Achieving carbon neutrality requires companies to look beyond their own operations and address emissions across their entire value chain. In fact, indirect (Scope 3) emissions – those embedded in suppliers’ activities and materials – often make up the vast majority of a company’s footprint. MIT Sloan reports that, on average, 75% of an organization’s emissions come from its value chain mitsloan.mit.edu. In India and globally, large companies are now recognizing that decarbonization hinges on integrating Environmental, Social, and Governance (ESG) practices into procurement and supply-chain management. As ESG advisers at K.G. Somani & Co. LLP (KGS), we see that companies must align procurement, sustainability and operations teams to tackle these upstream emissions. This thought-leadership article explains why supply chains are critical to carbon neutrality, outlines common hurdles, highlights Indian examples, and suggests practical strategies for embedding ESG across value chains.

Why Supply Chains Matter for Carbon Neutrality

Most companies’ largest source of greenhouse gases lies in Scope 3 – the indirect emissions generated by suppliers and customers. According to industry research, those Scope 3 emissions account for roughly three-quarters of total corporate emissionsmitsloan.mit.edu. In practice, this means that even if a factory or office goes “green,” the carbon in its raw materials, logistics, and outsourced services can dwarf its direct footprint. For example, an automobile maker’s steel and plastic suppliers, or a consumer-goods firm’s farming suppliers, often contribute far more CO? than the final assembly lines.

Leading frameworks now emphasize Scope 3 reductions. For instance, a World Economic Forum playbook notes that Indian firms “must set their Scope 3 goals and pathways to decarbonize their operations and supply chains” in order to meet national net-zero targetsweforum.org. Similarly, sustainability advocates stress that decarbonizing supply chains is “urgent and complex” but essential to shifting markets towards low-emission productsrmi.org. In short, without supply-chain action, a company’s carbon-neutrality pledge will be incomplete – supply chains are the leverage point to move entire industries toward cleaner practices.

Key Challenges in Supply-Chain Decarbonization

Tackling value-chain emissions poses unique challenges. Among the most common barriers are:

• Data gaps and measurement complexity. Unlike a factory’s own energy use, a company rarely has direct control or visibility into suppliers’ emissions. Companies must often rely on estimates or third-party data. As the MIT Sloan Sustainability report notes, Scope 3 accounting is “problematic due to the complex web of supplier relationships,” with existing calculation methods “inflexible and prone to error”mitsloan.mit.edu. Disparate reporting standards and inconsistent emissions factors across sectors further muddy the data, making accurate carbon accounting difficult.
• Fragmented, multi-tiered supply networks. Many companies source from thousands of suppliers in different regions and industries. Engaging the top-tier suppliers is just the first step; full decarbonization requires reaching deep into sub-suppliers. This complexity can overwhelm sustainability teams. A World Economic Forum report highlights “complex supply chains” and “cultural factors” as key hurdles, noting that firms often struggle to cascade goals beyond their immediate vendorsweforum.org.
• Lack of incentives and capacity at supplier end. Smaller suppliers may lack capital, technology or know-how to cut emissions. Without clear incentives or support, they are unlikely to invest in renewable energy or efficiency. The Bevolve case study of a Fortune 500 tech company illustrates this: engaging a diverse supplier base across 14 industries required education and support to improve each supplier’s sustainability practicesbevolve.ai. In practice, many suppliers in India still need training and investment to meet buyer demands for low-carbon materials.
• Non-uniform reporting standards and policy gaps. Global ESG reporting remains uneven. Companies face a maze of voluntary frameworks (CDP, GRI, TCFD, SBTi) and evolving regulations. In India, for example, SEBI’s new BRSR rules now mandate disclosure of supplier ESG data for listed firms. As one advisory blog explains, from FY2025–26 India’s top 250 listed companies must include “value chain partners’ ESG data” in their BRSR, capturing supplier metrics and even obtaining assurance on reported figuressprih.comsprih.com. Firms unprepared for these requirements will face compliance challenges.
• Internal alignment and governance. Decarbonizing a supply chain is a cross-functional project requiring procurement, sustainability, and leadership buy-in. Companies often find sustainability treated as a silo. For example, Indian FMCG firm Dabur found it challenging to ensure ESG was not “a siloed initiative” and to extend practices into its value chainey.com. Without strong governance – board oversight, executive committees and clear targets – supply-chain programs falter.

In summary, while companies recognize the need to shrink Scope 3, they frequently cite data reliability, supplier engagement, regulatory uncertainty, and organizational silos as obstaclesweforum.orgmitsloan.mit.edu. Overcoming these requires strategy, tools and often cultural change.

