How do retailers reduce emissions in their indirect supply chain?

Agnè Baltakienė · 10 Sep 2026

Retailers reduce emissions in their indirect supply chain by working closely with suppliers to shift sourcing, materials, and logistics toward lower-carbon alternatives. The most effective strategies combine regional sourcing, material design choices, supplier audits, and science-based targets. Below, we break down each part of the picture so you can see exactly where the levers are.

What counts as indirect supply chain emissions for retailers?

Indirect supply chain emissions for retailers are the greenhouse gas emissions that occur outside their own operations, specifically in the upstream activities of their suppliers. These are classified as Scope 3 emissions under the Greenhouse Gas Protocol and typically account for the largest share of a retailer’s total carbon footprint. They include raw material extraction, component manufacturing, packaging production, and the transportation of goods between suppliers and distribution points.

For most retailers, Scope 3 emissions dwarf their direct operational emissions. A fashion retailer, for example, may have a relatively small carbon footprint from running its stores, but the upstream production of fabrics, mannequins, fixtures, and packaging can generate many times more emissions. This is why the indirect supply chain has become such a focal point for sustainability teams.

The indirect supply chain broadly covers three categories of upstream activity:

Purchased goods and services: The emissions embedded in every product or material a retailer buys, from garments to display solutions
Capital goods: Equipment and fixtures procured for store operations or warehouses
Upstream transportation and distribution: Freight movements between raw material suppliers, manufacturers, and the retailer’s own facilities

Why are indirect emissions harder to reduce than direct ones?

Indirect supply chain emissions are harder to reduce than direct emissions because retailers do not control how their suppliers operate. While a retailer can switch to renewable energy in its own stores or upgrade its fleet, it cannot unilaterally change a supplier’s manufacturing process, energy source, or logistics decisions. This dependency on third-party behavior makes Scope 3 reduction a collaborative challenge rather than a straightforward operational one.

There are several practical reasons this complexity compounds over time. Supply chains are often multi-tiered, meaning a retailer may buy from a direct supplier who in turn buys from sub-suppliers the retailer has never interacted with. Emissions data becomes less reliable the further you go upstream, and many smaller suppliers lack the tools or resources to measure and report their own carbon output accurately.

Geography adds another layer of difficulty. When production is concentrated in distant regions, long freight distances generate significant transport emissions that are difficult to offset without fundamentally restructuring sourcing relationships. This is one reason why regional sourcing and nearshoring strategies have gained traction as a practical approach to reducing supply chain emissions in retail.

How do retailers measure their indirect supply chain emissions?

Retailers measure their indirect supply chain emissions by collecting activity data from suppliers and applying emissions factors to convert that data into carbon equivalent figures. The most widely used framework is the Greenhouse Gas Protocol’s Corporate Value Chain Standard, which defines Scope 3 categories and provides guidance on calculation methods. In practice, most retailers start with spend-based estimates and progressively move toward supplier-specific data as their programs mature.

The measurement process typically involves three steps:

Mapping the supply chain: Identifying which suppliers, materials, and logistics flows contribute the most emissions, often called a hotspot analysis
Collecting data: Gathering either activity data (volumes, distances, energy use) or emissions data directly from suppliers through questionnaires or platforms like EcoVadis or CDP
Calculating and reporting: Applying appropriate emissions factors and aggregating results by Scope 3 category for internal reporting or external disclosure

One important nuance is that measurement quality varies significantly depending on how engaged your suppliers are. Retailers who build strong supplier relationships and provide clear reporting templates tend to get far more accurate data than those who rely solely on generic spend-based estimates. Investing in supplier capability here pays dividends for both accuracy and long-term reduction efforts.

What strategies do retailers use to reduce upstream supplier emissions?

Retailers reduce upstream supplier emissions by combining sourcing decisions, supplier engagement programs, and logistics optimization. The most effective approaches do not rely on a single lever but instead address emissions at the point where they are generated, whether that is the choice of raw materials, the location of production, or the efficiency of freight movements.

