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Accelerating Sustainability Transformation: Six Proven Levers for Decarbonizing Your Supply Chain

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Devon Lake Head of Net Zero Strategy - Meta
Climate Resilience
Supply Chain Decarbonization
Climate Change
Sustainability Transformation

At a Glance

  • Net zero levers—the solutions you deploy to achieve decarbonization targets—can accelerate progress to decarbonize supply chains.
  • Each lever explores the viability of supply chain decarbonization projects and presents valuable lessons from industry leaders.
  • They include understanding supply chain, upstream raw materials, logistics, supplier resource efficiency, energy transition and science-based targets.

Table Of Contents

  1. Barriers to Supply Chain Decarbonization
  2. Six Proven Levers for Supply Chain Decarbonization
    1. Lever 1: First-Tier Supply Chain Projects
    2. Lever 2: Upstream Raw Materials Projects
    3. Lever 3: Logistics Decarbonization Projects
    4. Lever 4: Resource Efficiency at Supplier Sites
    5. Lever 5: Renewable Energy Transition at Suppliers
    6. Lever 6: Supplier Science Based Targets
  3. Accelerate Supply Chain Transformation Today

To achieve sustainability goals, reducing supply chain emissions is critical, but far-reaching risks and complexities hinder action. Six proven levers can accelerate progress to decarbonize supply chains.

During this decade of action, no company’s action plan is complete without a cold hard look at how to remove greenhouse gas (GHG) emissions from its supply chain. Despite recent months of widespread, pandemic-driven disruptions to supply chains, corporations continue to ratchet up sustainability targets. In June 2020, corporate Science Based Targets (SBT) hit a record high, up 136% from those at the same point in 2019 (Bloomberg New Energy Finance). Microsoft, Bayer, and Walmart are among the growing list of companies setting supplier emissions targets and taking on the notoriously challenging area of Scope 3 emissions.

Purchased goods and services is a critical Scope 3 emissions category. Global supply chains are complex, opaque, and constantly shifting, so it’s not surprising that these emissions remain massively underreported (see Exhibit A below) and difficult to measure. However, we cannot wait for perfect information before we act. To achieve ambitious decarbonization goals, companies must move quickly to significantly reduce emissions all along supply chains. Efforts that make a meaningful impact must be prioritized over symbolic ones, and these efforts need to be shared, replicated, and scaled.

The broad range and impact of Scope 3 emissions on total carbon footprint calls for action. Leaders must decarbonize supply chains to accelerate progress towards ambitious goals.

Scope 3 emissions

Thanks to the paths forged by corporate pioneers, there is a well-established toolkit to reduce supply chain emissions. This article explores six proven levers to decarbonize supply chains that procurement and sustainability leaders can implement now.

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Six Proven Levers For Decarbonizing Your Supply Chain

Organizations often lack the right information to effectively reduce carbon emissions across their global supply chain. In our decades of experience working with a myriad of multinational companies, we've seen the most significant decarbonization potential derived from six key levers. Each lever explores the viability of supply chain decarbonization projects and presents valuable lessons from industry leaders.

In building sustainability roadmaps, leaders should assess six proven levers to decarbonize supply chains

Six Proven Levers for Supply Chain Decarbonization

Lever 1: First-tier Supplier Projects

First tier suppliers key actions graphic

What is the role of first-tier supplier projects in supply chain decarbonization?

Projects to reduce emissions of first-tier suppliers take different forms: increasing sustainable agricultural practices, switching to lower carbon materials or technologies, designing circular business models, or investing in R&D to improve processes. These projects can be encouraged or required by a buying company or can be developed by a supplier or group of suppliers without any buyer intervention.

Buying companies can start by identifying hotspots: strategic suppliers and categories that are responsible for a large percentage of their Scope 3 carbon emissions. Subsequently, following this strategic buyer-led approach to project development, companies must establish direct engagement with suppliers, preferred relationships, requirements in negotiations, and reporting requirements. When projects are supplier-led, companies can organize into multi-stakeholder coalitions to jointly identify projects and facilitate their implementation. Supplier workshops, trainings and information portals are ideal platforms to foster awareness and share best practices. Collaboration is paramount in empowering suppliers to identify viable emission reduction opportunities and lead project implementation.

