Simon Thompson, VP Northern Europe at JAGGAER, explains why artificial intelligence-powered data infrastructure is becoming essential for compliance, risk management, and long-term business resilience.
THE HARD COST OF CARBON
As carbon reporting regulations tighten and Scope 3 emissions become a financial reporting requirement, businesses must rethink how they collect, verify, and manage supply chain emissions data. Simon Thompson, VP Northern Europe at JAGGAER, explains why artificial intelligence-powered data infrastructure is becoming essential for compliance, risk management, and long-term business resilience.
When the European Union’s (EU) Carbon Border Adjustment Mechanism (CBAM) concluded its transitional phase in 2024, it transformed supply chain emissions from an environmental metric into a direct line item on the balance sheet.
UK companies importing iron, steel, aluminium, cement, fertilisers, electricity, or hydrogen into the EU now face carbon pricing based on the embedded emissions in their production processes.
Scope 3 emissions reporting is rapidly moving from the realm of voluntary corporate responsibility into mandated financial disclosure subject to independent assurance. The timeline for this transition is compressed, and the gap between current data practices and what will soon be legally required presents a material risk for organisations unprepared for the change.
A RAPID REGULATORY LANDSCAPE
The UK’s approach to corporate carbon disclosure has historically leaned towards encouragement rather than compulsion. The Streamlined Energy and Carbon Reporting (SECR) framework mandates disclosure of Scope 1 and Scope 2 emissions, whilst Scope 3 emissions remain optional, though the guidance strongly recommends disclosure for companies in sectors where indirect emissions dominate the overall carbon footprint.
In early 2026, the Department for Business and Trade published the finalised UK Sustainability Reporting Standards (UK SRS) S1 and S2, which are currently for voluntary adoption. However, the Financial Conduct Authority’s (FCA) Consultation Paper CP26/5, published on 30th January 2026, proposes requiring listed companies to report under UK SRS for accounting periods starting on 1st January 2027.
For audit committees and finance teams, this represents a planning horizon measured in months, not years. Organisations that lack the data governance, internal controls, and audit trails necessary for assured Scope 3 disclosure will face both regulatory consequences and reputational damage from appearing operationally unprepared.
UK businesses with European trading relationships face an additional layer of complexity. The EU Corporate Sustainability Reporting Directive (CSRD) requires large companies, including non-EU entities with substantial EU revenues, to disclose detailed environmental, social and governance (ESG) performance data and conduct comprehensive due diligence across their value chains. The EU Corporate Sustainability Due Diligence Directive (CSDDD) reinforces this by mandating supply chain due diligence on human rights and environmental impacts.
The CBAM adds complexity to these reporting obligations. For any company moving CBAM-covered materials across the EU border, the emissions intensity of the supply chain is embedded in the cost structure. Inaccurate emissions data creates not only compliance risk but also miscalculated carbon costs.
THE INFRASTRUCTURE DEFICIT
Evidence from recent industry analysis reveals a significant gap between reporting ambitions and data quality. Sphera’s 2025 Scope 3 Report indicates that 79 percent of companies already reporting greenhouse gas (GHG) emissions now disclose across all three scopes, a substantial increase from 52 percent in 2024. However, 62 percent of these companies identify internal data quality as a major obstacle, and 79 percent cite obtaining supplier data as a primary challenge.
Under UK SRS S2, material Scope 3 categories must be disclosed alongside direct emissions and be explicitly linked to financial performance and climate risk assessments. Estimated figures based on industry averages or partial supplier engagement will not withstand the scrutiny of independent assurance. For companies preparing for 2027 compliance, and for their supply chain partners who will receive cascading data requests, the window to establish reliable, traceable, and assurance-ready emissions data is already narrow.
The pressure to synchronise ESG reporting, supplier engagement, and emissions accounting has intensified significantly, but sustainability teams have not expanded to match these demands. In most organisations, a handful of employees manage multiple responsibilities. As reporting obligations multiply and assurance standards tighten, expecting these teams to manually collect, validate, and disclose Scope 3 data across multi-tier supply chains is operationally unsustainable.
“Evidence from recent industry analysis reveals a significant gap between reporting ambitions and data quality”
Simon Thompson, VP Northern Europe, JAGGAER
TECHNOLOGY AS INFRASTRUCTURE
The space between regulatory requirements and manual operational capacity creates an obvious role for technology-enabled solutions. Artificial intelligence (AI)-powered platforms can deliver supply chain visibility that manual processes fundamentally cannot achieve at scale: continuous data flows from suppliers, automated validation protocols, real-time identification of emissions hotspots, and audit-ready records maintained continuously.
Automated supplier onboarding systems and customisable scorecards enable procurement teams to embed Scope 3 data collection into standard sourcing decisions, transforming data requests into ongoing engagement that improves data quality through consistency. Integration with existing enterprise resource planning (ERP) systems ensure emissions data flows continuously rather than being gathered in periodic reporting cycles.
Automated monitoring can flag an expiring supplier certification or an emerging data gap the moment it occurs, triggering corrective action before it becomes a compliance breach or an audit finding. Internal audits that previously required weeks of manual data archaeology become a matter of accessing continuously maintained, assured records. As the Financial Reporting Council’s (FRC) assurance regime takes shape and investor scrutiny of Scope 3 disclosures intensifies, this capability is becoming an operational necessity.
“The space between regulatory requirements and manual operational capacity creates an obvious role for technology-enabled solutions”
Simon Thompson, VP Northern Europe, JAGGAER
THE STRATEGIC WINDOW
Listed companies face mandatory UK SRS reporting from January 2027, CBAM obligations are already operational for relevant importers, CSRD requirements are applying to UK companies with significant EU revenues on a phased basis, and the assurance regime will be operational by late 2026.
The emergence of mandatory Scope 3 assurance, the financial materiality lens of UK SRS, and the direct cost consequences of CBAM have elevated it to a finance function priority with balance sheet implications.
Organisations that establish supply chain visibility and AI-powered Scope 3 data infrastructure now will build a foundation that satisfies multiple overlapping regulatory requirements, whilst waiting until mandatory requirements arrive means building this infrastructure under deadline pressure and simultaneously producing the first round of assured disclosures.
This article was produced by the editorial team at Sustainability Outlook and published as part of the Outlook Publishing global network of B2B industry magazines.
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