Building long-term viability for the low-carbon economy is a complicated, long-term effort. Curbing your own operational emissions won’t cut it. To fully assess your corporate climate risk requires understanding (and reducing) the emissions associated with your value chain. The right data can inform impactful reduction strategies for business and environmental longevity.
Scope 3 emissions — emissions generated by your value chain — often account for more than 90% of an organization’s greenhouse gas (GHG) output. You do not control the operational emissions of your suppliers and customers, but you are still responsible for them. To remain competitive in a low-carbon future, you must figure out how to manage Scope 3.
While there are 15 categories within Scope 3 emissions — from waste and business travel to use of sold products and end-of-life treatment — Category 1 (Purchased Goods & Services) is one of the most significant categories for many sectors. This means it is imperative for supply chain leaders to understand and play a role in their organization’s sustainability strategy. Nearly 60% of surveyed companies are prioritizing supply chain visibility, but only about one-third have met this objective.
The challenge is understandable — where do you start to tackle such a large problem? When addressing climate change, perfection is the enemy of progress. You don't need all the information to start making an impact.
Follow this roadmap to develop your supply chain decarbonization strategy.
1. Obtain and manage data
You’ll need to use a mix of modeled and primary data to understand your scope 3 emissions. Modeled data derives from industry or product averages and indicates where risks might exist. Primary data (specific to your organization and your suppliers) identifies which suppliers or products present the most significant obstacles to you achieving net zero emissions. The more primary data you can collect, the more concrete your decarbonization strategy becomes.
Gather procurement and accounting data to identify your top suppliers by spend, which can help you prioritize which suppliers to engage with first. From there, you’ll need to collect emissions data from these key suppliers – whether through direct engagement or through existing datasets for organizations that already disclose this information publicly.
If you lack primary data, you can estimate your overall emissions by applying industry or commodity type average data. This modeled data paints a picture of your scope 3 emissions and offers a general understanding of potential risks, but it falls short of illuminating concrete reduction opportunities. From there, you can prioritize future primary data collection efforts in the areas that appear most material. Just know that without a supplier-level view, you’ll have difficulty identifying all of the possible reduction levers.
You don't have to solve the scope 3 primary data problem alone. Organizations such as the EPA's Energy Star program, the CDP's Supply Chain program and the Responsible Business Alliance help businesses capture direct product and supplier statistics at scale to enable specific, impactful changes to decarbonization strategies.
2. Identify opportunity areas
Tens of thousands of different entities may play a role in your scope 3 emissions. But not all entities present the same risk to your decarbonization. Leverage your data and knowledge about which suppliers have emissions-intensive operations, coupled with your organization’s level of reliance and spend, to understand where you may have the biggest opportunities to revamp your supplier relationships and business processes.
For instance, electronic companies rely on semiconductor manufacturers and suppliers with significant chemical processes to create their final product. As an electronics company, I would find the most heavy-emitting suppliers — whether in overall emissions or emissions per spend — and prioritize working with those companies to reduce their business’s emissions intensity while also evaluating ways to make my own products and manufacturing processes more efficient.
Again, you don't need perfect or complete data to find your hotspots. Use the supplier data you have and model the rest. You'll still be able to identify the trends in top emissions contributors and prioritize further engagement accordingly.
3. Determine emission reduction strategies
When creating reduction strategies, determine how much influence and leverage you have over your emissions sources and how you can exercise that leverage strategically.
Vertical integration across your value chain increases your control over your decarbonization path. For example, some electronics hardware companies have transitioned products from physical goods to services, allowing them to manage how their products are used, reclaimed and recycled. Other organizations mitigate risk in the manufacturing process by absorbing or nearshoring supply chain aspects.
Where vertical integration is impossible, define an individual supplier or commodity's long-term role in your business. In partnership situations, decarbonization requires close collaboration over many years.
To work most effectively with your suppliers, establish a supplier engagement program to set clear expectations based on accurate and timely ESG data. Because you cannot directly engage with every organization in your supply chain, tailor your priorities based on data and the supplier's specific challenges.
4. Take action
To prioritize your decarbonization strategy, you’ll want to quantify data actionability, relative carbon impact and mitigation opportunities by asking:
- How granular is my data?
- How much action is required to make an impact?
- How significant will the impact be?
- How much influence do I have to make changes?
Mapping this data can highlight areas needing more actionable data or increased influence. Take these insights to build relationships to accomplish goals & drive action.
New environmental reporting regulations are coming. The U.S. Securities and Exchange Commission is finalizing its proposed rules and the EU recently expanded its requirements with the Corporate Sustainability Reporting Directive. Because business strategies and decarbonization have become inherently connected, treat these mandates not as obligatory paperwork but as opportunities to enhance your company's long-term viability.
There's no panacea for eliminating scope 3 emissions. Impact comes from continuous incremental changes adding up over time. Even if you don't have primary or granular data for all scope 3 categories, action whatever is available. Even if the first steps are small, every little bit makes a difference – and we don’t have time to wait.