Tackling climate change is one of the most urgent shared endeavours demanding bold action. Despite the UK being on a path to net zero emission by 2050, the British prime minister has raised the bar to set an even more ambitious new climate target to aim for at least a 68% reduction in greenhouse gas emissions by the end of the current decade (2029).
While this is an inclusive problem, that requires engagement beyond organisational and national boundaries, I want to lay down the path to how one can start to effect change within organisation boundaries, but have an amplified effect, across its supply chain.
According to Carbon Disclosure Project (CDP), a company’s supply chain emissions are on average 5.5 times larger than its Scope 1 and 2 emissions, it is therefore crucial that businesses tackle Scope 3 emissions to meet the aims of the Paris Agreement and limit global warming to 1.5°C. Scope 3 Emission monitoring and reporting across the enterprise value chain is often the hardest but the most rewarding towards reduction and reporting of GHG emission.
What constitutes Scope 3?
Scope 3 emissions are the result of activities from assets not owned or controlled by the reporting organisation, but that the organisation indirectly impacts in its value chain. Scope 3 emissions include all sources not within an organisation’s scope 1 and 2 boundary. The scope 3 emissions for one organisation are the scope 1 and 2 emissions of another organisation. In most industries Purchase of goods and services accounts for the highest proportion of value chain scope 3 emissions.
Procurement plays a vital role here and helps to bridge the gap between supplier carbon reporting and determining insight driven environment-saving action. So, lets discuss some of the key challenges, and the construct of a successful program.
What are some of the key challenges?
- Supplier Reporting: Supplier reporting of carbon data is still at its infancy, only a small percentage of suppliers circa 15% are setup to report on carbon emissions, therefore the carbon footprint computation is estimated on secondary data.
- Reporting standards and compliance: Various reporting standards in the world, create a myriad of reporting compliance requirements, making the analysis hard for the purpose of comparability.
- Value Chain Visibility: Gathering information and data beyond Tier 1 Suppliers remain a challenge, a lack of the extended view of the supply chain, reduces effectiveness of the monitoring program.
Some of the successful ESG programs, shape their programs around these five key themes:
- Reporting Infrastructure: Setting up disclosure capabilities, baseline measures and a carbon hot spot mapping in the supply chain are the steppingstone to setting up a capability and capacity.
- Alignment and convergence: Agreement on aligning with multitudes of policies, countries standards, references of data, statistical databases and agreement on computation methodologies and reporting.
- Embedding Sustainability: Across the operating model, people, process, systems, training and technologies in the procurement function to create a sustainable culture that leads to a more lasting change.
- Supplier Management: Incorporating sustainability as a key supplier contribution area and constructing an incentive framework, identifying joint ways to reduce carbon footprint further enhances the positive social impacts starting right from upstream sourcing activities.
- Responsible Spend Under Management: Diverting spend to more responsible suppliers by computing carbon emission by suppliers & spend data, further incentivises suppliers to be more responsible towards carbon emissions.
Controlling Scope 3 Emissions, without doubt can have the single biggest impact for business in this fight against carbon emissions. As the beginning of every journey, it starts with the first step, so how does one start in this journey?
Our recommendation is to start by building a sustainability framework that identifies operating model, governance & process impacts. Develop supplier management criteria, supplier segmentation and management by carbon emission. Building disclosure capacity and then developing data standards, data journeys and reporting approaches.
Start your journey now.
If you’d like to discuss any of the points raised in more detail, please don’t hesitate to contact me.