gas (GHG) emissions, While reporting Scope 3 emissions remains voluntary, there is a significant push towards mainstreaming this practice and eventually making it mandatory.
For many sectors, including manufacturing, retail, and technology, Scope 3 emissions can account for over 70% of a company’s total carbon footprint, highlighting their significance in achieving meaningful emissions reductions. The figure shows the detailed scope-based carbon footprints related to the construction industry of the top five global economies. This figure purposefully illustrates, countries with strong economies’ reflects how industrial sectors significantly contribute in out numbering the direct GHG emission through scope 2 to scope 3 emissions whereas the regulatory system is primarily focusing only on the direct scope 1 emission reduction.
Accurately quantifying Scope 2 and Scope 3 emissions is fundamental to an industry’s decarbonization strategy to address global climate action. Scope 2 emissions can be mitigated through improved initiatives in energy efficiency and adoption of renewable energy, while Scope 3 requires comprehensive engagement across the value chain. This engagement encourages sustainable practices among suppliers, partners, and end-users. For sectors like manufacturing and retail, where supply chains are extensive and complex, identifying and reducing Scope 3 emissions is vital for effective climate action.
Scope 3 Opportunity – Driving Industrial Growth Sustainably
Industries from the Indian subcontinent are increasingly recognizing the importance of comprehensive ESG reporting. ESG framework offers a structured mechanism for companies to align their operations and environment targets while ensuring transparency. Furthermore it foregrounds the need for indirect emissions controls which is critical for effectiveness of ESG reporting.
Analyzing the FY23 BRSR reports of Nifty 50 and Next 50 companies found that 94% reported their Scope 1 and Scope 2 emissions, with a 14% reduction in carbon emissions per unit of revenue. Additionally, about one-third of these companies conducted external assurance of environmental data, while 25% assessed environmental impacts across their value chains, reflecting a commitment to transparency and accountability towards sustainability.
Beyond regulatory compliance, effective Scope 3 management is now a lever for accessing green capital and reducing financial risk. The International Energy Agency anticipates the voluntary carbon market could exceed $50 billion by 2030, driven primarily by Scope 3 credits. Emissions trading and carbon offsetting present powerful opportunities for companies to meet their targets while supporting global decarbonization targets. Furthermore, the World Bank highlights that companies with robust Scope 3 disclosures are better positioned for green financing, making them more attractive to climate-conscious investors.
India’s net-zero journey demands leadership from its industries, especially in addressing Scope 3 emissions. By embedding Scope 3 accountability into their operations, companies can:
a. Align with the National climate objectives.
b. Enhance resilience in a rapidly evolving, climate-conscious economy.
c. Gain competitive advantages by aligning with investor, regulatory, and consumer expectations.
Businesses must prioritize end-to-end value chain engagement, leveraging technology for accurate data collection, and fostering collaboration to align with India’s 2070 goals. Embracing Scope 3 accountability isn’t just good for the planet—it’s a smart business strategy.