Tackling Supply Chain Emissions: A Deep Dive into Scope 3

Posted in on Nov 1 2023,by Ben Churchill Ben Churchill
Tackling Supply Chain Emissions: A Deep Dive into Scope 3

Ben Churchill

Ben Churchill

Chief Strategy Officer

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The toughest — and largest — area of your carbon footprint to control is not the emissions that your own facilities are producing. It’s the emissions produced throughout your supply chain and your investments. Known as Scope 3 emissions, they make up anywhere between 65% and 95% of a company’s carbon impact, according to Carbon Trust research. And they are notoriously difficult to control.

No matter your industry, your supply chain emissions, also known as Scope 3 emissions, undoubtedly make up a huge percentage of your company’s footprint. You don’t have a chance of achieving net zero or your own emissions reduction targets without getting them under control. To do that, you need to work closely with supply chain partners who are focused on decarbonisation (exactly what is decarbonisation? - a guide for everyone in the company) — it’s not just about your own operations.

What are supply chain emissions?

Supply chain emissions, or Scope 3 emissions, pose a major challenge to any company that’s set emissions reduction targets for the next few decades. You can’t hit your targets without controlling them since they contribute so much to your total greenhouse gas (GHG) emissions. But in many cases, you have no way of reducing them through your own operational improvements.

Your Scope 3 emissions are so difficult to control because of where they originate, compared to Scope 1 and 2 emissions. As a quick debrief, here’s how the different scopes of emissions are defined:

  • Scope 1 emissions: Direct emissions from controlled or owned sources that are produced as a result of the organisation’s operations.
  • Scope 2 emissions: Emissions that are generated as a result of purchased energy, and therefore still tied to an organisation’s direct operations.
  • Scope 3 emissions: Emissions that occur upstream and downstream throughout an organisation’s supply chain, such as those produced by a supplier or transportation company used to ship products. They are the furthest removed from a company’s own operations.

Data from the CDP estimates that Scope 3 accounts for 75% of a company’s GHG emissions on average — a much larger proportion than Scope 1 or 2 emissions. But the outlook is actually even starker than that for companies in certain sectors:

  • Oil & gas: About 88% of emissions are attributed to Scope 3
  • Financial services: Nearly 100% of emissions are Scope 3
  • Metals & mining: 92% of emissions are attributed to Scope 3

Here’s the issue with these numbers. You can do everything right in-house and operationally to reduce your Scope 1 and 2 emissions, but that might only impact…say, 10% of your initial carbon footprint. You still might not make a significant impact overall on the amount of carbon created by your value chain.

And for companies who recognise this challenge and are committed to strategically reducing supply chain emissions? There’s a host of obstacles in the way.

Low visibility into their Scope 3 footprint is often the biggest. Carbon accounting can be complex and organisations typically rely on their supply chain partners to share data and estimates about their own GHG emissions, and then take steps to cut back.

That can be a tricky ask and a complex process before any energy savings are finally realised.

How to reduce supply chain emissions through your value chain partners

As a customer or investor, you wield a lot of influence in your relationship with your business partners. To successfully reduce your supply chain emissions, go directly to the source and ask your partners what they’re doing to become more efficient.

1. Align your whole organisation on the importance of supply chain emissions.

From the boardroom to plant leadership down to your logistics and procurement managers, everyone needs to be aligned on what it will take to reduce Scope 3 emissions. Communicate with each of your facilities, departments, and managers about how Scope 3 emissions impact their functions.

Explain to them what exactly you want to achieve by reducing these emissions and the role they’ll play in hitting those crucial targets. This is a huge undertaking for any organisation, so PWC recommends creating “cross-functional steering committees” to help align and mobilise across departments.

2. Focus on the biggest material contributions

Not every one of your suppliers or partners will impact your Scope 3 emissions to the same extent. Understand who makes the biggest contribution and start there.

For instance, if you’re a major beverage manufacturer, you might have 200 suppliers all throughout your value chain. But their impact on your Scope 3 emissions is not an even split. Probably 20 of those suppliers make up the vast majority of your own Scope, and that’s where you should focus your attention.

Start working with your biggest suppliers on a plan of action to become more sustainable — for both of your companies.

The good news is, if you’re a major customer, you likely have a lot of sway with your suppliers. They’ll be encouraged to work on these emissions goals so they can continue working with you.

3. Source emissions data from your value chain partners

You need a way to gain visibility into your Scope 3 emissions, even though they’re produced outside your own operations. Go to your partners and establish processes for gathering accurate emissions data.

This is traditionally a challenge when it comes to tackling Scope 3 emissions, since there’s no standardised way to collect or share this data. Some companies will have their data readily available, and others might have gaps.

So your first step will be to establish consistency in the reporting between your value chain partners, so you understand the status of your Scope 3 emissions. It’s not always possible to gain visibility into every one of your suppliers’ GHG emissions. So Bloomberg recommends using models to set your own emission estimates for a sustainable value chain.

Then, you can use those to benchmark your progress year-over-year. This will lend a bit more transparency and eliminate gaps in your own reporting process.

4. Measure energy consumption

Asking suppliers to share data on their carbon footprint and emissions is just step one. From there, you need to start measuring real energy usage so that they can actually reduce it.

You don’t want to just look at energy bills here and sum up the totals. The purpose of measuring consumption is so that you (and your suppliers, in this case) can eventually reduce it, so you’ll need to understand what’s driving up usage.

Implement accurate ways of monitoring, like metering, to get an accurate sense of usage. From there, work with your value chain partners to identify the biggest savings opportunities and commit to emissions reductions.

5. Work with a partner to efficiently manage supply chain relationships

It can be time-consuming and challenging for your procurement and ops managers to continuously work with value chain partners on lowering supply chain emissions. Introduce your suppliers to a decarbonisation partner to help them meet their own sustainability goals.

A decarbonisation partner can work directly with your suppliers and partners on all of these tactics and more — exactly as they would with you — to hit emissions targets. They’ll accurately assess your suppliers’ carbon footprint, monitor emissions, and work toward reductions.

They also bring the added benefit of expertise in carbon management, which can help both of you achieve results more quickly to impact Scope 3 emissions.

For example, at CoolPlanet, we issue templates and data collection forms directly to suppliers for them to complete with their own emissions info. We also import all of your supplier data into our software, along with your Scope 1 and 2 emissions, to get a full picture of your carbon footprint.

And we can aggregate supply chain data, substituting in emissions factors where there are data gaps, so that you have the info needed to move forward with accurate reporting and decision-making.

Don’t let your supply chain prevent you from reaching net zero goals

Hitting Scope 3 emissions goals is essential to achieving net zero, and your own stakeholders care about this issue. If you have a supplier or customer in your value chain who’s dragging their feet about reducing their emissions, it’s time to think about finding a new option.

That can seem a bit daunting, but the bright side is this: More and more companies are focusing on sustainability themselves and prioritising emissions reductions under their own operations. So once you commit to tackling Scope 3 with the right partners, you have a great chance at hitting your targets.

And progress does not stop with Scope 3. You can also achieve significant cutbacks to your Scope 1 and 2 emissions by working with a partner that provides a robust carbon management system, like CoolPlanet.

Learn how we helped Bulmers achieve a 42% reduction in Scope 1 emissions in a 12-month span.