Is Your Company’s Supply Chain Ready for Carbon Zero?

As countries and organisations sign up to net zero emissions targets, we ask if they are really ready to take the hard decisions.

What was once seen as extreme climate activism is becoming mainstream as organizations respond to pressure to embrace net-zero carbon emissions targets. Activist groups like “As You Sow” are bringing shareholder pressure to bear on large corporations, including GE and Sysco, to adopt net-zero climate targets.

Last year’s Glasgow Climate Pact from COP 26 set the direction for continued emission reduction. When the United Nations Climate Conference of Parties concluded, the goal to contain global warming at 1.5 degrees Celsius above pre-industrial levels remained in force.

What does this mean for your procurement strategies and supply chain going forward? Is your company prepared to account for emissions in the value chain and make adjustments accordingly? 

Ready for Net Zero?

Countries and enterprises are pledging to work toward the net-zero carbon goal. As of the end of COP26, 137 countries had committed to net zero, with varying timelines. Also, companies are jumping on board, as one-third of the 2,000 global largest companies have committed to net-zero targets.

The push for enterprises to support net-zero comes from communities and shareholders. The  “Say on Climate” global investor movement is calling for companies to develop a net-zero, 1.5 degree-aligned climate transition plan for their Scope 1-3 greenhouse gas emissions, plus annual reporting on success in reducing those emissions. Shareholders at General Electric, Sysco, Booking Holdings and others have passed the Say on Climate resolutions.

Through December 2021, the Science-Based Target Initiative reports that more than 1,100 companies have approved targets aligned with achieving the goal. Companies such as Walmart, General Mills, Colgate, and many others have committed to become net-zero by 2050 or sooner and report their progress in meeting these targets. 

While making a public pledge is easy, it’s much more challenging to ensure an organization pursues its commitment. It’s encouraging that more than 1,045 companies representing over $23 trillion in market capitalization have set 1.5°C-aligned science-based targets as part of the campaign to rapidly scale corporate climate response.

Enterprise supply chains will come under scrutiny under the Scope 3 of the corporate value chain of emissions of greenhouse gases. Direct and indirect or operational emissions fall under scopes 1 and 2, which could also include many procurement-related activities.

Many enterprises monitor and manage their own emissions in scopes 1 and 2. But more visibility is required to manage Scope 3 through multiple supply chain tiers to calculate and allocate greenhouse gas emissions correctly. Research shows emissions from purchased goods and services, or scope 3 activities, account for up to 80 percent of the overall carbon footprint.

Scope 3 is more challenging to identify and monitor. It comprises a wide range of products and services, such as building materials, food, travel and waste, and the emissions associated with the goods and services that companies buy. The Scope 3 footprint is much larger than the operational footprint for most organizations.

Much of the focus will fall on chief supply chain officers (CSCOs) because their operations account for the majority of emissions in the value chain. Supply chain officers must utilize extensive data analysis to drive improvement, but many power dynamics are involved in obtaining supply chain and other third-party data. 

Some suppliers like shipping lines and parcel and air freight carriers are very large companies in their own right. They will have to provide data across their customer base to support enterprise initiatives. For example, the International Maritime Organization that governs international shipping is considering accelerating the industry’s commitment to reach net zero in 2050 instead of only a 50% reduction. 

Walking the Talk

As these initiatives develop, there will be multiple venues for reporting the progress of your enterprise’s net-zero efforts. Independent organizations like As You Sow offer reporting platforms for enterprises. Countries may also establish governance schemes for enterprises headquartered or operating within their borders. Industry organizations like the IMO will monitor compliance as well. In the U.S., the Securities and Exchange Commission and the federal government are developing standardized disclosures on climate risk. Similar projects are underway in many nations, if not already in place.

Enterprises are being urged to adopt frameworks and standards such as those developed by the Task Force on Climate-Related Financial Disclosures (TCFD). The goal is for companies to adopt complete, consistent, reliable disclosures related to climate-based risks and opportunities. Then, markets will be better equipped to evaluate, price, and manage those risks.

Currently, many companies report their progress on environmental initiatives through their websites, social media and other channels.

Greenwashing Won’t Wash 

However, with oversight from shareholder advocates as well as governmental agencies, companies can’t expect to get away with greenwashing, or making false claims about their environmental efforts. 

In the U.K., the Competition and Markets Authority (CMA) is reviewing misleading environmental claims and will take action against offending firms. The CMA, like other regulatory agencies, expects companies to consider the entire life cycle of their products, such as parts, how and where it was manufactured, transportation, use, disposal, waste by-products and the environmental consequences throughout each phase.

The CMA found that 40% of green claims made online could be misleading, meaning thousands of businesses could be breaking the law.

Companies could inadvertently greenwash based on unreliable information. As companies scrutinize their environmental footprint, there’s a danger of moving emissions and impacts to other countries as information from far-flung suppliers may be less reliable. It’s hard to measure and attribute emissions with sub-tier suppliers without direct contact.

Looking ahead

Visionary companies are not waiting for new regulations to enforce change. Instead, they are making decisions that will positively impact everything from deforestation to water security to reduced carbon emissions.

To start or enhance your organization’s net-zero commitments, experts recommend these steps:

Start small but start

Focus on one area – you can’t tackle the entire supply chain at one time. Identify which goods or suppliers have the most significant impact and start there. Consider supplier engagement to find vendors with like-minded goals. Add sustainability questions to your RFIs and RFPs to select sustainably minded suppliers.

Align with industry groups

Collaborate with other buyers to align on credible standards and labels to promote sustainability by requiring common climate criteria. 

Develop end-to-end visibility

Create high-level transparency by mapping emission spending and carbon equivalents based on data from external data providers. Eventually, develop a dashboard to monitor the status of your measures continuously.

Procurement must be at the table

The procurement team must develop the skills and insights to collaborate with internal teams to identify opportunities to redesign products and processes to help meet environmental commitments. 

As the campaign to reduce carbon emissions continues to build, procurement teams are uniquely placed to help drive business decisions to fulfill environmental commitments. After all, procurement is the first step in sustainability.