Rising Raw Material Costs and Scope 3 Emissions: Emerging Risks for Supply Chain Resilience

The discussion around raw material costs is no longer limited to procurement, production, and profit margins. It is increasingly linked to the carbon footprint of supply chains, particularly Scope 3 emissions—indirect emissions generated both upstream and downstream of a company's operations. For many organizations, raw materials, packaging, transportation, subcontractors, and suppliers account for the largest share of their overall environmental footprint.

According to the GHG Protocol, Scope 3 emissions include, among other categories, purchased goods and services, capital goods, transportation, and upstream distribution activities. In particular, Category 1: Purchased Goods and Services is critical for businesses that procure large volumes of raw materials, as it encompasses emissions generated during the extraction, production, and processing of materials before they reach the company.

The potential increase in raw material costs is driven by three key factors: geopolitical disruptions, rising energy prices, and the transition toward a lower-carbon economy.

The World Bank forecasts an increase in overall commodity prices in 2026, with particularly strong pressure on energy, fertilizers, and key metals due to market disruptions and supply constraints.

This is expected to have a direct impact on industries that rely heavily on metals, plastics, chemicals, paper, food products, agricultural commodities, and packaging materials. For example, rising energy costs affect not only a company’s utility expenses but also increase suppliers’ production costs, which are ultimately passed on through higher material prices.

At the same time, companies are under growing pressure to source lower-carbon materials, recycled inputs, and suppliers with certified environmental practices. While these choices can help reduce environmental impact, they often come with higher upfront costs, particularly when the supply of sustainable alternatives remains limited.

Rising raw material costs are becoming closely intertwined with Scope 3 emissions, impacting not only profitability but also corporate sustainability, compliance, and long-term resilience.

Scope 3 is reshaping how businesses approach raw material sourcing. Until recently, the key question was: “Which supplier offers the lowest price?” Today, the question has evolved into: “Which supplier can provide a competitive cost, reliable availability, and a lower carbon footprint?”

According to CDP, Scope 3 emissions can significantly exceed a company’s direct operational emissions, making supplier engagement one of the most effective levers for reducing emissions across the value chain.

As a result, rising raw material costs are no longer solely a financial concern. They also have implications for regulatory compliance, ESG reporting, competitiveness, and risk management. While companies may achieve short-term cost savings by sourcing inexpensive but carbon-intensive materials, they may face greater regulatory exposure, lower ESG performance ratings, and the loss of customers who increasingly demand transparency and accountability regarding emissions.

Organizations must increasingly assess suppliers based on both cost efficiency and carbon footprint, as environmental expectations and supply chain risks continue to intensify.

Rising raw material costs can trigger a series of cascading effects across the supply chain. First, suppliers may pass increased costs on to their customers, putting pressure on profit margins. Second, companies may seek alternative suppliers, increasing supply chain complexity and the risk of disruptions. Third, the growing need to reduce emissions may narrow sourcing options, as not all suppliers have reliable Scope 3 data or well-established decarbonization strategies.

The transportation sector faces similar challenges. Emissions from upstream transportation and distribution fall within Scope 3 and include emissions generated by third-party logistics providers that move products and materials on behalf of a company. As fuel prices rise or businesses transition to more sustainable transport solutions—such as electric vehicles, biofuels, or lower-emission shipping routes—logistics costs may also be affected.

Businesses need to move beyond simple cost management and adopt a strategic approach that balances value creation with emissions reduction. This involves mapping critical raw materials, evaluating suppliers based on both cost and carbon footprint, collecting actual emissions data rather than relying solely on estimates, and developing alternative sourcing strategies to strengthen supply chain resilience.

Equally important is the integration of Scope 3 criteria into supplier contracts. Companies can require emissions data, reduction plans, environmental certifications, the use of recycled materials, or specific decarbonization targets. McKinsey highlights that reducing Scope 3 emissions requires close collaboration across the value chain—including suppliers, distributors, and customers—a process that is often complex but increasingly essential for achieving meaningful emissions reductions.

Companies that successfully balance cost management, emissions reduction, and supply chain resilience will be best positioned to achieve a sustainable competitive advantage.

The potential rise in raw material costs should not be viewed solely as an inflationary pressure. In the context of Scope 3 emissions, it signals a deeper transformation of supply chains and procurement strategies. Companies that successfully combine resilience, transparency, emissions reduction, and cost control will be better positioned to gain a clear competitive advantage.

The emerging procurement model will no longer be driven exclusively by the lowest price. Instead, it will be based on overall value creation—economic, environmental, and operational. In this evolving landscape, Scope 3 is not merely a reporting requirement; it is a strategic tool for supply chain management and long-term business success.