This article is sponsored by SupplyShift.
The pressure is mounting for companies to drive sustainability across their whole supply base, with a new proposed, climate-related Securities and Exchange Commission (SEC) rule among the latest pushes. The rule would require companies to disclose climate risks in detail; this could include reporting Scope 3 greenhouse gas (GHG) emissions, which are generated within their supply chains, but beyond their control. At the same time, investors, shareholders and consumers are demanding that companies set ambitious reduction targets and disclose progress toward them.
The evolving policies and clamor have many companies thinking about how they can engage their suppliers to help address a daunting task.
Some have begun asking their supply chain partners for data around their GHG reduction efforts. But capturing the right data, then leveraging it to catalyze action, is an involved process and new territory for many companies. The supply chain is complex with many actors contributing to emissions and often unprepared to report on them, much less reduce them.
Meanwhile, the clock is ticking as climate change advances. So, what is the quickest path to gaining actionable insights and catalyzing GHG reductions?
Begin with your Tier 1 suppliers. Even if this isn’t where the majority of your company’s Scope 3 emissions lie; it’s where you can have the most leverage and impact. It’s important to understand suppliers’ emissions and the sustainability practices they have adopted already — actionable information to help create processes to drive GHG reductions, and your gateway to emissions impact further upstream.
Here’s a caveat to consider: While you may be tempted to capture a comprehensive GHG profile along the entire lifecycle, this could create roadblocks. A detailed, comprehensive picture is ideal, but you can make headway more quickly if you start with what you can manage, which begins with Tier 1.
At first, request simple, qualitative information and overall GHG reporting data, perhaps using a performance benchmarking assessment. At a minimum, ask the supplier about intentions to reduce its carbon footprint and learn of the maturity of its GHG work to date.
Collecting this information is a good start, even if your suppliers do not measure emissions or have reduction targets. You’ll gain meaningful data around where improvement is needed. Then you can go deeper to obtain more insight.
SupplyShift has a tool that is a great starting point: Our Greenhouse Gas Leadership and Reporting Assessment. It scores performance and enables suppliers to gauge their progress compared to their peers. Besides providing good intelligence, this assessment works as a motivator for improvement if a company lags in its industry.
Consistency is important. It helps for CPGs, brands and other enterprises to pose the same questions. In doing so, they provide a clear signal of what they expect of their partners. A supplier is more likely to engage because they are asked to do what can reasonably be expected of them.
Streamlining the process is equally valuable to engage suppliers, and it prevents duplicating efforts.
For many organizations almost 70% of their emissions are in their supply chain, so sourcing and procurement are becoming the engine to drive visibility and transformation on sustainability KPIs and deliver sustainability innovation across the value chain. — Josh Whitney, Managing Director, Sustainable Value Chain, Accenture
While a great starting point, your Scope 3 supply chain engagement will need to go deeper after gaining this initial engagement with Tier 1 suppliers. We have developed several standardized assessments and custom approaches for companies ready to gain more granular information on greenhouse gases, including our Facility GHG Calculator, product carbon footprint data requests and multi-tier tools for collecting data down the supply chain. We have other standard assessments on topics ranging from deforestation, plastics, human rights and other ESG topics.
By using our tools, suppliers have all the data requested of them by their customers on our web-based portal, in one place and readily available to share with other customers who want the same or similar information. Buyers enter the portal to request and access data about their suppliers’ emissions and information in specific sustainability areas. The true value of this digital platform is it provides both parties with a streamlined, uniform, two-way mechanism to interact. They have a solid foundation to build capability to work together on reducing GHGs.
As for challenges and pitfalls: Some companies wanting to calculate their Scope 3 emissions try to capture every possible datapoint along the entire chain, which is daunting. Measuring from sourcing raw materials to the final product involves many actors in various locations including among suppliers, trucking operations and mining companies.
The only way to estimate such highly granular data is through modeling, which has limitations. We’ve seen companies run into problems with this approach.
Models typically rely on average emissions values based primarily on dollars spent on a product. But dollars spent don’t necessarily align with emissions; in fact it may appear that companies have higher emissions if they buy higher-cost, more sustainable materials.
Average values do not consider critical inputs — with T-shirts, for example, some important inputs could be fiber types and emissions of the factory where the T-shirts are manufactured.
Another flaw is that average emissions values are not updated regularly meaning, even if models incorporate the proper metrics, those values would not reflect what is happening in real time.
So, the results of this method can have limited value, mainly because it’s a departure from what’s actually happening in your supply chain.
Rather than try and collect or estimate data to understand what’s happening down the supply chain, align the information you seek with what’s obtainable, starting with real-life intelligence drawn from engaging Tier 1 suppliers. Once suppliers are engaged, you can gradually reach further into your supplier base to help achieve greater reductions.
When it comes to inspiring action, incentives built into the business proposition are powerful. One approach is to integrate your request into the procurement process, with your buying decisions influenced by suppliers’ GHG reduction efforts and maturity scores. It’s important to involve your procurement team so it can leverage the information as a negotiating point with vendors.
In general, "carrots" that reward sustainability practices are the most effective levers. What works often is for CPGs and brands to partner with suppliers to identify ways to improve their sustainability performance while improving their bottom line. For instance, a company might say to its supplier: "Let’s design and manufacture a low-carbon paper cup. You’ll reduce your emissions, and we give customers what they are asking for."
Or you can lead your suppliers to financial assistance for businesses committed to improving their environmental impact. As an example, SupplyShift offers lower-cost financing based on improvements in sustainability scores through our partnership with HSBC, a bank and financial services holding company.
In summary: Engage and incentivize your suppliers. Get consistent data to drive action. Focus now on what you can achieve in the short term, starting with simpler asks to gain traction. Then gradually go deeper.
Now is the time to start this work if you haven’t already. There will be more policies around GHG emissions. Besides the proposed, rigorous SEC rules, there are requirements from the Science-Based Targets initiative for emissions from forests, land and agriculture (FLAG). Companies will soon need to set two targets: one for land-based emissions (FLAG) and one for fossil fuel emissions (non-FLAG), and report them separately. This will require companies to know their supply chain better.
This will be the pattern moving forward: Companies will have a growing need to know and collaborate with supply chain partners as public policies emerge and stakeholder pressure around GHG emissions continues. It’s important to start with a solid foundation.