For most multinational organizations, climate impacts from doing business do not originate from their own operations, but from their suppliers.
It’s well understood that engaging with suppliers on decarbonization is a crucial part of any robust sustainability strategy. However, given that some multinationals have more than 10,000 suppliers, this can seem an impossible mission. The good news is that some organizations are blazing a trail for the rest.
Unlike many operational decarbonization challenges, reducing supply chain emissions isn’t simply a matter of financing and applying technological solutions — it’s a matter of building and maintaining relationships. This article describes five actionable steps for decarbonizing supply chains. By following these steps, we suggest organizations can build and maintain positive relationships with their suppliers.
Interpret: Understand your supply chain context and climate impacts
Context is everything. Identifying the complete supply chain by mapping all the actors involved might already be challenging, but making a robust inventory of all greenhouse gasses (GHGs) is even more challenging.
Screening the emissions of your supply chain by working with general numbers (such as spending or volumes of goods purchased multiplied by emissions factors) helps to create a general understanding of the supply chain carbon footprint. It will also help to identify the suppliers with the largest carbon exposure.
Diving deep into the activities and the related emissions of these main emitters by working with life-cycle analysis (LCA) emissions factors for materials purchased or (even better) the carbon emissions of the supplier financially allocated to the buying company. Using web-based instruments, such as Guidehouse’s Papaya, will bring the level of detail needed to start the following steps successfully.
Intent: Articulate your intentions
Without intent, there will be no action. Companies embarking on a sustainability journey must clearly articulate to both internal and external stakeholders what they are trying to achieve.
This often comes in the form of setting and publicly committing to GHG reduction targets. More companies are sending a clear message to stakeholders about their decarbonization goals by committing to and setting science-based targets.
In many cases, companies are including a target for the Scope 3 emissions from their value chain. The public commitment to science-based targets can help companies by serving as a basis for starting the conversation with suppliers. Additionally, it can help align internal stakeholders and create a sense of urgency. Of course, new targets lead to new conversations and challenges. The next two steps are based on best practices and help companies to overcome challenges.
Involve: Engage with stakeholders
Setting a target goes hand in hand with setting a strategy and involving partners. Sustainability is important to suppliers, customers, partners and investors — not just to the enterprise itself.
Creating dialogue around sustainability can create mutual benefits for collaborating organizations and the planet. The Engage2Reduce program, developed by the LEGO Group, is an early example of a successful supplier engagement initiative.
This program is based on the voluntary participation of suppliers and will ultimately reward those suppliers setting and achieving climate targets. The better the supplier performs by emitting less carbon, the more benefits the program will bring. Think of combined marketing efforts and working closely together with the LEGO Group to improve processes and develop valuable, low-carbon solutions collaboratively.
More recently, a framework has been developed by the Science-Based Targets Initiative (SBTi) that describes how an effective supply chain engagement strategy can be developed and implemented.
The framework is based on an analysis of the approaches used by the first 105 companies that have had their science-based targets approved through the SBTi and draws from best practices. The first part of this framework describes how to select and work with suppliers, and it presents incentives for your suppliers to cooperate. Another part of this framework is support offered from buying companies to suppliers. Buying companies can provide financial support, resources or information to help suppliers meet their agreements.
Some methods are more time- and labor-intensive to carry out than others. For example, Tetra Pak provided all its base material suppliers with training, support and material for data collection. The interaction is handled by the purchasing organization as an integral part of their ongoing collaboration.
Inform: Guiding and supporting suppliers
Some suppliers are already on the path of decarbonization while others need information, such as guidance, best practices and buyer support to make firm first steps.
The new Supplier Leadership on Climate Transition Collaborative (Supplier LoCT), builds on the power of perspectives. Supplier LoCT — initiated by Guidehouse and global brands such as Mars Inc., McCormick & Company and PepsiCo — is a food & beverage initiative set to coach suppliers on climate action and solutions leading towards net-zero emissions.
Through Supplier LoCT, the organizations mentor and train suppliers in emissions-reduction strategies to accelerate the net-zero journey, meeting suppliers where they are, at scale, helping both brands and suppliers deliver on their science-based targets. Throughout the six-month training season, suppliers are entered into a track that aligns with their needs, creating an accessible learning environment, geared towards moving the needle from commitments towards action.
Although the second season of Supplier LoCT just started, Supplier LoCT has more than doubled the brands and nearly tripled the suppliers from season one to season two. New tracks such as developing abatement plans, joint action on renewable energy infrastructure in areas where there are none and LCA calculations are a part of the ongoing development and commitment to drive meaningful climate change action.
Impact: Create results with a thorough approach
Environmental impact is caused by actions across the whole supply chain. Companies must strive to consider the value chain holistically. This holistic consideration means looking not just at the direct suppliers but, in some cases, at the suppliers of your suppliers, cascading upstream to those suppliers that need support in the decarbonization of your supply chain.
In the apparel sector, for instance, the main supply chain emissions relate to the production of textiles. Energy is needed to produce the desired textiles to produce the clothes for the buying brands. Often, those textile manufacturers are not delivering directly to the buying brands but to the garment producers.
Most emissions relate to the suppliers of the suppliers. Those suppliers must be included in supply chain initiatives to decarbonize the supply chain in a meaningful way. This necessity is fully understood by many leading fashion brands, resulting in supply chain programs that reach deep into their supply chain. Besides a focus on low-carbon products and data collection, support is offered to suppliers to help them initiate and start their decarbonization journey.
Starting these journeys of understanding the climate impact and the reduction potential of the supply chain is, besides challenging, also extremely impactful and satisfying.
Engaging with like-minded businesses and establishing relationships beyond the buying-supplying level is valuable because it can lead to new product developments. What’s more, exchanging best practices and learning opportunities from peers and by decarbonizing complete value chains is valuable for our planet.