Decarbonising Supply Chains

Why are supply chain emissions important?

As COP26 closed with a landmark agreement by the global community to accelerate the ambition on climate change, businesses turned their heads back to focus on the net zero race. The last 18 months have seen unprecedented acceleration of the commitment rate to decarbonisation which gave rise to record-breaking mentions of supply chains in this context, and here is why:

Practically, supply chains are the largest contributors to value chain emissions of most organisations, making them an integral part of setting, and achieving a net zero state. Supply chains are therefore an unescapable and complex dilemma that needs to be tackled.

There is a very strong business case for measuring and managing emissions within supply chains, beyond saving the planet from the most devastating climate impacts to safeguarding the future of the next generations, limiting the irreversible damage to natural systems and safeguarding the human rights of those on the frontline of the climate battle.

Regulation over ESG and sustainability has been on a one-way trajectory in the last few years. Governments have their own commitments on climate to meet and are raising expectations from business on managing energy use, reporting performance, and demonstrating improvements. Businesses with a good grip on their Carbon liabilities arising from supply chains will be more resilient to a rapidly changing regulatory environment.

From a consumer perspective, sentiment analysis and consumer behaviours continue to show the desire to see wider positive impacts than the immediate utility of goods and services. Awareness of supply chains and the role they play in delivering goods and services have never been so acute following the few years of coronavirus-related disruption. This puts supply chains (and the potential negative impacts) front of mind for many consumers, requiring businesses to demonstrate the traceability of goods and the associated environmental impacts. Other developments include pilots for the environmental labelling of products and services, legislation to prevent greenwashing claims and a growing dialogue around sustainability labelling in the EU.

Why are Supply Chain Emissions a challenge?

1. The measurement challenge:

Global supply chains are complex, interlinked, and fragile. This means that is difficult for many organisations to map their supply chains and understand the flow of goods and services associated with their products.

The problem of interlinkage of supply chains presents a mathematical dilemma: supply chains and suppliers are not exclusive to the organisation trying to account for its own value chain emissions. This means that if a supplier has 200 customers, the issue arises on the proportion of carbon that each of them should account for, report, and ultimately decarbonise. This can lead to issues of double, triple, and quadruple counting global scope 3 emissions.

The fragility of supply chains means that they can change at any time through the tiers and without much notice. So, when an organisation maps its product flows, understands its supply chain, and has accounted for the proportionate amount of Carbon it should report, there is always the risk that suppliers down the tiers change their supply chains which will inevitably impact the carefully balanced Jenga of emissions.

2. The management challenge:

Value chain emissions practically sits outside of an organisation’s direct control. So even with the best intentions and most noble of decarbonisation efforts, organisations will be dependent on credible and sustained action by suppliers to reduce their footprint.

Given the complex and fragile nature of global supply chains, the management challenge can become quite the dilemma for businesses wishing to tackle their supply chain emissions.

Where do you start?

The complexity of measuring supply chain emissions has left many businesses scratching their heads in front of the supply chain mountain. Our advice is to act, prioritise and tap into opportunities.

Five steps to tackling supply chain emissions:

1. Start by establishing a baseline through estimates to give you an idea of your hotspots, key opportunities, and the hard-to-abate portions. It gives you visibility and an understanding of the causes of emissions within your supply chain.
2. Prioritise your focus areas. The selection criteria for focus can take many shapes from supplier segmentation, spend analysis, carbon assessments of suppliers, and supplier activities vs available technologies. This is a key step in your efforts as the following steps tend to be resource-intensive, so the right selection here is key.
3. Map your supply chain. Understanding product flows, interdependencies and the various actors is integral to enabling prioritisation of actions and solution implementation.
4. Engage with your supply chain. Make sure you are truly engaging and empowering your suppliers rather than communicating a requirement and an expectation. Decarbonising is an investment on both parts, and a long-term commitment, and engagement will be a cornerstone to success.
5. Collaborate with suppliers, partners, and others to enable the change that you aspire to. Solutions for emissions reductions will take various shapes and forms: from reducing use, optimising technologies, changing entire processes, innovative design, or sourcing of alternative energy sources. The path to decarbonisation is not linear and for many industries it is still unknown. Inter-sector and cross-industry collaborations are going to play an increasingly pivotal role in decarbonisation and the net zero ambition.

Conclusion

While supply chains do present a unique challenge, and opportunity, in the road to net zero, this should not stop businesses from starting to engage with it. The good news is that there is always a strong business case to undertake the type of activities required for decarbonisation resulting in better operational resilience and proactive management of supply chains.