Can supply chains decarbonize? Exploring the potential of scope 3 emission reduction for sustainable transformation

Scope 3 emissions are the largest and most complex component of corporate carbon footprints, presenting major challenges for decarbonization. This study analyzes a panel dataset of publicly listed European companies (2002–2023) using advanced econometric methods to assess how Scope 3 emission reduction strategies affect Environmental, Social, and Governance (ESG) performance. We employ Panel Autoregressive Distributed Lag (ARDL) models to capture both short- and long-term dynamics, Method of Moments Quantile Regression (MMQR) to examine effects across ESG performance levels, and Necessity Condition Analysis (NCA) to identify critical thresholds for high ESG outcomes. Our results show that proactive investments in Scope 3 emission reduction and enhanced supply chain transparency significantly improve ESG performance, with their impact intensifying among higher-performing firms. MMQR reveals that transparency and investment are especially influential at advanced ESG tiers, while NCA indicates that no single factor is strictly necessary, but combinations of high investment and transparency are critical for superior sustainability outcomes. These findings highlight the need for integrated strategies - balancing financial commitments, operational transparency, and sustainable sourcing - to achieve measurable and lasting ESG gains. The study provides actionable insights for managers and policymakers, emphasizing that addressing Scope 3 emissions is essential not only for regulatory compliance but also for building resilience and competitive advantage in a low-carbon economy. By clarifying dynamic pathways and necessary conditions, this research offers a robust empirical foundation for integrating decarbonization into core corporate strategy.