2020 marks the start of the decade of action on climate change, and supply chain emissions are arguably one of the biggest challenges for businesses, accounting for an average of 74% of a company’s total carbon footprint, with supplier Scope 3 emissions underreported by as much as 43%.
As corporate Science-Based Target commitments (SBT) hit a record high, up 136% from those at the same point in 2019 (BloombergNEF), leading companies such as Microsoft, Bayer, and Walmart have demonstrated that, despite the challenges, companies that want to achieve their targets. To ensure we are on track to be well under 2 degrees C temperature rise, we have to reduce Scope 3 emissions, and more specifically, supply chain emissions.
The good news is that there are already significant opportunities for organizations to decarbonize their supply chains. Here are five actions companies can take now and over the next decade to leverage supply chains to accelerate their sustainability transformation.
Especially in complex organizations, true change cannot happen in silos, so collaboration between buying companies and suppliers is paramount. Organizations should actively engage their highest-emitting suppliers in strategic categories and engage on what is feasible to do to reduce emissions. There are opportunities for companies to provide support with subject matter experts for implementation, establish measurement and reporting requirements for emissions reductions, and communicate expectations or targets in RFPs and procurement contracts. Companies can also look to collaborate with peers or across industries to find the best opportunities to reduce emissions.
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.
Strategic suppliers or suppliers in strategic categories are more likely to be willing to develop projects to meet a buyer’s requirements.
As renewable energy becomes more widespread, companies can demand that suppliers transition to renewable power and help eliminate lingering barriers to this transition. To accelerate decarbonization, buying companies should analyze supplier data and market trends to identify the best targets for energy transition, such as higher energy users like manufacturing and processing sites in locations where renewables are available, and the regulatory environment is favorable. Then support implementation by promoting transparency around RE commitments, setting examples of feasible goals, engaging in buyer alliances, and advocating for policy change.
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 supplier 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.
Raw materials projects help companies find ways to scale emissions reductions and biodiversity loss while tackling deforestation. They take place within a specific supplier geography in the upstream supply chain for critical raw materials that they may or may not buy directly. First, companies conduct risk and opportunity assessments to identify supply sheds for priority ingredients or key commodities, then form coalitions and collaborate with key stakeholders to jointly address shared issues in supply sheds. Together, they can create incentives and provide strategic financing and implementation support as feasible.
In one example, 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.
Forests absorb and store about 30% of the world’s carbon emissions, while it is estimated that 12% of global CHG emissions are a result of deforestation. Therefore, projects to develop better practices to protect forests can reduce emissions and address systemic challenges on valuable land to our global supply chain.
More companies than ever are committing to science-based targets, which help them align their sustainability strategies to the goals of the Paris Agreement. This is a more ambitious commitment, but almost a third (29%) of those companies are already seeing bottom-line savings and ensuring their operations are lean, efficient and resilient. By cascading these SBT commitments to the supply chain, companies can drive consistency and accelerate progress. Buying companies can also work with key suppliers to develop actionable roadmaps for strategic supplier sites, facilitate supplier workshops and enable access to financing and implementation support, and engage in knowledge sharing platforms to share best practices.
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.
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.
Resource efficiency is the ‘low hanging fruit’ of a sustainability strategy, curbing demand-side energy and water use. Work with suppliers and play a more active role in encouraging the optimization of manufacturing sites, distribution centers and other critical physical infrastructure. Companies can work also with suppliers to collect data to identify onsite energy efficiency and emission reduction opportunities, facilitate resource facility workshops with strategic suppliers, and build supplier capacity to identify impactful and cost-effective projects and report reductions.
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.
Energy efficiency drives global emissions reductions for both the buyer and supplier as well as saves money for the supplier by reducing resource use.
These strategies can be applied today. To succeed, companies should start by understanding where the most significant opportunities are and opening up the lines of communication with suppliers, ensuring mutually beneficial rewards.
For even more on this topic, including key actions and examples across six levers, read our latest Transformation Series article, Accelerating Sustainability Transformation: Six Proven Levers for Decarbonizing Your Supply Chain.
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