Decoding Scope 3 Emissions: Strategies for Indian Companies to Align with Global and Domestic Regulatory Demands

As the global momentum towards net-zero emissions accelerates, businesses are facing increasing pressure to decarbonize not just within their direct operations but throughout their entire value chains. Scope 3 emissions, which include indirect emissions from activities such as supply chain operations, business travel, and product usage, account for the largest share of a company's carbon footprint—often up to 80-90% in many sectors. For Indian companies, the challenge is not just identifying and reducing these emissions but also complying with emerging regulatory frameworks both domestically and internationally.

In this article, we decode Scope 3 emissions and provide strategies for Indian businesses to align with critical regulations such as India’s Business Responsibility and Sustainability Report (BRSR) and the European Union’s Carbon Border Adjustment Mechanism (CBAM). As these regulations evolve, it is crucial for Indian firms to take proactive steps to meet these requirements while gaining competitive advantage in a rapidly greening global economy.

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Introduced by the Securities and Exchange Board of India (SEBI), the BRSR is a significant step towards enhancing transparency and accountability in corporate sustainability. Under BRSR, large Indian companies are required to report on their environmental, social, and governance (ESG) performance, including their Scope 3 emissions. This mandatory reporting applies to the top 1,000 listed companies by market capitalization from FY 2022-23, making India one of the few countries mandating such comprehensive ESG disclosures.

The BRSR not only asks companies to disclose direct and indirect emissions but also to describe their policies for decarbonization and risk management. With Scope 3 emissions often being the largest share of a company’s footprint, failing to report or reduce them could expose Indian firms to reputational risks and missed opportunities in sustainable finance and green investments.

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The European Union's CBAM, slated to begin phasing in by 2026, presents a significant challenge for Indian exporters, particularly in energy-intensive sectors like steel, aluminum, and cement. CBAM aims to level the playing field by imposing a carbon tax on imports based on their embedded emissions, including Scope 3 emissions across the value chain. Indian companies that export to the EU will face carbon levies if their emissions, especially indirect Scope 3 emissions from the supply chain, do not meet EU standards.

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Globally, regulatory bodies are increasingly turning their attention to Scope 3 emissions. The U.S. Securities and Exchange Commission (SEC) has proposed climate disclosure rules that require listed companies to report their Scope 1, 2, and 3 emissions, a move that will likely affect Indian companies operating in or exporting to the U.S. Similarly, initiatives such as the Science-Based Targets initiative (SBTi) are pushing businesses to align their emissions reductions with global climate goals, which inherently includes addressing Scope 3 emissions.

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For Indian companies, addressing Scope 3 emissions presents unique challenges:

???????????????????? ???? ???????????? ????????????: Indian businesses, particularly MSMEs, operate in a fragmented supply chain environment, making data collection difficult. Many suppliers lack the resources or expertise to track their emissions.

???????? ???????? ?????? ???????????????????????? ??????????????????: The lack of standardized data collection processes and insufficient reporting mechanisms at the supplier level complicates accurate Scope 3 tracking.

???????? ?????? ????????????????????: Assessing and reducing Scope 3 emissions requires significant investment in technology, supplier engagement, and sustainable innovation. For many companies, especially those in cost-sensitive sectors, this can be a barrier.

Despite these challenges, proactive companies can turn Scope 3 compliance into a competitive advantage by adopting the right strategies.

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The first step in managing Scope 3 emissions is having accurate data. Indian companies should invest in digital platforms and tools such as IoT, blockchain, and cloud-based data systems to track emissions across their supply chains. These technologies can help standardize data collection, automate reporting, and provide real-time visibility into emissions hotspots.

For example, blockchain can ensure transparency and traceability by tracking carbon emissions at each stage of the supply chain. AI and machine learning tools can further analyze the data to identify trends and suggest emissions-reduction opportunities.

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Scope 3 emissions are heavily dependent on supply chain partners, making supplier engagement crucial. Indian companies should work closely with suppliers to provide education and resources on decarbonization. This could involve:

i) Collaborating on joint sustainability projects.

ii) Offering training programs to suppliers on how to measure and reduce their emissions.

iii) Establishing clear sustainability criteria for suppliers and incorporating ESG performance into procurement decisions.

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Companies should align their Scope 3 reduction goals with international standards such as the Science-Based Targets initiative (SBTi). Setting science-based targets not only improves regulatory compliance but also signals to investors, customers, and stakeholders that the company is committed to long-term sustainability.

Recent data from the SBTi shows that companies with science-based targets tend to outperform their peers, demonstrating improved risk management and greater access to green finance.

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Transitioning to a circular economy is a highly effective way to reduce Scope 3 emissions. By rethinking product design, extending product life cycles, and promoting reuse and recycling, companies can significantly reduce emissions from raw material extraction and waste management.

Many big corporates have incorporated circular economy principles into its operations, focusing on material reuse, recycling, and reducing waste, thereby cutting Scope 3 emissions.

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Adopting low-carbon technologies across the value chain can significantly reduce Scope 3 emissions. From renewable energy sourcing to electric vehicles for transportation and green building technologies, Indian companies can leverage innovation to drive decarbonization.

Hindustan Unilever has taken bold steps in this direction by committing to a 100% renewable energy target and implementing sustainable sourcing practices across its supply chain.

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For Indian companies, aligning with global and domestic regulations on Scope 3 emissions is not merely a compliance exercise but an opportunity to future-proof their business. Companies that take proactive steps to manage their value chain emissions will be better positioned to compete in global markets, attract investment, and build stronger relationships with eco-conscious consumers.

Recent reports indicate that investors are increasingly prioritizing companies with robust ESG strategies. A 2022 study by MSCI shows that companies with strong ESG performance had lower volatility and better risk-adjusted returns, underscoring the financial benefits of integrating sustainability into core operations.

By leveraging technology, engaging suppliers, setting ambitious targets, and investing in circular and low-carbon innovations, Indian companies can turn Scope 3 emissions from a challenge into a strategic differentiator. As regulatory frameworks like BRSR and CBAM evolve, businesses that act now will not only meet compliance requirements but also enhance their competitiveness in a rapidly greening global economy.

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