Companies must decarbonize supply chains to reduce greenhouse gas emissions, and this can create risk for investors

As part of their effort to reduce emissions, large companies like McDonald’s have announced cuts to emissions from their own operations and power supply. These are known as Scope 1 and Scope 2 emissions, respectively. But large firms often do less to address emissions generated by the products they sell, which are known as Scope 3 emissions. McDonald’s is planning to install LED lights and power its restaurants with renewable energy. But it isn’t doing as much to address the carbon footprint of its food production. Beef production accounts for about one-third of its greenhouse gas emissions, and a Bloomberg investigation found that the fast-food giant is doing little to clean up its supply chain. That could represent a major change in the company’s business, and the possibility that carbon-intensive companies are forced to address Scope 3 emissions is a potential risk for investors, says Sanjith Gopalakrishnan, Assistant Professor of Operations Management at Desautels. “In order for investors to get the full picture they should be aware of what Scope 3 emissions are.”