How do retailers account for indirect emissions in their sustainability reporting?

Agnè Baltakienė · 09 Oct 2026

Retailers account for indirect emissions in sustainability reporting by measuring and disclosing their Scope 3 greenhouse gas (GHG) emissions, which cover all emissions that occur outside their direct operations, across both their upstream supply chain and downstream product use. Most large retailers are now expected to report these figures under established frameworks such as the GHG Protocol and the EU’s Corporate Sustainability Reporting Directive (CSRD). The sections below unpack the key questions retailers and their suppliers need to understand to do this well.

What counts as indirect emissions in retail sustainability reporting?

Indirect emissions in retail sustainability reporting are all GHG emissions that a retailer is responsible for but does not directly produce. These are classified as Scope 3 under the GHG Protocol Corporate Standard, which is the most widely used framework for carbon accounting. They sit outside a retailer’s own facilities and energy use, covering the full chain of activities that make their business possible.

To understand the distinction clearly, it helps to know how the three scopes are defined. Scope 1 covers direct emissions from sources a company owns or controls, such as fuel burned in company vehicles or on-site heating. Scope 2 covers indirect emissions from purchased electricity or heat. Scope 3 covers everything else: the emissions generated by suppliers, manufacturers, logistics providers, customers, and even the products themselves once they leave the store.

For retailers, Scope 3 is almost always the largest share of their total carbon footprint. The production of goods they sell, the transportation of those goods to stores, and the business travel of their employees all fall into this category. This is why Scope 3 reporting has become such a central topic in retail sustainability reporting.

Which Scope 3 categories are most material for retailers?

The GHG Protocol defines 15 Scope 3 categories, but retailers are not required to report on all of them. They focus on the categories that are most material, meaning the ones that represent the largest or most significant sources of emissions relative to their business. For most retailers, a small number of categories account for the vast majority of their indirect emissions.

The most commonly material Scope 3 categories for retailers include:

Purchased goods and services (Category 1): The emissions embedded in everything a retailer buys, from raw materials to finished products. For fashion and general merchandise retailers, this is typically the single largest category.
Upstream transportation and distribution (Category 4): Emissions from moving goods from suppliers to distribution centres and stores, including ocean freight, road transport, and air freight.
Business travel (Category 6): Flights, hotel stays, and other travel by employees.
Employee commuting (Category 7): The emissions associated with how staff travel to and from work.
Downstream transportation (Category 9): Relevant for retailers with direct-to-consumer delivery operations.
Use of sold products (Category 11): For retailers selling energy-consuming products like electronics or appliances, this can be very significant.

Identifying which categories are material requires an initial screening exercise, often called a Scope 3 inventory or hotspot analysis. This helps retailers prioritise where to focus their data collection and reduction efforts.

How do retailers collect data on indirect emissions?

Retailers collect data on indirect emissions through a combination of supplier engagement, spend analysis, logistics data, and internal records. The approach varies by category, and most retailers use a tiered method, starting with estimates and progressively improving accuracy as better data becomes available.

Supplier-reported data

For purchased goods, the most accurate data comes directly from suppliers who have measured and reported their own emissions. Retailers increasingly ask suppliers to complete questionnaires, submit environmental data through platforms like CDP or EcoVadis, or provide product-level carbon footprint information. This approach takes time to scale, but it produces the most reliable figures for Category 1 emissions.

Spend-based and activity-based estimates

Where direct supplier data is unavailable, retailers use spend-based methods, multiplying financial spend by a sector-specific emission factor, or activity-based methods, using physical quantities like tonnes of product or kilometres of transport. Both approaches rely on published emission factor databases such as those from the UK Government, the European Environment Agency, or the IPCC. Spend-based data is faster to collect but less precise; activity-based data requires more effort but gives a more accurate picture.

Logistics and travel records

For transport and travel categories, retailers typically work with their logistics providers and travel management companies to obtain fuel consumption or distance data. Many freight forwarders now provide carbon reporting as a standard part of their service.

What calculation methods are used to quantify Scope 3 emissions?

Retailers use three main calculation methods to quantify Scope 3 emissions: the spend-based method, the activity-based method, and the supplier-specific method. Each has different levels of accuracy and data requirements, and most retailers use a mix of all three depending on the category.

The spend-based method multiplies the amount of money spent in a category by an average emission intensity factor for that sector. It is the easiest to apply and useful for initial estimates, but it does not reflect the actual emissions of specific suppliers or products.

The activity-based method uses physical data, such as the weight of goods transported or the number of kilometres travelled, combined with an emission factor for that activity. This method is more accurate than spend-based calculations and is commonly used for logistics and commuting categories.