How are companies matching action to ambition?

  • BMW announced that it would require all battery suppliers to include their carbon emissions in response to RFPs. This single action can help BMW prioritize sourcing to the least impactful suppliers and motivate others to make changes to their operating practices. BMW could not meet its CO2 emissions targets without first-tier suppliers taking action due to the energy-intensiveness of the production of high-voltage batteries.
  • Hewlett Packard Enterprise (HPE) is committed to tracking progress through direct engagement with first-tier suppliers, while providing the necessary support to set science-based targets. HPE’s comprehensive supply chain program requires 80% of its manufacturing suppliers by spend to set science-based targets by 2025.

How do first-tier supplier projects accelerate sustainability transformation?

This is arguably the most critical lever that any company has to reduce emissions in its supply chain. While companies can make blanket requirements about emissions reductions for the bulk of their supplier partners, honing in on where the most necessary reductions are and encouraging - or even financing - projects that reduce emissions is the best way to be able to see and measure reductions. Strategic suppliers or suppliers in strategic categories are more likely to be willing to develop projects to meet a buyer’s requirements.

Lever 2: Upstream Raw Materials Projects

Upstream Raw Materials key actions graphic

What is the role of upstream raw materials projects in supply chain decarbonization?

These projects encompass sustainable agriculture, forestry projects, and other interventions that reduce emissions and can drive other positive impacts (eg: biodiversity and sustainable livelihood benefit).

Projects are undertaken within a supply shed (specific supplier geography) in a company's upstream supply chain for a critical raw material. Companies have the option to buy these critical resources directly, and may include community projects where relevant.

As a first step, companies assess risks and opportunities across the upstream supply chain to identify priority ingredients or critical commodities. These projects require a good deal of collaboration with key stakeholders like buyers, suppliers, NGOs, and community stakeholders. Together, they can form coalitions that jointly identify high-impact emissions reduction projects and even jointly fund them. By partnering, companies can unlock shared value at a lower cost or more massive scale. In these situations, coalition members must carefully evaluate the impact to ensure fair and correct emissions calculations and attribution of reductions.

This type of approach is on the rise. It is helping companies to find new and tangible ways to scale emissions reductions, biodiversity loss, and tackle deforestation, which has proven incredibly challenging.

How are companies matching action to ambition?

  • PepsiCo has taken a holistic approach to sustainable agriculture by developing its Sustainable Farming Program, which supports farmers in the process of testing new technologies, practices, and management techniques. These techniques are shared through their growing network of Demonstration Farms, in which they highlight sustainable and regenerative technologies and practices that can enhance efficiency and profitability for local farmers.
  • L'Oréal and their value chain partners lead a collaborative project ‘Action for Sustainable Derivatives’ to accelerate compliance of supply chains with deforestation-free and responsible sourcing principles.

How do upstream raw materials projects accelerate sustainability transformation?

Upstream raw materials projects are the darlings of supply chain projects, offering a heady mix of sustainable agriculture and conservation or reforestation, sustainable livelihoods for smallholder farmers, and carbon emissions reductions. Forests absorb and store about 30% of carbon emissions, while it is estimated that 12% of global greenhouse gas emissions derive from deforestation. Agriculture is responsible for 17% of GHGs and an additional 7-14% through land-use changes. Projects to develop better practices in agriculture and protecting forests, when done well, can reduce emissions and address systemic challenges on valuable land to our shared global supply chains.

A Word on Carbon Insetting

More companies are exploring and applying the idea of carbon insetting. While there is still no firmly agreed global definition, insetting essentially enables companies to reduce carbon emissions within their supply chain by incentivizing (e.g., through investment or procurement requirement) interventions such as a change in technology or practice that results in a demonstrable reduction in carbon emissions, which can then be accounted for at least partially as an emissions credit in their supply chain. Insetting opportunities can be found among the projects described in levers 1 and 2 above.

