How to conduct a supply chain carbon audit

Key takeaways

Conducting a supply chain carbon audit goes beyond counting your own energy bills. When done well it reveals hidden emissions, supports compliance with emerging Australian climate reporting standards, and identifies strategic reduction opportunities. Key points you should consider:

• Understand emissions categories: Use globally recognised frameworks like the Greenhouse Gas Protocol to categorise Scope 1, 2 and especially Scope 3 emissions across your value chain.
• Map your supply chain: Identify where emissions occur upstream and downstream, prioritising high-impact categories first.
• Collect quality data: Engage suppliers to gather accurate activity data and adopt digital tools to improve data integrity and audit readiness.
• Set targets and report transparently: Robust carbon audits inform credible emissions targets, align with mandatory climate disclosure regimes beginning from 2025 and improve investor confidence.
• Drive reductions through collaboration and design: Supplier engagement, sustainable procurement and product lifecycle optimisation unlock real decarbonisation opportunities.
  

Introduction

Carbon accounting is no longer a niche sustainability activity. In 2025-26, Australian companies face a transition in expectations from voluntary reporting to mandatory climate-related disclosures, with a particular focus on emissions generated across supply chains. Under the new mandatory climate reporting regime in Australia, large companies are expected to disclose their Scope 3 emissions where significant, which requires you to understand emissions beyond your own operations.

Why does this matter? In many industries, supply chain (Scope 3) emissions are the largest part of your total carbon footprint. Globally, Scope 3 can exceed 80 percent of an organisation’s emissions, and comparable patterns are emerging in Australia as companies refine their reporting.

Understanding emissions and audit goals

Defining scopes and boundaries

A carbon audit must be grounded in a recognised emissions framework. The Greenhouse Gas Protocol breaks emissions into three scopes:

• Scope 1: Direct emissions from sources your company owns or controls, such as fuel combustion onsite.
• Scope 2: Indirect emissions from purchased energy like electricity and steam.
• Scope 3: All other indirect emissions in your value chain, including supplier operations, transportation, use of sold products and disposal.
  
  

A supply chain audit places a heavy emphasis on Scope 3 because these emissions often dominate your footprint and reflect your broader commercial and environmental profile.

Set clear objectives

Before you begin, clarify why you are doing the audit. Typical objectives include:

• Meeting mandatory reporting requirements under Australian sustainability standards.
• Pinpointing hotspots where interventions yield the greatest emission reductions.
• Informing climate-related financial disclosures and investor reporting.
• Supporting procurement and supplier engagement strategies.
  
  

Define measurement boundaries early, specifying which parts of your supply chain you will include and how you will handle data gaps or exclusions.

Mapping your supply chain

Identify key suppliers and activities

A comprehensive supply chain map is foundational. Your supply chain likely includes hundreds of suppliers, logistics partners, subcontractors and service providers. Start with the highest spend and highest emissions categories to maximise the audit’s impact.

Practical steps:

• List all suppliers by category (raw materials, packaging, logistics, services).
• Prioritise by spend and emissions intensity using spend-based proxies where direct data is unavailable.
• Cluster suppliers by criticality to operations and anticipated emissions contribution.
  
  

Segment emissions categories

Under Scope 3 reporting, emissions can occur across multiple categories. Not all categories will be relevant to every business, but likely key ones include:

• Purchased goods and services
• Transportation and distribution
• Use of sold products
• End-of-life treatment of sold products
• Business travel and employee commuting
  
  

Using the GHG Protocol’s guided categories helps you focus on what matters most.

Collecting accurate emissions data

Supplier engagement is essential

Your most valuable data will come directly from suppliers, yet this is often the hardest part of a carbon audit. Building strong engagement and trust is key:

• Clearly communicate why emissions data matters, and how it will be used.
• Provide templates and tools to simplify reporting for suppliers.
• Offer incentives or collaboration support for lower-emission practices.
  
  

Many organisations start with a supplier survey, but structured engagement programs with regular feedback yield better participation and data quality.

Establish data systems and tools

You need robust systems that ensure data is reliable, auditable and tailored to reporting needs:

• Use digital carbon accounting software or procure dashboards that integrate with your ERP systems.
• Develop clear data quality criteria to handle missing or estimated figures.
• Document methodologies, assumptions and data sources for verification.
  