The most widely used strategies include:

Nearshoring and regional sourcing: Shifting production closer to end markets reduces freight distances and the associated transport emissions, while also improving supply chain resilience and lead times
Supplier energy transition support: Encouraging or requiring suppliers to switch to renewable energy, sometimes through joint purchasing arrangements or preferential terms for suppliers who demonstrate progress
Logistics consolidation: Encouraging suppliers and logistics partners to maximize container fill rates, reducing the number of shipments required and cutting transport emissions per unit
Preferred supplier programs: Giving commercial preference to suppliers who meet defined sustainability criteria, creating a market incentive for suppliers to improve
Collaborative product development: Working with suppliers early in the design process to eliminate high-emission materials or processes before they are locked in

Transportation is consistently identified as one of the largest sources of upstream emissions for retailers. Strategies that reduce freight distances or improve load efficiency tend to deliver meaningful, measurable results relatively quickly compared to efforts that require suppliers to change their manufacturing processes.

How does material and product design affect indirect emissions?

Material and product design affect indirect emissions because the choice of raw materials determines the carbon intensity of everything that happens upstream. Materials that require energy-intensive extraction or processing, travel long distances, or cannot be recycled at end of life all drive higher Scope 3 emissions. Retailers who engage with suppliers on material selection can significantly reduce their upstream footprint before a product is ever manufactured.

Recyclability is a particularly useful design principle from an emissions standpoint. When materials can be recovered and reprocessed, the demand for virgin raw material extraction decreases over time. This is why some manufacturers prioritize recyclable materials over biodegradable ones: reusing existing materials repeatedly is more resource-efficient than producing new ones, even if they are bio-based.

Packaging is another high-impact design area. Retailers who specify certified sustainable packaging, such as FSC-certified cardboard, reduce the upstream emissions associated with forestry and paper production. These choices also send a clear signal to suppliers about the standards expected across the relationship, which can influence behavior beyond just the immediate product.

The practical implication for retail buyers and visual merchandising teams is that sustainability conversations with suppliers should happen at the design and specification stage, not after production decisions have already been made. The earlier you engage, the more influence you have over the emissions profile of what you buy.

What role do supplier audits and certifications play in emissions reduction?

Supplier audits and certifications play an important role in emissions reduction by giving retailers verified evidence that suppliers meet defined environmental and social standards. Rather than relying on self-reported data alone, certifications from recognized bodies provide an independent assessment of a supplier’s practices, making it easier to compare suppliers and make sourcing decisions based on credible sustainability performance.

Widely used certifications in the retail supply chain context include:

EcoVadis: A sustainability rating platform that assesses suppliers across environment, labor, ethics, and sustainable procurement, with ratings that allow direct comparison between suppliers
FSC (Forest Stewardship Council): Relevant for any supplier using wood-based materials or paper packaging, confirming responsible sourcing from certified forests

Audits complement certifications by providing a deeper, site-level view of how a supplier actually operates. Physical audits can identify gaps between a supplier’s stated policies and their real-world practices, which is particularly useful for retailers trying to verify claims about energy use, waste management, or emissions reporting.

The limitation of audits and certifications is that they reflect a point in time. Retailers who treat certification as a one-off check rather than part of an ongoing relationship tend to miss the continuous improvement dynamic that delivers real emissions reductions over time. The most effective programs combine initial verification with regular re-assessment and active supplier dialogue.

How can retailers set credible targets for indirect emission reductions?

Retailers can set credible targets for indirect emission reductions by grounding them in measured baseline data, aligning them with recognized frameworks such as the Science Based Targets initiative (SBTi), and making them specific enough to be tracked and reported over time. A credible target names the baseline year, the reduction percentage, the timeframe, and the scope of emissions covered. Vague commitments to “reduce supply chain emissions” without these parameters are difficult to verify and easy to dismiss.

A practical approach to target-setting involves three steps:

Establish a baseline: Measure your current Scope 3 emissions across the categories most relevant to your supply chain, using the most accurate data available
Set a time-bound, quantified target: Define a specific reduction percentage relative to your baseline year and a clear deadline, for example a 10% reduction per unit of output by a defined year
Build in annual tracking: Commit to measuring progress each year and reporting results, which creates accountability and helps you identify where you are on track or falling behind

Targets set at a per-unit level, rather than absolute totals, are often more meaningful for growing businesses. If a retailer’s sales volume increases, absolute emissions may rise even if the emissions intensity per product is falling. Per-unit targets reflect genuine efficiency improvements rather than masking progress behind volume changes.