Being aware of insetting can influence how projects are selected and how they are monitored, reported, and verified in the medium- to long-term. Two examples of companies applying insetting:

  • Nespresso implemented agroforestry insetting projects to compensate for carbon emissions across their business value chain while also creating shared value for farmers. Their insetting practice aims to inset 100% of their global carbon footprint.
  • Burberry recently developed a portfolio of carbon insetting projects in its global supply chain. A “Regeneration Fund” has been created by the fashion company, with initial efforts focused on supporting wool producers in Australia. Such regenerative agriculture projects promote biodiversity, restoration of ecosystems, and support the livelihoods of local producers within Burberry’s supply chain.

Lever 3: Logistics Decarbonization Projects

Logistics actions graphic

What is the role of logistics projects in supply chain decarbonization?

Logistics offers a powerful lever for decarbonization, but the complexity of transport networks and the rapid pace of technological change makes it challenging to drive action. Companies must better understand their logistics profile, analyzing upstream and downstream logistics, business models (e.g., insourced, outsourced, or hybrid), and modes of transit (road, rail, ship, air).

With that foundation, companies can evaluate the impact of implementing innovative solutions, including route optimization, fleet electrification, right-sizing fleets, alternative fuels, and advanced e-mobility that integrates electric vehicles with renewables, storage, and microgrids. These solutions can then be mapped by their impact over near-, medium- and long-term horizons.

To implement these measures at scale, companies should work closely with logistics providers and peers. They can engage direct transport suppliers when setting buyer expectations, procurement decisions, and supplier engagement efforts. Together, they can also tackle areas of transport that remain incredibly challenging to decarbonize, such as airplane and marine shipping fuel. By facilitating partnerships with transport companies, policymakers, technology providers, and suppliers, companies can innovate to unlock collaborative and competitive efforts that drive the needed market change.

How are companies matching action to ambition?

  • Kuehne + Nagel, a leading global freight forwarder, extended its 2030 net-zero carbon goal to include both its upstream and downstream emissions. The company pledged to work hand in hand with its suppliers and employ digital tools to optimize routes and select services with the lowest carbon emissions.
  • IKEA’s holistic approach to logistics decarbonization encompasses a mix of land motor, land intermodal, and ocean freight. This approach includes a wide range of initiatives, including; the use of biofuels for ocean freight, the focus on intermodal rail transport in Europe, and the shift to electric delivery.

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Lever 4: Resource Efficiency at Supplier Sites

Resource Efficiency key actions graphic

What is the role of resource efficiency at supplier sites in supply chain decarbonization?

Resource efficiency is low-hanging fruit, mainly when there is manufacturing within a supply chain. Buyers can play a more active role in helping suppliers with manufacturing sites, distribution centers, or other critical physical infrastructure to identify and finance energy efficiency and emissions reductions within their own operations.

To get started, buyers can consider conducting resource efficiency workshops to help build supplier competencies through training and sharing best practices. By engaging resource management experts, corporate and site-level managers can receive hands-on training to quickly identify hotspots, such as locations with significant efficiency opportunities or those with favorable policy or economic environments. By identifying projects with shorter paybacks and clear cost savings, these programs can be entirely self-funding, requiring no upfront capital from suppliers. Conducting these workshops on a virtual platform can be just as successful and significantly accelerate the speed and scale of both cost savings and emissions reduction.

How are companies matching action to ambition?

  • Archer Daniels Midland (ADM) worked closely with suppliers to share their deep energy management expertise and recommendations. The projects were integral to achieving accelerated goals, including a 15% reduction in their energy consumption and carbon emissions by 2020.
  • The Responsible Business Alliance (RBA) provides resource efficiency trainings to suppliers to its members. Companies engaging in cross-industry knowledge sharing are empowered to identify opportunities for continuous improvement. By participating in coalitions, leading companies can unlock shared value and accelerate impact by unifying efforts at scale.

How does resource efficiency at supplier sites accelerate sustainability transformation?

Energy efficiency is a known driver of global emissions reductions. For example, in the industrials and manufacturing industry producing metals like steel, aluminum, and copper from recycled scrap is 60-90% less energy-intensive than primary production using metal ores. It is relatively easy to encourage suppliers and value chain partners to act and can be the basis for rewarding suppliers.

