There’s a real buzz in the air. It feels like we have finally turned a corner with the business world taking the climate crisis seriously, wanting to become part of the solution and raising its climate ambition. There is growing understanding of the urgency of the climate emergency we face — with the latest report by the Intergovernmental Panel on Climate Change warning the window for 1.5 degrees Celsius is rapidly closing, and COP26 just around the corner, the stakes have never been higher. And climate has moved to the top of many corporate agendas.
As each day passes, we see more net-zero commitments. Over 1,700 companies have set science-based climate targets or committed to do so within two years, and over 700 of these are committed to a 1.5-degree Celsius future through the Business Ambition for 1.5 C Campaign.
Now it’s time for these businesses to show how they plan to deliver against their goals.
Many companies provide voluntary disclosures relating to Scope 1 and Scope 2 greenhouse gas emissions. However, investors, customers and other stakeholders are looking for information beyond this.
Supply chain data needed to baseline total emissions and set targets
The debate continues around how difficult it is for companies to track their Scope 3 emissions in their value chain, but it is clear that the corporate world has not come nearly far enough yet and must do more to track, report and reduce these indirect emissions. Global supply chains hold the key.
This is because companies’ direct emissions are just the tip of the iceberg. Recent data from CDP has discovered supply chain emissions are on average 11.4 times higher than operational emissions, more than double the previous estimate. To understand the environmental impact of a company’s economic activity, it is not enough to look at its direct emissions and risks. For many large companies, 95 percent of their total carbon footprint can lie in their value chain.
As more companies set lofty targets for carbon reduction and net-zero goals in the coming decades, there will be no way to know if they are on track, let alone have met these goals, if Scope 3 tracking and disclosure does not improve.
Achieving net-zero means changing supply chains
Achieving the Paris Agreement goal of limiting the global rise in temperatures to no more than 1.5 degrees C will be possible only with substantial reduction of GHGs from global supply chains.
The exciting part for me is that being the largest source of carbon emissions means Scope 3 also offers the broadest opportunity for carbon reduction. A previous CDP report found that a gigaton of emissions savings could be unlocked if key suppliers to 125 of the world’s largest corporate purchasers increased their proportion of renewable electricity by 20 percent.
A gigaton of emissions savings could be unlocked if key suppliers to 125 of the world’s largest corporate purchasers increased their proportion of renewable electricity by 20%.
Many supply chains have yet to start on their climate journey, meaning a veritable feast of actions is available to these suppliers that pay back in a year or less. CDP data shows suppliers that are engaged actively by their customers are increasingly cutting down their own emissions. In aggregate, suppliers undertook activities reducing GHG emissions by 619 million metric tons in 2020 and it was a business-savvy move, too — they saved $33.7 billion in the process. But this action needs to be scaled up and cascaded further down global supply chains.
Buyers are key to this process. In many ways, they are like personal trainers for climate — they can provide the impetus to get started by building emission reduction into business as usual and asking questions that will guide suppliers to take action.
Collaboration is key. Ambitious companies have set clear targets to reduce CO2 emissions in their supply chains, and they have started engaging to reduce them.
French multinational cosmetics company L’Oréal has committed to reducing its absolute Scope 1, 2 and 3 greenhouse gas emissions 25 percent by 2030, from a 2016 base year, in line with climate science. Meanwhile, Alphabet, owner of Google, in an effort to understand its total carbon footprint, has begun to measure and influence how its suppliers integrate climate change into their operations. In 2020, 96 percent of Alphabet’s surveyed suppliers reported their carbon footprint, and 75 percent shared their targets to reduce it.
Disclosure takes us from transparency to transformation
There is a close correlation between the companies managing their supply chains and setting science-based targets. Looking at CDP data, while only 16 percent of all climate disclosers have set science-based targets, this rises to 46 percent for the members of our supply chain program, and 62 percent of the members are committed to do so within the next two years.
Now, we need all companies to both set ambitious science-based targets and request disclosure and action from their key suppliers. The role of the buyer in making this cascade of action and ambition is key.
With supply chain emissions more than 10 times as high as their direct emissions, and most science-based targets including Scope 3, the 800-plus companies that already have approved science-based targets must look to their supply chains to help them deliver.
This will take close collaboration and engagement — investing in raising capacity with their strategic suppliers, incorporating climate and environmental performance into their procurement policies alongside cost and quality considerations, and making expectations of continuous improvement clear.
But more than that, it will require close tracking. CDP holds a treasure trove of data from thousands of companies that can inform these decisions and also allows large purchasing organizations to come together, with hundreds of investors, and send joint requests to companies, multiplying their influence.
One thing is clear: Any company serious about its science-based targets needs to be serious about its environmental supply chain strategy. It’s the only way to make a net-zero economy a reality.