Beyond the Balance Sheet: Why Scope 3 Emissions Are Now a Non-Negotiable for Listed Corporates

For too long, the spotlight in corporate sustainability has largely shone on Scope 1 (direct emissions) and Scope 2 (emissions from purchased energy). While crucial, these are just two pieces of a much larger puzzle. 

For listed corporates, particularly here in South Africa, Scope 3 emissions are rapidly becoming the defining frontier of credible, impactful sustainability reporting – and for good reason.

What Exactly Are Scope 3 Emissions?

Think of Scope 3 as the emissions that occur throughout your company's entire value chain, both upstream and downstream. They're indirect – meaning you don't directly control the source – but they are a consequence of your business activities.

This includes a vast array of categories:

• Upstream: Emissions from purchased goods and services, capital goods, fuel and energy-related activities not covered in Scope 1 or 2, waste generated in operations, business travel, employee commuting, and upstream leased assets.
• Downstream: Emissions from the transportation and distribution of sold products, the use of sold products (e.g., the emissions from customers using your product), end-of-life treatment of sold products, downstream leased assets, franchises, and investments.

For many companies, Scope 3 emissions can account for a staggering 70-90% of their total carbon footprint. This means if you're only tackling Scope 1 and 2, you're missing the vast majority of your environmental impact.

Why the Sudden Urgency for Listed Corporates?

The shift towards comprehensive Scope 3 reporting isn't just about good corporate citizenship; it's being driven by powerful forces in the corporate world:

1. Investor Demand and Risk Management: Global investors, increasingly focused on ESG (Environmental, Social, Governance) factors, are demanding full transparency. They recognise that unaddressed Scope 3 emissions represent significant financial, reputational, and regulatory risks. Companies with robust Scope 3 strategies are seen as better managed, more resilient, and ultimately, more attractive investments.
2. Evolving Regulatory Landscape: We are witnessing an unprecedented wave of sustainability regulations globally. Directives like the EU's Corporate Sustainability Reporting Directive (CSRD) and the International Sustainability Standards Board (ISSB) standards (which the JSE is aligning with) are making Scope 3 reporting mandatory for a growing number of companies, including those with significant operations or value chain links to these regions. South African companies are not immune; the global market is demanding this level of disclosure.
3. Pressure from Key Stakeholders: Beyond investors, customers are increasingly conscious of product footprints, pushing for transparency. Employees want to work for truly sustainable companies. Regulators are increasing scrutiny to combat greenwashing.
4. Identifying True Decarbonisation Opportunities: You can't manage what you don't measure. By understanding where your Scope 3 emissions hotspots lie, companies can identify the most impactful areas for reduction. This moves beyond operational efficiency to fostering innovation across the entire value chain.
5. Competitive Advantage: Leading on Scope 3 demonstrates foresight and commitment. It can enhance brand reputation, attract top talent, secure preferential financing, and even open doors to new, more sustainable supply chain partnerships.

The Challenges (and How to Tackle Them):Measuring and reducing Scope 3 is undoubtedly complex – it's often called the "elephant in the room" of carbon accounting.

• Data Availability and Quality: Getting granular, reliable data from hundreds or thousands of suppliers and customers across your value chain is a monumental task. Many suppliers, especially smaller ones, may lack the tools or expertise to measure their own emissions accurately.
• Complex Value Chains: Modern supply chains are intricate webs. Tracing emissions through multiple tiers of suppliers requires significant effort and collaboration.
• Lack of Direct Control: You can't simply mandate changes in a supplier's factory. Influence and collaboration are key.
• Resource Demands: This isn't a tick-box exercise. It requires dedicated resources, specialist expertise, and often new technological solutions.

Strategies for South African Corporates to Navigate Scope 3:

1. Prioritise and Focus: Don't try to tackle all 15 categories at once. Conduct a materiality assessment to identify your most significant Scope 3 emission categories (e.g., purchased goods and services, use of sold products). Start there to gain traction and learn.
2. Engage Your Value Chain: Your suppliers and customers are not just data points; they are partners. Build strong relationships, offer support (e.g., training, shared resources), and embed sustainability clauses into contracts. Collaborative decarbonisation is the only way forward.
3. Leverage Technology: Manual data collection is quickly becoming obsolete. Invest in carbon accounting software and data analytics platforms that can help automate data collection, calculate emissions using relevant methodologies (like the GHG Protocol), and provide actionable insights.
4. Set Science-Based Targets (SBTs): Align your Scope 3 reduction goals with the Science-Based Targets initiative (SBTi). This demonstrates a credible commitment to a 1.5°C future and provides a clear roadmap.
5. Seek External Assurance: Just as your financial reports are audited, so too should your sustainability disclosures. Independent assurance builds trust and verifies the accuracy of your Scope 3 data and claims.
6. Integrate Sustainability: Embed Scope 3 considerations into your procurement policies, product design, logistics, and investment decisions. It needs to be a core part of your business strategy, not an add-on.

The Path Forward

For listed corporates in South Africa, navigating Scope 3 emissions is no longer an optional extra – it's a strategic imperative. The benefits extend far beyond compliance, offering opportunities for innovation, risk mitigation, and enhanced competitiveness in a global economy that increasingly values true sustainability. By proactively measuring, managing, and reducing their Scope 3 footprint, South African companies can demonstrate leadership, attract responsible capital, and contribute meaningfully to a lower-carbon future. The time to act is now.