  

Effectively designed systems improve accuracy and reduce manual effort.

Handling data gaps

Realistically, you will not have perfect data for every supplier immediately. Practical strategies include:

• Using industry-average emission factors for early estimates.
• Applying spend-based calculation methods for categories where direct activity data is not feasible.
• Partnering with third-party verification or audit services to review estimates.
  
  

Document your approach to maintain transparency and credibility.

Calculating and analysing results

Basis for measurement

Once data is collected, convert activity data into carbon emissions using recognised emission factors and conversion methodologies. Common practice includes:

• Multiplying energy usage by official emission factors.
• Applying freight emission factors for transportation by mode and distance.
• Using spend-based emission factors where direct measurement is unavailable.
  
  

Consistency in methodology is essential to compare results year-on-year.

Hotspot analysis

Analyse results to identify where emissions are concentrated. This allows you to:

• Focus reduction efforts where they matter most.
• Understand supply chain dependencies that may pose climate risk.
• Benchmark against peers or industry standards.

These insights are powerful inputs into your corporate sustainability strategy.

Setting objectives and reporting

Set realistic reduction targets

Your baseline audit informs which emissions matter most. Based on this, set:

• Short-term targets (next 12-24 months) that support operational gains.
• Medium-term targets aligned with national policy and investor expectations.
• Longer-term ambition possibly tied to science-based targets or net zero commitments.
  
  

Quantified targets show commitment to decarbonisation and help drive internal alignment.

Compliance and disclosure

In Australia, mandatory climate-related disclosures under AASB S2 and related standards require transparency on emissions, risks and management strategies. From 1 January 2025, many large organisations are required to disclose climate-related information including material Scope 3 emissions.

Well-executed carbon audits position you to meet these obligations and manage risk effectively.

Turning audit insights into action

Supplier collaboration for emissions reduction

Work collaboratively with key suppliers on emissions reduction initiatives:

• Offer training on low-carbon technologies, logistics efficiency and renewable energy adoption.
• Include sustainability criteria in procurement decisions.
• Structure contracts with incentives for performance improvements.
  
  

This aligns incentives across your value chain and expands impact beyond direct operations.

Product innovation and lifecycle design

Consider emissions associated with the products themselves. Design changes can reduce entire lifecycle emissions:

• Use recycled or lower impact materials.
• Enhance durability to reduce replacements.
• Improve product recyclability.
  
  

These strategies reduce emissions and often improve customer value propositions.

Common challenges and solutions

Challenge: Complex data collection

Solution: Start with high-impact suppliers and phased approaches. Use digital tools and supplier engagement strategies to gather, verify and refine data over time.

Challenge: Resistance from suppliers

Solution: Communicate shared value, offer education and embed carbon KPI discussions into procurement relationships.

Challenge: Regulatory uncertainty

Solution: Align audits with recognised standards (GHG Protocol, ISO 14064, Australian reporting frameworks) so your results are defensible and forward-compatible.

A realistic Australian case scenario

Scenario: A mid-sized Australian manufacturer of consumer goods is starting its first supply chain carbon audit. It finds that transportation and purchased raw materials account for over 70 percent of total emissions. Using this insight it:

• Collaborates with logistics partners to optimise routes and shift freight from air to sea where feasible.
• Works with key suppliers to switch to renewable energy sources.
• Reframes product design to reduce material intensity.
  
  

Within two years, the company reduced its supply chain carbon intensity by over 15 percent and improved its sustainability disclosures, gaining positive feedback from customers and investors who value transparent reporting.

Conclusion

Conducting a supply chain carbon audit is a strategic investment rather than a reporting obligation. It deepens your understanding of emissions across your value chain, supports emerging Australian disclosure requirements and identifies meaningful opportunities for reduction. With Scope 3 emissions often representing the largest share of your carbon footprint, the audit process must be methodical, data-driven and aligned with global standards.

Companies that embed this practice into their procurement, product design and supplier collaboration strategies will be better prepared for regulatory change, stakeholder expectations and the operational challenges of climate risk. A supply chain carbon audit can transform carbon risk into a competitive advantage.