In the global fight against climate change, manufacturers face a critical challenge: driving decisive decarbonization action from their suppliers.
Scope 3 emissions, which occur in a company's wider value chain, account for an average of 70% of a company's total carbon footprint. A large portion of these Scope 3 emissions often come from upstream activities, particularly from suppliers and raw materials.
These high proportions represent a significant climate impact that companies don't directly control. To effectively reduce their overall carbon footprint, manufacturers must find ways to influence and support emissions reductions throughout their supply chain.
Suppliers are a key catalyst for environmental change, driving the corporate world toward sustainability. As regulatory pressures mount and investors demand greater transparency, companies and suppliers must work together. By engaging meaningfully with suppliers, companies can meet and exceed these demands and make impactful emissions reductions.
Understanding the Scope 3 Landscape
Bloomberg's analysis of ESG data from 15,000 companies reveals that only about 20% of them disclosed their Scope 3 emissions for the 2020 fiscal year. Given the current lack of comprehensive reporting, addressing these emissions requires a collaborative approach with suppliers.
However, this path is not without its challenges. Many companies struggle with data collection and accuracy and setting realistic targets. Despite these obstacles, forward-thinking organizations recognize opportunities for innovation and leadership in sustainability efforts.
The benefits of successful supplier collaboration extend beyond emissions reduction. Companies that effectively engage their suppliers, especially with the goal of decreasing environmental impact through decarbonization, create value by reducing costs, growing market share and enabling the building of new green businesses.
Moreover, Deloitte's 2023 Global CPO Survey found that 69% of chief procurement officers prioritize enhancing risk management and developing resilient supply chains, while 61% view increasing supplier collaboration as their top value-delivery strategy. Collaboration enables partners to gain visibility into each other's networks, proactively manage risks and adapt to changing market conditions.
As suppliers become more adept at managing their own emissions, the positive impact cascades throughout the entire value chain, creating a multiplier effect in the fight against climate change.
Setting the Foundation for Supplier Engagement
By focusing on the following key strategies, companies can create a robust framework for collaboration and drive meaningful change throughout their supply chain.
1. Set clear goals and prioritize suppliers.
Establish specific, measurable targets for emissions reduction across your supply chain and align with science-based targets where possible. During this process, identify high-impact suppliers based on emissions intensity and spend. The GHG Protocol recommends ranking suppliers by potential emissions impact or largest spend and engaging directly with the top 80 percent.
When deciding which suppliers to prioritize, consider the following strategies:
● Evaluate existing relationships and your level of influence with each supplier.
● Identify emissions hotspots by analyzing available supplier data or industry averages.
● Assess suppliers based on your spend, as higher spend often correlates with higher emissions impact.
● Calculate emissions intensity (emissions per revenue dollar) to pinpoint inefficient suppliers.
These approaches can create a strategic prioritization that balances potential impact with practical considerations, setting the stage for effective engagement.
2. Implement data collection, management and forecasting systems.
Tracking progress over time and identifying key areas for improvement are critical for enabling data-driven decisions in emissions reduction efforts. To effectively manage your suppliers' emissions data, consider investing in comprehensive carbon accounting software. This technology allows you to handle granular data efficiently while standardizing collection methods across your supply chain. By providing your suppliers with the necessary tools and resources for accurate reporting, you'll establish a foundation of reliable data.
Your supplier emissions data software should also show you — and your suppliers — whether you’re all on track to meet emissions reduction goals. Ensure that whatever tool you use to manage supplier data can surface near-term hotspots and forecast future challenges. Advanced forecasting capabilities, driven by supplier-specific parameters, can help support the work over the long term, ensuring there are no surprises on the journey to net zero.
3. Educate and empower suppliers.
Empowering your suppliers with knowledge and skills builds a network of partners capable of driving change. To achieve this, develop comprehensive training programs focused on carbon accounting and emissions reduction strategies. Content should cater to suppliers at all levels of climate program maturity.
Complement these programs with interactive workshops, easily accessible resources and a collaborative knowledge-sharing platform. This multi-faceted approach builds your suppliers' sustainability capabilities while fostering a community where partners can learn from each other's experiences and innovations in reaching environmental goals.
4. Collaborate on emissions reduction and incentivize progress.
Taking a partnership-based approach addresses immediate emissions concerns and cultivates a mindset of continuous improvement and shared impact. Work closely with your suppliers to identify emissions hotspots and co-develop targeted strategies. Encourage suppliers to take ownership of their sustainability journey by setting their own emissions reduction targets.
To drive motivation and innovation across your supply chain, implement a system of incentives for high-performing suppliers. These could include preferential business terms or recognition programs highlighting sustainability achievements.
5. Measure, track and scale your engagement efforts.
Establishing clear key performance indicators (KPIs) ensures continued progress toward supplier emissions reduction. Implement regular reporting cycles and leverage data visualization tools to effectively communicate progress to stakeholders. Doing so will make complex data more accessible and actionable.
As your program matures, gradually expand its scope to include a wider range of suppliers while encouraging your tier 1 suppliers to engage their own supply chains. This ripple effect amplifies your impact throughout the value chain. Regularly review and refine your strategy, incorporating lessons learned and emerging best practices to keep your program dynamic and effective in the face of evolving sustainability challenges.
Manufacturers play a crucial role in driving decisive decarbonization action from their suppliers. By implementing these five key strategies, companies can engage their supply chain partners to address a significant portion of their carbon footprint, meet regulatory compliance and position themselves as leaders in the transition to a sustainable, low-carbon economy.