Case Studies: Indian Companies Leading Supply-Chain ESG

Despite the hurdles, some Indian firms illustrate how supply-chain integration drives progress:

• Infosys (IT Services): Although primarily a services company, Infosys has proactively engaged its 9,000+ suppliers on climate. Its sustainability report highlights a biannual supplier summit called “Sambandh” with the theme “Sustainable procurement through engagement.” Over FY2024–25, “Sambandh” engaged 700+ suppliers in workshops on the company’s Supplier Code of Conduct and ESG best practicesinfosys.com. Infosys also introduced strict onboarding checks: in 2025, 38% of new suppliers were assessed on social and environmental parametersinfosys.com. These initiatives reflect how a company can use procurement forums and codes to raise the bar on supplier performance. In addition, Infosys has publicly reported that it “engaged 273 suppliers to enhance their climate performance”infosys.com as part of its wider Scope 3 plan, demonstrating measurable outreach to its vendor ecosystem.
• Hindustan Unilever (FMCG): Unilever’s India arm explicitly integrates supply chains into its climate goals. Its latest climate action plan includes “growing our Supplier Climate Programme to help key suppliers become climate leaders” and investing in deforestation-free supply chainshul.co.in. Unilever also collaborates with Indian alkali and soda manufacturers to develop low-carbon inputs for detergents, reducing upstream emissions in its value chainhul.co.inhul.co.in. Domestically, HUL has achieved nearly 100% renewable energy in operations and is pushing its vast supplier base to decarbonize as well, recognizing that sustainable sourcing is critical to meet its net-zero targets.
• Mahindra Group (Automotive & Others): The Mahindra Group has set a goal of carbon neutrality by 2040 and has science-based targets covering Scopes 1–3mahindra.com. Crucially, the group developed a three-year roadmap focused on “enhanc[ing] supplier sustainability and meet[ing] our target of reducing embedded carbon” across its automotive and other businessesmahindra.com. This roadmap explicitly aims to reduce Scope 3 emissions and maintain a “disruption-free supply chain.” Mahindra also adopted internal carbon pricing and supplier incentives to drive change. Their experience shows that setting ambitious targets and then working closely with vendors – even those far down the chain – can align a large industrial conglomerate on decarbonization.
• Maruti Suzuki (Automotive): Maruti Suzuki’s sustainability framework emphasizes its green supply chain. The company states it “strives to improve the environmental performance of its manufacturing operations, products, and the supply chain”marutisuzuki.com. It requires suppliers to follow Green Procurement Guidelines and promotes ISO 14001 among its Tier-1 vendorsmarutisuzuki.commarutisuzuki.com. For example, Maruti’s code of conduct for suppliers mandates environmental compliance, and its procurement policies favor suppliers investing in energy efficiency. By embedding such requirements contractually, Maruti ensures its downstream suppliers operate sustainably.

These case studies illustrate practical ESG integration: leading Indian firms use codes of conduct, supplier climate programs, and joint innovation to influence their value chainsinfosys.comhul.co.in. They also show that early, transparent commitments (e.g. net-zero targets) combined with consistent supplier engagement can put entire industries on a cleaner path.

Strategies for ESG Integration Across Supply Chains

Drawing on global best practices and our advisory experience, KGS recommends several strategies for companies seeking to decarbonize their value chains:

• Establish a credible baseline and targets. Begin by mapping major suppliers and categorizing emissions hotspots. Use a combination of spend-based estimates and direct data collection to quantify Scope 3. Leading firms then set science-based targets (SBTs) for their supply chains. For instance, an RMI guide advises companies to use SBTi-aligned targets and internal metrics to focus procurement on low-carbon productsrmi.org. A five-step framework proposed by the WEF includes “establishing a credible baseline” and “setting science-based decarbonization targets” as foundational stepsweforum.org.
• Build the business case internally. Link supply-chain ESG to business value. Demonstrate how energy savings, risk reduction, and brand reputation from greener supply chains can justify investments. This often involves engaging the C-suite and procurement heads early. As one expert notes, climate teams (with data and vision) must team up with procurement teams (with market leverage) to shift demand to low-carbon productsrmi.org.
• Engage and support suppliers. Use proactive channels – workshops, supplier summits (like Infosys’s Sambandh), training and shared platforms – to educate and empower vendors. Provide tools (calculators, assessment frameworks) so suppliers can measure and reduce emissions. Reward top-performing suppliers with recognition or preferential contracts. Create collaborative initiatives: for example, joint ventures to develop low-carbon inputs (as Unilever has done), or industry coalitions (e.g. India's RECEIC for the chemical industry) to advance technologies. The key is partnership: decarbonization is a shared goal. WEF recommends “engaging suppliers” and promoting “sustainable design and circularity” to complete the supply-chain emissions reduction journeyweforum.org.
• Incorporate ESG criteria into procurement decisions. Modify RFPs and contracts to include environmental and social requirements. Examples include requiring suppliers to set emissions targets, sourcing from certified low-carbon producers, or adopting renewable energy. Internal policies like carbon pricing or greenhouse-gas factor in capital budgeting can tilt choices toward sustainability. Mahindra’s use of an internal carbon price is a case in pointmahindra.com. Aim to embed ESG metrics in supplier performance reviews and KPIs.
• Invest in transparency and data systems. Deploy digital tools to track supplier emissions and risks. Automated data collection (through procurement platforms or blockchain) can improve accuracy. Given the lack of standardization, develop in-house protocols or use third-party databases to fill gaps. RMI and others suggest creating custom dashboards or metrics to monitor supplier progressrmi.org. Also, prepare for reporting requirements: in India, be ready to collect ESG data from key suppliers to comply with BRSR normssprih.com.
• Collaborate across the ecosystem. No company can decarbonize a supply chain in isolation. Work with industry peers, NGOs, and government bodies. Examples include joint commitments like the WBCSD’s Pathway to Net Zero (PACT) initiative. In India, participation in government-industry groups (like FICCI’s sustainability alliances) can help share best practices and innovations. By pooling resources and influence, businesses can lower the cost and accelerate the adoption of green technologies among suppliers.
• Promote circularity and sustainable design. Broaden the lens beyond emissions. Reducing waste, using recycled materials, and designing products for longevity all shrink the carbon embedded in supply chains. A circular economy approach – reusing or recycling materials – often yields both environmental and cost benefits. KGS advises clients to look for circular supply-chain models (e.g. product take-back schemes) that tie into overall ESG goals.

In practice, companies might use a combination of these tactics: create supplier scorecards with ESG ratings, set up joint innovation funds for green tech, or require ISO 14001 certification from key vendors. The Five-Step approach of the WEF playbook – Baseline, Targets, Business Case, Engage, Sustainable Design – encapsulates these actionsweforum.org. Each business must tailor the mix to its industry and supplier network, but the principle is clear: integrate ESG into every layer of the value chain.

Conclusion: A Future-Ready Value Chain

As K.G. Somani & Co. (KGS) advises its clients, embedding ESG into supply chains is no longer optional – it’s essential for credible net-zero commitments. Companies that take a holistic view gain multiple advantages: they not only cut far more emissions, but also strengthen resilience to climate risks, satisfy investor expectations, and meet emerging regulations. The examples above show that with the right leadership and partnerships, even complex Indian supply networks can align with global decarbonization goals.

Ultimately, achieving carbon neutrality is a systems challenge. It requires “collective problem-solving and strong collaboration across industries,” as one expert has notedrmi.org. By weaving ESG criteria into procurement and supply-chain governance, businesses help build a more sustainable ecosystem. We at KGS believe this integrated approach will be a cornerstone of successful climate strategy: it transforms suppliers into allies in the low-carbon transition, ensuring that growth and environmental responsibility go hand in hand.

Key Takeaways:

• Value-chain emissions dominate footprints. Supply-chain (Scope 3) emissions can be 70–80% of a company’s totalmitsloan.mit.edu, so supply-chain action is critical for net-zero.
• Challenges are significant but surmountable. Common hurdles include data gaps, multi-tier complexity, and supplier capacity. Companies must build robust data systems and incentives to overcome these.
• Leading Indian firms are innovating. Infosys, Hindustan Unilever, Mahindra, Maruti Suzuki and others demonstrate how proactive supplier engagement and ESG criteria can drive real progressinfosys.comhul.co.in.
• Strategies: measure, target, engage, procure sustainably, collaborate. A structured approach – from baseline inventories to science-based targets, coupled with supplier training and green procurement – can unlock deep emission cutsweforum.orgrmi.org.
• Corporate governance and reporting matter. Integrating ESG oversight at the board level and aligning with frameworks (such as India’s BRSR or global SBTi) ensures accountability.

By making their supply chains part of the solution, businesses not only move closer to carbon neutrality themselves, but also help decarbonize the broader economy. This is the essence of a truly sustainable value chain – one that KGS strives to help its clients build and optimize.