The supplier-specific method uses actual emissions data provided directly by the supplier, often verified by a third party. This is the most accurate approach and is increasingly expected by frameworks like the CSRD and the Science Based Targets initiative (SBTi). It requires close collaboration with suppliers and is typically applied first to the highest-impact categories.

Which reporting frameworks govern how retailers disclose indirect emissions?

Several reporting frameworks govern how retailers disclose indirect emissions, with the GHG Protocol Corporate Value Chain (Scope 3) Standard serving as the foundational methodology most others build on. In practice, retailers report under a combination of voluntary and mandatory frameworks depending on their size, location, and investor requirements.

The most relevant frameworks for retailers in 2026 include:

GHG Protocol Scope 3 Standard: The technical foundation for measuring and categorising indirect emissions. Most other frameworks reference or require alignment with it.
Corporate Sustainability Reporting Directive (CSRD): The EU regulation that requires large companies and listed SMEs to disclose sustainability information, including Scope 3 emissions, under the European Sustainability Reporting Standards (ESRS). For European retailers and their suppliers, this is now the most important mandatory requirement.
Science Based Targets initiative (SBTi): A voluntary framework that requires companies to set emissions reduction targets aligned with climate science, including Scope 3 targets for most retailers.
CDP (formerly Carbon Disclosure Project): A widely used disclosure platform through which retailers report their emissions data to investors and customers.
Task Force on Climate-related Financial Disclosures (TCFD): A framework for disclosing climate-related risks and opportunities, now integrated into several mandatory reporting regimes.

For retailers operating across multiple markets, navigating these overlapping requirements is a real operational challenge. The CSRD is currently driving the most significant changes for European-headquartered businesses and their global supply chains.

What are the biggest challenges retailers face in Scope 3 reporting?

The biggest challenges retailers face in Scope 3 reporting are data availability, supplier engagement, and the complexity of translating raw data into comparable, verifiable figures. Scope 3 reporting is genuinely difficult, and even the most experienced sustainability teams acknowledge that the data quality in this area lags well behind Scope 1 and 2 reporting.

Specific challenges include:

Supplier data gaps: Many suppliers, particularly smaller ones, have not yet measured their own emissions. This forces retailers to rely on estimates, which reduces accuracy and comparability.
Double counting: When multiple companies in the same supply chain report the same emissions, the figures can overlap. The GHG Protocol provides guidance on avoiding this, but it requires careful boundary-setting.
Category boundaries: Deciding which activities fall into which Scope 3 category is not always straightforward, and inconsistent categorisation makes year-on-year comparisons unreliable.
Verification: Unlike financial reporting, Scope 3 data is difficult to audit independently. Third-party assurance is increasingly expected but remains challenging to obtain for indirect emissions categories.
Keeping pace with regulation: The CSRD and related regulations are evolving quickly, and the reporting requirements for 2026 are more demanding than those of previous years.

Despite these challenges, retailers who invest in improving their Scope 3 data quality gain a genuine strategic advantage. Better data leads to better decisions about where to reduce emissions and how to engage suppliers more effectively.

How does product material choice affect a retailer’s indirect emissions?

Product material choice directly affects a retailer’s indirect emissions because the materials used to manufacture the products they sell are embedded in their Scope 3 Category 1 figures. Choosing materials with lower production-related emissions, or that come from suppliers with verified sustainability credentials, reduces the carbon intensity of a retailer’s purchased goods.

This applies not just to the products sold to consumers, but also to the fixtures, fittings, and display equipment used in stores. Mannequins, for example, are a category where material choice has a measurable impact. A mannequin made from 100% recyclable polystyrene, produced by a European manufacturer using renewable energy and a nearshored supply chain, carries a significantly lower embedded carbon footprint than one manufactured overseas from fiberglass or polyurethane and shipped across continents. The transportation distance alone adds a meaningful quantity of emissions to the product’s lifecycle.

For retailers building out their Scope 3 inventory, it is useful to apply the same scrutiny to store equipment as to the products on the shelves. Asking suppliers for documented sustainability credentials, such as EcoVadis assessments or verified GHG reduction targets, gives retailers the supplier-specific data they need to move beyond spend-based estimates for these categories.

We take this seriously at IDW Display. Our sustainability commitments include annual Scope 1 and Scope 2 GHG measurement, binding reduction targets, exclusive use of renewable electricity, and a nearshoring approach to supply chain management that keeps freight distances short. We hold an EcoVadis Silver Medal, placing us in the 93rd percentile of assessed companies, which means we can provide retailers with the verified supplier data they need to improve the accuracy of their own Scope 3 reporting. If you want to talk through how our production model fits into your sustainability reporting requirements, get in touch with us and we will be happy to help.

