Engaging with your supply chain to manage Scope 3 emissions
5 min read
As global concern for climate change intensifies, businesses are increasingly recognising the need to address their greenhouse gas (GHG) emissions, including those from their supply chains. Scope 3 emissions, which encompass indirect emissions from a company's value chain, are often the largest source of GHG emissions for many businesses. Engaging with the supply chain to manage scope 3 emissions has emerged as a key strategy for companies to effectively reduce their environmental footprint and mitigate climate risks. This article provides an overview of the concept of scope 3 emissions, the importance of engaging with the supply chain to manage them, and practical approaches for businesses to implement sustainable supply chain management practices to reduce their scope 3 emissions.
Climate change is one of the most pressing challenges facing the world today, with scientific consensus pointing to the role of anthropogenic greenhouse gas (GHG) emissions as a major driver of global warming. As a result, there is a growing urgency for businesses to address their environmental impact, including their GHG emissions, to mitigate climate risks, ensure long-term sustainability, and meet stakeholder expectations. While many companies have made significant progress in managing their direct emissions (Scope 1) and indirect emissions from purchased electricity (Scope 2), there is a growing recognition that addressing Scope 3 emissions, which are emissions associated with a company's value chain, is crucial to achieve comprehensive emission reductions.
Scope 3 emissions, as defined by the Greenhouse Gas Protocol, include all indirect emissions that occur in the value chain of a company, such as emissions from purchased goods and services, transportation and distribution, employee commuting, business travel, and end-of-life treatment of sold products. In many cases, Scope 3 emissions account for a substantial portion of a company's total emissions and can be several times higher than Scope 1 and Scope 2 emissions combined. For instance, in the manufacturing sector, the majority of emissions often occur in the supply chain, including raw material extraction, processing, and transportation, making it a critical area for emissions reduction efforts.
Engaging with the supply chain to manage scope 3 emissions is a strategic approach that involves collaborating with suppliers, customers, and other stakeholders to identify, measure, and reduce emissions throughout the value chain. This approach recognizes that a company's environmental impact is not limited to its own operations but extends to its entire supply chain, and therefore requires a collaborative effort to achieve meaningful emission reductions. Engaging with the supply chain to manage scope 3 emissions can yield multiple benefits, including reducing GHG emissions, improving operational efficiency, mitigating climate risks, enhancing brand reputation, and fostering innovation and competitiveness.
Importance of Engaging with the Supply Chain: Managing scope 3 emissions is increasingly recognized as a critical aspect of corporate sustainability strategies. There are several reasons why engaging with the supply chain to manage scope 3 emissions is essential for businesses:
Emission Hotspots: Scope 3 emissions often represent the most significant source of a company's GHG emissions. Identifying and addressing emission hotspots in the supply chain can result in substantial emission reductions and contribute to a company's overall emission reduction goals. For example, a study by the Carbon Disclosure Project (CDP) found that, on average, 75% of a company's total emissions come from its supply chain, indicating the significance of addressing scope 3 emissions.
Stakeholder Expectations: Stakeholders, including investors, customers, employees, and NGOs, are increasingly demanding greater transparency and action on climate change. Engaging with the supply chain to manage scope 3 emissions demonstrates a company's commitment to sustainability, enhances stakeholder trust, and can provide a competitive advantage in a rapidly changing business landscape.
Supply Chain Resilience: Climate change poses significant risks to supply chains, including disruptions in raw material availability, transportation disruptions due to extreme weather events, and regulatory changes aimed at reducing emissions. Engaging with the supply chain to manage scope 3 emissions can enhance supply chain resilience by identifying and addressing vulnerabilities related to climate change, ensuring continuity of operations, and reducing risks associated with climate-related disruptions.
Cost Reduction: Managing scope 3 emissions can result in cost savings through increased operational efficiency and resource optimization. For example, reducing transportation emissions by optimizing logistics and transportation routes can lower fuel costs and reduce transportation expenses. Additionally, identifying opportunities to improve energy efficiency in the supply chain, such as optimising manufacturing processes or reducing waste, can lead to cost savings and improved profitability.
Innovation and Collaboration: Engaging with the supply chain to manage scope 3 emissions can foster innovation and collaboration among stakeholders. Collaborative efforts with suppliers, customers, and other partners can lead to the development of new technologies, processes, and business models that can reduce emissions and create value. For example, partnering with suppliers to source renewable energy or develop low-carbon products can spur innovation and create competitive advantages in the market.
Approaches for managing supply chain Scope 3 emissions:
Supply Chain Mapping: The first step in managing scope 3 emissions is to map the supply chain to identify the emission sources and assess their significance. This involves understanding the various tiers of the supply chain, identifying key suppliers, and collecting data on their emissions. Companies can use tools such as life cycle assessments (LCAs) and supply chain mapping software to gain insights into the emissions associated with their supply chain activities.
Setting Targets and Metrics: Once the supply chain is mapped, it is important to set ambitious targets and metrics to drive emission reductions. These targets can be based on science-based targets, which are aligned with the goals of the Paris Agreement to limit global warming to well below 2 degrees Celsius. Setting targets and metrics creates a clear roadmap for emission reduction efforts and provides a benchmark to track progress.
Collaborative Engagement: Engaging with suppliers, customers, and other stakeholders is critical for managing scope 3 emissions. This involves building collaborative relationships and engaging in dialogues to understand supplier capabilities, identify emission reduction opportunities, and work together to implement sustainable practices. Collaborative engagement can take various forms, such as joint projects, supplier training programs, and sharing best practices.
Supplier Performance Evaluation: Evaluating the performance of suppliers in terms of their emission reduction efforts is crucial. Companies can develop supplier scorecards that assess suppliers based on their environmental performance, including their emissions, resource use, and sustainability initiatives. Supplier performance evaluation can incentivize suppliers to take action on emissions, drive improvements, and create a culture of sustainability in the supply chain.
Supply Chain Decarbonization Strategies: Implementing decarbonization strategies in the supply chain can include measures such as sourcing renewable energy, optimising transportation and logistics, reducing waste and improving resource efficiency, and promoting circular economy principles. These strategies can help reduce emissions associated with the supply chain activities and contribute to overall emission reduction efforts.
Reporting and Transparency: Transparent reporting on scope 3 emissions is crucial for accountability and stakeholder engagement. Companies should disclose their scope 3 emissions data, targets, and progress in their sustainability reports, annual reports, and other relevant communications. Transparent reporting can enhance stakeholder trust, facilitate benchmarking, and create incentives for continuous improvement.
Given supply chain emissions significant contribution to a company's overall emissions and climate risks, managing scope 3 emissions in the supply chain is a critical aspect of corporate sustainability strategies. Engaging with the supply chain to manage scope 3 emissions requires collaborative efforts, setting targets, mapping the supply chain, evaluating supplier performance, implementing decarbonisation strategies, and promoting transparency in reporting. It is a complex and challenging task that requires strong leadership, commitment, and collaboration among stakeholders. However the benefits are numerous, including reduced emissions, enhanced supply chain resilience, cost savings, innovation opportunities, and improved stakeholder trust. By actively engaging with their supply chain to manage scope 3 emissions, companies can contribute to global climate action, mitigate risks, and create a more sustainable environment for future generations. It is imperative for companies to prioritise supply chain emissions and work collectively towards achieving a low-carbon, resilient, and sustainable supply chain ecosystem. Only through collaborative efforts can we effectively manage scope 3 emissions in the supply chain and achieve meaningful progress towards mitigating climate change impacts.
How UED can help.
Contact UED for guidance in managing your scope 3 value chain emissions.