The hidden cost of Scope 3 — Why SB 253 could reshape supplier relationships forever

A new era of emissions accountability

California’s Senate Bill 253 (SB 253), the Climate Corporate Data Accountability Act, is ushering in a new era of corporate climate transparency. While the law’s primary focus is on emissions disclosure, its ripple effects are likely to be felt most acutely in the supply chain. For companies with over $1 billion (USD) in annual revenue doing business in California, the requirement to report Scope 3 emissions — those generated indirectly through their value chains — has the potential to fundamentally alter how they engage with suppliers. ^[1]

Understanding Scope 3 and its reach

Scope 3 emissions include all indirect emissions not covered by Scope 1 (direct emissions) or Scope 2 (purchased energy). These can include emissions from purchased goods and services, transportation, waste, business travel, and even product use and disposal. Because these emissions occur outside a company’s direct control, they are notoriously difficult to measure and manage.

Authorized under SB 253, the California Corporate Greenhouse Gas Reporting Program requires companies to begin reporting Scope 1 and 2 emissions by 2026, followed by Scope 3 in 2027. The law applies to emissions “regardless of location,” meaning global suppliers are within scope. This makes SB 253 one of the most far-reaching climate disclosure laws in the world. ^[1]

The California Air Resources Board (CARB) is responsible for the implementation of the law and announced during their public session on May 29, 2025, that they will clarify essential aspects of the law’s language by the end of 2025, including defining revenue, doing business in California and addressing corporate relationships with subsidiaries that conduct business in the state. Despite these impending clarifications, Senators Scott Weiner and Henry Stern, who authored this law, also spoke during the public session and stated that the implementation timeline will stand firm in 2026.

The supplier data dilemma

One of the biggest challenges for companies lies in collecting accurate emissions data from suppliers, many of whom may lack the tools, expertise or regulatory pressure to track their own emissions. This creates a compliance bottleneck. Suppliers that cannot provide reliable data may become liabilities, potentially forcing companies to reconsider long-standing relationships.

In many cases, companies will need to revise their procurement contracts to include specific emissions reporting requirements. They’ll need to develop supplier scorecards to track environmental performance and invest in new data collection and verification systems. Implementing these changes will require close collaboration among sustainability, procurement, product and legal teams to create alignment and compliance across the organization.

Compliance meets financial risk

SB 253 also introduces financial consequences for noncompliance. CARB is authorized to impose administrative penalties of up to $500,000 (USD) annually for failure to file required disclosures. Additionally, emissions disclosures must undergo third-party assurance, beginning with limited assurance and escalating to reasonable assurance over time. As a result, collecting emissions data is only the first step; companies also need to maintain the accuracy, auditability and defensibility of this information. ^[2]

Turning compliance into competitive advantage

Despite the challenges, SB 253 presents a strategic opportunity. Companies that proactively engage their suppliers and build transparent, low-carbon value chains will be better positioned to meet regulatory requirements and gain a competitive edge. This is especially true as investors and customers increasingly demand credible climate action.

One global retailer, for example, has launched a multi-year initiative to reduce emissions across its supply chain. As part of this effort, the company provides its vendors with tools, calculators and performance-based incentives to help them measure and lower their emissions. This collaborative approach has enabled the retailer to build stronger relationships with its suppliers, improve the quality and consistency of emissions data, and accelerate progress toward its climate goals.

Steps toward supplier engagement

When preparing for SB 253, rewarding transparency and improvement can help foster a culture of accountability. Start by mapping your supply chain emissions and identifying high-impact categories. From there, you can facilitate supplier success by launching training programs, providing technical support and designing targeted incentives, such as preferred status or access to shared tools and resources that simplify data collection and reporting. Leveraging digital platforms can further streamline your emissions reporting efforts by automating the data collection process, benchmarking performance and flagging anomalies for further review.

Industry collaboration also plays a key role in data quality and supplier engagement. By participating in sector-wide initiatives and disclosure frameworks, companies can reduce redundancies and double-counting, issues that often arise when suppliers and buyers are unclear about where emissions are in the value chain. Hosting knowledge-sharing events, such as supplier summits or roundtables, can be highly motivational, and offering shared tools, such as software or co-funded training programs, can help make emissions reporting more accessible and drive collective progress.

A supply chain transformation in motion

SB 253 is more than a compliance mandate — it’s a catalyst for supply chain transformation. Companies that treat Scope 3 emissions as a strategic priority will be better equipped to navigate the transition to a low-carbon economy. ^[1]

How UL Solutions can help

For companies getting started with carbon accounting for the first time, our team of experts can conduct a materiality assessment to determine which Scope 3 categories are relevant, then create an assurance-ready greenhouse gas (GHG) methodology and inventory using the most current industry guidance. Navigating Scope 3 requires more than data — it demands a scalable, supplier-integrated platform.

Our ULTRUS™ UL 360 software for environmental, social and governance (ESG) data management empowers companies to manage sustainability goals and all 15 Scope 3 categories — including high-impact areas like purchased goods and services — by collecting, validating and analyzing emissions data across complex supply chains. Additionally, the Enterprise Sustainability team brings deep regulatory insight and hands-on expertise to help companies build supplier engagement strategies that not only meet SB 253 requirements but also drive long-term sustainability performance.