Maxi Udenio Castro: A Network approach to estimating Supply Chain emissions

Accurate measurement of Scope 3 emissions remains a critical challenge for climate disclosure and corporate sustainability. We develop a network propagation methodology that estimates firms' indirect emissions throughout upstream and downstream supply chains using observable transaction relationships and publicly available emissions data.

Our approach combines supply chain network data from FactSet with Trucost emissions data. The method propagates emissions through multiple supply chain tiers, initially using transaction values as weights but requiring only the existence of buyer-supplier links in its simplified form. Unlike conventional Scope 3 emissions, which focus primarily on upstream supply chains and include product usage, our supply chain emissions estimates fully account for downstream value chain emissions while excluding end-use impacts. Despite these differences, our estimates capture the same fundamental phenomenon (indirect supply chain emissions) making them conceptually comparable to Scope 3 disclosures. Applying this to global firms from 2010-2021, we find that our network-based estimates exceed firms' reported upstream emissions for approximately 60% of companies, suggesting systematic underreporting in current disclosure practices. Notably, downstream emissions dominate the emissions footprint, accounting for roughly 60% of total emissions on average.

We validate our methodology by comparing estimates for firms with and without Science Based Targets initiative (SBTi) Scope 3 commitments. Our network-based estimates align more closely with reported emissions for SBTi companies, indicating these firms provide more reliable disclosure. This validation supports both our methodology's accuracy and highlights disclosure quality gaps among non-committed firms.

Maxi Udenio is an Associate Professor of Operations and Supply Chain Management at KU Leuven, Belgium. His research combines empirical network analysis with operations modelling to study supply chain dynamics and sustainability, with publications in leading journals including Journal of Operations Management, MSOM, and EJOR. He regularly collaborates with colleagues at Cornell, Emory, and the University of Zurich, among others.