Lever 5: Renewable Energy Transition at Suppliers

Renewable Energy key actions graphic

What is the role of renewable energy transition at supplier sites in supply chain decarbonization?

As renewable energy becomes more widespread, companies can demand that supplier’s transition to renewable power. To accelerate decarbonization, they must prioritize strategic supplier sites with the greatest potential for seamless renewable energy transitions. Supplier site targeting is influenced by a plethora of variables, including availability, local policy and market, and type of supplier activity. These factors are most relevant to high energy users like manufacturing and processing sites.

Companies can support implementation by promoting transparency around their renewable energy commitments, setting examples of feasible goals, engaging in buyer alliances like REBA, and advocating for policy change. The overarching goal is to bolster supplier capacity to identify and drive impactful transitions. Buying companies can guide action through direct financing or by coordinating local financing from the government.

How are companies matching action to ambition?

  • Nike is addressing the majority of emissions concentrated in its supply chain by working directly with suppliers on reducing energy use. Recent initiatives to build suppler capacity include supporting suppliers to install solar PV systems on factory rooftops; advocating for better policy in locations where Nike suppliers are located; and expanding responsibly sourced biomass.
  • Apple’s Supplier Clean Energy Program aims to help suppliers improve the energy efficiency of their operations and transition to renewable energy sources. Through the program, Apple connects suppliers with clean energy projects and developers, provides online training materials and financial analysis tools, and advocates for policy change in key markets.

How does renewable energy transition at supplier sites accelerate sustainability transformation?

Moving to renewable energy is a known opportunity to reduce emissions, but regulatory landscape and availability, plus capital expenditure, can be impediments. By making a concerted effort to understand renewable energy options across its supply chain, a company can help its suppliers overcome lingering barriers.

Lever 6: Supplier Science-Based Targets

Supplier SB Ts key actions graphic

What is the role of supplier science-based targets in supply chain decarbonization?

Companies can encourage or require suppliers, usually a sub-set of strategic or critical suppliers, to set Science Based Targets (SBTs).

Target setting is crucial to reduce emissions in line with the scale of reductions required to keep global warming well below 2C degrees from pre-industrial levels. There is significant momentum, with nearly 1,000 companies now committing to SBTs. However, targets do not in their own right reduce emissions. Companies can pave a clear path forward by helping suppliers construct actionable roadmaps to achieve these goals.

Setting SBTs can be costly. Buying companies can amplify their impact by sharing their own expertise through knowledge sharing platforms with other buyers that have set similar targets.

How are companies matching action to ambition?

  • ENGIE has committed that 100% of its preferred suppliers will have Science Based Targets (SBTs) in place by 2030, a commitment they share across their supply chain. ENGIE facilitates workshops with preferred suppliers to foster awareness around SBTs setting and carbon accounting and support the development of supplier led sustainability strategies.
  • AT&T committed that 50% of its suppliers by spend will set science-based Scope 1 and Scope 2 targets by 2024 and facilitates accurate emission reporting by adhering to the industry-accepted economic allocation model. AT&T engages suppliers engages suppliers through a membership in the Joint Audit Cooperation (JAC), an organization that facilitates collaboration among peer telecom companies. 

How do supplier science-based targets accelerate sustainability transformation?

By cascading SBT commitments, companies can drive consistency and accelerate progress. Using the built-in reference point of science-based targets enables companies to assess which suppliers align with their climate ambitions. SBTs also put pressure on a company to deliver quickly, guided by the science, which tells us we only have a short time to address emissions. Given the complexity of setting and achieving SBTs, the value capture of this project is most significant for larger businesses. Ambitious, measurable reduction targets can drive the necessary transformation to not only supplier operations but can unlock substantial growth through transformative shifts to business models, products, and services.

Accelerate Supply Chain Transformation Today

These six ways to decarbonize supply chains can be applied at scale today. A good starting point is to step back, understand where the most significant opportunities are, and ensure alignment with business strategy. Many approaches can be useful, but they need to be wielded wisely across the supply chain as part of a coherent decarbonization strategy, and when they add up, the whole should be greater than the sum of its parts.

So, what are you waiting for? We have a decade. Let’s get to work.

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