In the pursuit of emissions reduction, companies face the challenge of managing three distinct scopes of greenhouse gas emissions—Scope 1, 2, and 3. And while companies have significant control over the first two, Scope 3 emissions, which originate from both upstream and downstream sources in a company’s value chain, are more challenging to reduce, and often constitute the overwhelming majority of a company's carbon footprint. This is predominantly due to the complexity and importance of sophisticated upstream supply chains in industries like technology, telecoms, and automotive.
Supply chain complexities create a unique challenge for companies looking to bring down their emissions. But that’s not to say that there aren’t sound principles companies can follow. And companies do need to think seriously about Scope 3. New legislation, namely the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CS3D), obligate companies working in or generating more than €150m in the European Union both to be more sustainable and to report transparently on what goes on in their supply chains.
Setting goals and creating a comprehensive plan for reducing emissions requires an equally comprehensive overview of the situation. For reasons previously mentioned, creating an accurate Scope 3 hot spot analysis is tricky. Fortunately, technology has the potential to make the process infinitely less laborious and infinitely more accurate. If data analytics and machine learning can be reliably harnessed to build up a vivid picture of exactly how energy is used and fossil fuels are combusted all along the supply chain, from raw material extraction and processing to manufacturing to transportation and delivery, companies can much more easily hone in on the true drivers of carbon in their value chains.
It’s senseless to work on emissions reduction in a linear manner, starting at one end of the value chain and finishing at the other. Your carbon hot spot analysis will have made it crystal clear that not all ‘links’ in the chain are equal contributors to your overall carbon footprint. Not all causes of emissions are equally easy or cost-effective to address, either. The key word here is impact. Major opportunities for decarbonisation will present themselves if organisations maintain life-cycle assessments, or LCAs, for all their products and/or services.
By assessing the life-cycle of a smartphone, for instance, starting with the extraction of raw materials and moving all the way through to the product’s manufacture, distribution, use, and disposal, the cumulative environmental impact of its life from creation through to destruction can be understood in fine detail, and opportunities to increase sustainability can be identified. Many of these can be a win-win for both the environment and the bottom line: using less material in packaging, circuit boards and other product components for example is often cheaper, while reducing the carbon footprint of each product sold.
A handful of your suppliers are likely to be behind the majority of your Scope 3 emissions, as revealed via the hot spot analysis of the products you buy. Companies should look to engage with these suppliers as a priority, secure alignment on sustainability goals, and work together to get those emissions down. After all, you are the Scope 3 owner of the emissions these suppliers are generating on your behalf.
There are a number of ways of doing this, from setting tough KPIs to introducing sustainability-related contract clauses to tracking, managing and measuring supplier performance using scorecards. Launching practical training initiatives are also highly effective. You can also work closely with your Tier 1 suppliers to address causes of emissions deeper in the supply chain. Key suppliers will quickly see that they can secure a competitive advantage by embracing more sustainable ways of operating.
Though companies face unique challenges and will need to be strategic and creative to solve them, they can work together. This will strike some as, at the very least, counter-intuitive, but the reality is that it’s an extraordinarily simple way to amplify both the impact of any sustainability action and your voice. One company does not have the clout of 20, especially when those 20 are addressing the same network of suppliers.
This is the thinking behind Coca-Cola’s partnership with Pepsico, as well as the creation of the European Automotive Working Group on Supply Chain Sustainability. It’s why the Joint Alliance for CSR, which brings together the 27 biggest players in telecoms, was founded. When JAC speaks, suppliers listen. They also keep each other accountable and share knowledge and best practices. Another happy upshot of working with your rivals is that sustainability does not become a potential area of competition, which can be unhealthy for all sorts of reasons.
The chaos of 2023, with energy and cost-of-living crises, the ongoing war in Ukraine, post-pandemic supply chain disruption and violence in the Middle East, has naturally created problems for businesses. CEOs have been drawn away from considerations of sustainability to other, pressing concerns. Essential to the success of any emissions strategy, however, is committing to long-term work and remaining committed. And the emergence and proliferation of the Chief Sustainability Officer role, as well as the increasing demand for sustainability consultancies, shows that many organisations are looking to boost their capability in this critical area by bringing in dedicated professionals.
Sustainability work doesn’t have to be done through gritted teeth, reluctantly, under threat of legal problems. There is in fact a real opportunity through working intelligently on sustainability challenges like Scope 3 to reduce your costs, improve your brand reputation, and attract more investment. And that’s to say nothing of the enormous benefit it will have on people and the planet.
Guest Author: John Spear is Managing Director of epi Consulting, an award-winning international sustainability strategy and supply chain consultancy that creates shared value throughout global supply chains by delivering social and environmental best practice and maximising competitive advantage.