Frequently Asked Questions

How do we get started with Scope 3 reporting if we have never measured indirect emissions before?

The best starting point is a Scope 3 screening or hotspot analysis, which gives you a high-level estimate of emissions across all 15 GHG Protocol categories using spend-based data. This helps you identify which two or three categories are likely to account for the majority of your footprint, so you can prioritise your data collection efforts rather than trying to measure everything at once. From there, you can progressively improve accuracy in your highest-impact categories by moving from spend-based estimates to activity-based or supplier-specific data. Many retailers find it useful to work with a specialist sustainability consultant or use a dedicated carbon accounting platform to structure this process.

What is a realistic timeline for improving the quality of our Scope 3 data year on year?

Most retailers follow a multi-year maturity curve: year one typically involves establishing a baseline using spend-based methods across all material categories; year two focuses on replacing estimates with activity-based data for the largest categories; and year three and beyond involves scaling supplier-specific data collection, particularly for Category 1 purchased goods. The pace depends heavily on how quickly your supplier base can respond to data requests and whether you have internal resource dedicated to the process. Setting clear supplier engagement milestones alongside your reporting calendar is one of the most effective ways to drive consistent progress.

How should we handle Scope 3 categories where supplier data is simply unavailable?

Where supplier data is unavailable, the GHG Protocol guidance is clear: use the best available proxy, whether spend-based or activity-based, and document your assumptions transparently. The key is to disclose the methodology used for each category so that readers of your sustainability report understand where figures are estimates rather than measured values. As your supplier engagement programme matures, you can progressively replace these estimates with more accurate data and restate prior-year figures if the change is material. Transparency about data quality is increasingly expected under frameworks like the CSRD, so being explicit about gaps is preferable to omitting categories entirely.

Does the CSRD require third-party assurance of Scope 3 emissions data, and how difficult is that to obtain?

Yes, the CSRD requires sustainability information, including Scope 3 disclosures, to be subject to third-party assurance — initially at a limited assurance level, with the expectation that reasonable assurance will be required in later phases. Obtaining assurance for Scope 3 data is more challenging than for Scope 1 and 2 because the underlying data comes from outside your direct operations and is harder to verify independently. To prepare, retailers should focus on documenting their data collection methodology rigorously, maintaining clear audit trails for all emission factor choices and supplier data submissions, and engaging their assurance provider early in the reporting cycle rather than at the end.

How do science-based targets affect how we approach Scope 3 reduction, not just measurement?

Setting a science-based target through the SBTi requires most retailers to include Scope 3 in their reduction commitments, typically covering at least 67% of total Scope 3 emissions within a defined timeframe. This shifts Scope 3 from a reporting exercise to an active reduction programme, which means engaging suppliers on their own emissions reduction plans, redesigning procurement criteria to favour lower-carbon options, and tracking progress annually against a set baseline year. Retailers with SBTi-validated targets often find that the discipline of committing to Scope 3 reductions accelerates the quality of their data collection, because you cannot credibly claim progress without reliable measurement.

What is the risk of not reporting Scope 3 emissions accurately, beyond regulatory non-compliance?

Beyond regulatory risk, inaccurate or incomplete Scope 3 reporting creates commercial and reputational exposure. Investors, particularly those aligned with TCFD and ESG disclosure expectations, are increasingly able to identify retailers whose Scope 3 figures appear implausibly low relative to their sector peers, which can raise questions about the credibility of broader sustainability claims. There is also a strategic risk: retailers who underestimate their Scope 3 footprint miss the opportunity to identify cost-saving efficiencies in their supply chain, such as reducing freight distances or switching to lower-carbon materials, that better data would reveal. As customer and investor scrutiny of sustainability claims intensifies, the reputational cost of being seen to underreport is growing.

How can we use our Scope 3 reporting process to strengthen supplier relationships rather than just extracting data from them?

The most effective retailers treat Scope 3 data collection as a collaborative process rather than a compliance audit. This means sharing your own sustainability targets and reporting requirements with suppliers early, offering capacity-building support such as access to carbon measurement tools or guidance on completing CDP questionnaires, and recognising suppliers who provide high-quality data through preferential sourcing or longer-term contracts. When suppliers understand that their sustainability performance directly influences purchasing decisions, engagement rates improve significantly. Framing data requests as a shared journey toward mutual supply chain resilience, rather than a one-way information transfer, tends to produce both better data and stronger commercial relationships.