While COVID-19 has been a key theme at this year’s virtual Davos conference, climate change remained high on the agenda, with a range of topics discussed including the opportunity for zero carbon cities, an increased role for carbon offsetting and the US re-joining the Paris Agreement writes Russell Smyth of our Sustainable Futures practice.
One report launched during the event by the World Economic Forum (WEF) which caught our eye was “Net-Zero Challenge: The supply chain opportunity”. This timely report provides a compelling overview of the benefits and business opportunity to realise effective supply chain decarbonisation that can contribute to the achievement of ambitious climate targets and limit global warming to 1.5 oC. The COVID-19 pandemic has recently highlighted the importance of resilient supply chains to withstand major, unforeseen shocks. Climate change is a major, foreseen shock and COVID-19 now presents a unique opportunity for global economies to “build back better”.
Greenhouse gas emissions are commonly split into three scopes: scope 1 encompasses emissions from operations under the company’s control; scope 2 covers emissions from electricity, steam, heat and cooling purchased from third parties; and scope 3 (supply chain) covers upstream and downstream value-chain emissions. Supply chain emissions often significantly outweigh companies’ scope 1 and 2 emissions, meaning they can be transformational for corporate climate action.
The current level of supply chain emissions reporting is poor, but it is expected to improve given the global push towards climate neutrality and the Paris Agreement targets. The typical barriers to reporting on scope 3 emissions are a lack of guidance, data access, time and resources. Findings from the WEF report show that just eight supply chains account for over 50% of global greenhouse gas emissions: food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight. The report also highlights nine key levers that can support supply chain decarbonisation, including improvements in procurement strategies and product design, collaboration with suppliers and the development of a comprehensive emission baseline – incorporating supplier data.
Though there are challenges associated with the development of effective supply chain decarbonisation strategies, the climate and commercial opportunity can be significant. The WEF report notes that net-zero supply chains would barely increase end-consumer costs, by 1-4% at the most. In terms of commercial opportunities, there is a growing number of consumers who are willing to pay a premium for sustainable products. In addition, over the past few years sustainable products have outpaced the sales of their traditional alternatives.
A growing number of Irish companies now report to the CDP Climate Change programme and CDP Supply Chain programme, approximately 274 and 36 companies respectively. The Irish Government has set an ambitious target of an average 7% greenhouse gas emission reduction per annum to 2030. In addition, Budget 2021 announced an increase in the carbon tax from €26 to €33.50 per tonne. These shifts strengthen the pressure for Irish companies to reduce their supply chain emissions through the uptake of renewables, improvement of material and product efficiency and development of circular business models, amongst others. These changes require a rethink and potential redesign of existing value chains but can offer a wealth of climate benefits in the drive towards a net-zero carbon economy.