It is also worth noting that supplier engagement is not separate from target-setting; it is part of it. Targets that require supplier behavior change only become achievable if suppliers understand what is expected of them and have the support to deliver it. Retailers who communicate their targets clearly to suppliers and build those expectations into procurement criteria tend to make faster progress than those who treat targets as an internal exercise.

At IDW Display, sustainability is built into how we manufacture, not added on afterward. We source electricity exclusively from renewable energy, apply a nearshoring principle that prioritizes regional suppliers to cut transport emissions, and have set binding GHG reduction targets measured annually against a defined baseline. Our mannequins are made from 100% recyclable polystyrene, and 90% of our paints and polishes are water-soluble. We hold an EcoVadis Silver Medal, placing us in the 93rd percentile of all assessed companies. If you want a display partner whose sustainability credentials are independently verified and whose supply chain practices align with your own reduction goals, find out more about our sustainability approach or get in touch with us directly.

Frequently Asked Questions

Where should a retailer start if they have never measured their Scope 3 emissions before?

The best starting point is a hotspot analysis: use spend data to estimate which supplier categories are likely generating the most emissions, even before you have precise figures. This helps you prioritize where to invest measurement effort rather than trying to capture everything at once. From there, roll out a simple supplier questionnaire to your top 10–20 suppliers by spend, and use a spend-based emissions factor tool to fill gaps. Accuracy improves over time as supplier engagement deepens — the goal at the start is directional clarity, not perfection.

How do you get suppliers to actually engage with emissions reporting requests?

Supplier engagement works best when sustainability reporting is tied to commercial consequences, not treated as a box-ticking exercise. Frame requests as part of your supplier qualification or preferred supplier program, so suppliers understand that their sustainability performance influences sourcing decisions. Providing clear templates, reasonable deadlines, and practical guidance on how to complete reporting significantly reduces friction, especially for smaller suppliers who may lack dedicated sustainability teams. Where possible, offer support such as sharing tools, frameworks, or training resources — suppliers who feel helped rather than audited tend to respond far more constructively.

What is the difference between nearshoring and regional sourcing, and which delivers bigger emissions savings?

Nearshoring refers specifically to relocating production to a country geographically close to your end market, often as a strategic shift away from distant manufacturing hubs. Regional sourcing is a broader principle of preferring suppliers within your trading region over those further afield, even if full nearshoring is not feasible. Both reduce transport-related Scope 3 emissions, but the savings depend heavily on the freight mode being displaced — replacing long-haul ocean freight with shorter regional road or rail transport can cut transport emissions per unit significantly. In practice, most retailers pursue regional sourcing incrementally, shifting new product lines or categories first rather than restructuring all existing supplier relationships at once.

Can a retailer make meaningful progress on indirect emissions without requiring suppliers to change their manufacturing processes?

Yes — and for many retailers, this is the most practical place to start. Sourcing decisions, material specifications, and logistics choices are largely within the retailer’s own control and can deliver measurable emissions reductions without asking suppliers to overhaul their operations. Switching to suppliers who already use renewable energy, specifying lower-carbon materials at the design stage, consolidating shipments, and shifting freight from air to sea are all actions a retailer can drive unilaterally or through procurement criteria. Manufacturing process changes at the supplier level are impactful but typically take longer to implement and require deeper, more resource-intensive engagement.

How does recyclability in product design actually reduce upstream emissions rather than just end-of-life waste?

The emissions benefit of recyclability is primarily upstream, not just at disposal. When a material can be recovered and reintroduced into production, it reduces demand for virgin raw material extraction in future cycles — and extraction is often one of the most carbon-intensive stages of a product’s life. For example, recycled polystyrene or recycled aluminium requires significantly less energy to process than virgin equivalents. Retailers who specify recyclable materials are therefore not just managing waste; they are contributing to a lower-carbon material supply chain over time, particularly as recycling infrastructure and closed-loop supplier models become more widespread.

What is the most common mistake retailers make when setting Scope 3 reduction targets?

The most common mistake is setting absolute reduction targets without accounting for business growth, which can make genuine efficiency improvements invisible or, conversely, make emissions look like they are falling when they are simply being offset by reduced sales volume. Intensity-based targets — such as emissions per unit sold or per square metre of retail space — are generally more meaningful because they reflect real operational improvement regardless of scale. A second frequent error is setting targets without first establishing a reliable baseline, which makes it impossible to measure progress accurately and undermines credibility with both internal stakeholders and external audiences.