The dramatic predictions within the United Nations Intergovernmental Panel on Climate Change Special Climate Report published earlier this year called attention to the consequences of continued carbon emissions, and corporations around the globe have taken notice.
From CPG giant P&G to tech powerhouse Hitachi, large enterprises are committing to net-zero emissions across their supply chains by 2050. From the pollution produced by shipping to the waste created by non-recyclable and bio-based packaging, supply chains represent a massive portion of a company’s carbon inventory — and therefore, a huge opportunity to potentially mitigate climate change.
Procurement has a decisive role to play in shaping a brand’s environmental impact, largely due to the complexity of enterprise-scale supplier networks and historical lack of visibility into value chain emissions. However difficult, the move towards carbon neutrality is imperative.
Decisive action on the environment from corporate leaders requires understanding how procurement accounts for their carbon footprints, the challenges of accurate sustainability tracking and why changing how we account for offsets will affect our future.
De-Coding Suppliers’ Footprint
A study published by the World Economic Forum found that the top eight global supply chains account for more than 50 percent of global greenhouse gas emissions. The carbon footprint of global commerce is so large that achieving net-zero carbon emissions would be a major win in the fight against climate change.
Although a corporation’s carbon footprint is often referred to in its entirety, tackling it can be broken down into three areas. Companies accounting for their carbon emissions generally categorize their offsets as either Scope 1 and Scope 2 emissions (those produced directly by companies or indirectly through the purchase of energy) or Scope 3 (emissions that occur outside of direct control).
Addressing Scope 1 and 2 emissions is an economic challenge, albeit one that’s easier to take on proactively. While Scope 1 and 2 emissions represent two-thirds of a company’s emissions accounting, Scope 3 emissions account for nearly 80 percent of their overall climate impact.
The Challenge of Indirect Emissions
Scope 3 emissions are those that occur through a company’s value chain, the downstream and upstream channels that direct the flow of supply. Due to the complexity of monitoring the raw material production, transportation and distribution for Tier N suppliers, Scope 3 emissions are inherently the least accounted for.
In fact, EcoVadis research shows that while corporate sustainability commitments have increased globally, delivering on goals, especially in the supply chain, remains a work in progress. Specifically, EcoVadis found that only 48 percent of supplier respondents believe that buying organizations they work with are truly engaged in sustainability and actively partners with them to foster sustainability practices in their commercial relationships.
Instilling accurate carbon accounting within all areas of the procurement and sourcing process can uncover significant opportunities to reduce environmental impact. Many organizations began their carbon neutral journeys by organizing direct initiatives to optimize resource consumption. In its pledge to eliminate carbon offsets, P&G noted that it had developed a technology that would eliminate the need to produce products that use polyolefin plastic, a toxic “forever chemical.” When coupled with value chain carbon reduction strategies, such mass material or product innovations can have a major impact.
Taking on value chain sustainability is a more complex task. But it can be achieved through effective optimization of value chain partners and suppliers, and investments in more efficient processes, sustainable systems and equipment. If investing in entirely new processes or systems isn’t logistically feasible, a company can replace or change their practices when necessary to eliminate unsustainable materials or processes and bring in environmentally friendly alternatives.
A Clean Value Chain
Given the historical lack of reporting around Scope 3 emissions, it may appear there is still a long way to go in the fight to make our supply chains more sustainable. Yet, a simple exercise in creating a decarbonization pathway done by McKinsey suggests that 30 percent of total Scope 3 emissions could be decreased through relatively straightforward measures, including optimization and procurement of low-carbon suppliers.
Sustainable procurement is no longer a corporate goal, but a global one; and while creating carbon transparency is a challenge, it’s a crucial step towards saving the planet and people that business serves.
This article was republished with permission from Greenbiz.
