Scope 3 emissions matter

Supply chain decarbonisation means companies reducing their greenhouse gas emissions involved in the production, transportation, and distribution of goods and services. The focus is on avoiding emissions of the climate-damaging gas carbon dioxide (CO2) as far as possible. According to the international Greenhouse Gas (GHG) Protocol, CO2 emissions within supply chains are divided into three categories.

  • Scope 1: direct emissions from companies' own or controlled sources
  • Scope 2: indirect emissions from the generation of purchased resources such as electricity,         steam, heating and cooling
  • Scope 3: all other indirect emissions occurring in a company's value chain

Scope 3 emissions play a particularly important role in decarbonising the supply chain. According to the Carbon Disclosure Project's (CDP) Global Supply Chain Report 2020, supply chain emissions are on average 11.4 times higher than operational emissions. Also, according to the UN Global Compact, Scope 3 emissions account for more than 70% of a company's carbon footprint. In other words: even by eliminating all direct and purchased emissions, a large proportion of carbon dioxide will still remain in the supply chain via Scope 3.

It is difficult to significantly reduce this, given that companies can only have an indirect influence. At the same time, however, they are obliged by international agreements and national targets – for example the UK government’s Net Zero Strategy – to demonstrate that they are working towards sustainability. The ultimate goal is to achieve the "net zero target". This refers to the balance between the amount of greenhouse gases produced and the amount that is removed from the atmosphere.

The path to a Scope 3 strategy

Most companies start their decarbonisation programme with Scope 1 and Scope 2 emissions, as these are directly within their own control. However, this is by no means an easy task. It requires a fresh overview of internal procedures such as energy consumption, procurement and production, as well as the ability to manage complex changes. Despite this, increasing the efficiency of your own processes and reducing energy consumption, it is often possible to achieve Scope 1 and Scope 2 targets in the first few years. A comprehensive decarbonisation of the supply chain, however, is only possible with a significant reduction in the Scope 3 category. This means  you will need to examine and, where necessary, adapt partnerships with suppliers and other participants in the value chain. Additionally, you will have to consider procuring more environmentally friendly materials and developing products with a lower carbon footprint.

This requires a comprehensive Scope 3 decarbonisation strategy involving all supply chain stakeholders. This can be achieved with the help of the measures listed below.

Understanding the supply chain

Understanding the supply chain is the first and most important step: without this, companies cannot set realistic goals or communicate their needs to suppliers. The foundation for this is your company’s data,  which you should collect, track, manage and process both internally and with your stakeholders. Analysis of this data allows you to determine the carbon footprint of the supply chain.

Without digital tools, this often requires a high level of financial and staff resources, so you may want to consider contracting external service providers to perform this analysis.

Setting goals

This data can be used to determine realistic targets for the emissions of a company and its suppliers. Many organisations use the framework provided by Science Based Targets to support them in this.

Engaging suppliers

Decarbonisation of the supply chain can only work if suppliers are involved as partners throughout the process. Here, a rating system is often helpful: companies can set emission standards and divide their suppliers into different maturity levels according to these standards, which are then reviewed annually. This is a very direct and effective way of linking CO2 reduction measures to procurement decisions. The collaboration also facilitates the development and implementation of sustainable practices which go beyond mere compliance. When sustainability goals are shared, suppliers often become integral partners in the development of innovative solutions, processes and materials.

Decarbonising the supply chain: a forecast

There are still some challenges to overcome when it comes to decarbonising the supply chain. Firstly, there is the difficulty of reaching a consensus with suppliers on CO2 reduction. Secondly, data collection without external support or a dedicated digital management system can be problematic. However, this is offset by important advantages. By committing to decarbonising your supply chain, you can position yourself as environmentally conscious and gain a competitive advantage in the market. While reducing greenhouse gas emissions often requires optimising transport routes, increasing energy efficiency and using renewable energy sources, implementing the measures listed above has the potential not only to reduce carbon emissions, but also to lead to lower operating costs.

Apart from the mandatory compliance guidelines and laws, these benefits are likely to promote the decarbonisation of supply chains and make it a key corporate goal.