A company’s carbon footprint does not end at its back door. As well as the direct greenhouse gas emissions produced by an organisation’s operations and fuel use, there is also the carbon pollution from all the associated activities that make up the supply chain. These indirect emissions, referred to as Scope 3, include upstream and downstream transportation and distribution, and can make up to 90 per cent of a company’s footprint.
Greenhouse gas emissions are categorised into three groups or “scopes” by the most widely used international accounting tool, the Greenhouse Gas (GHG) Protocol. Scope 1 covers direct emissions from owned or controlled sources. Scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company. Scope 3 includes all other indirect emissions that occur in a company’s value chain.
“Engaging suppliers is essential for companies to meet their greenhouse gas reduction targets. There is an incredible opportunity, especially for consumer-facing companies, to support rapid decarbonisation of supply chains,” says Chrissy O’Brien, Managing Director and Partner at the consultancy BCG.
The impact of such actions can be highly significant in the fight against climate change. That’s because just eight value chains – food, construction, fashion, fast-moving consumer goods, electronics, automotive, professional services and freight – account for more than half of global emissions. And solutions are already available at little or no cost to consumers to help decarbonise these sectors and to move towards net zero.
Available and affordable
In collaboration with the World Economic Forum (WEF), BCG recently published a report that showed cost is no reason not to take action to decarbonise global supply chains. It found that reducing the carbon emissions of supply chains to net zero would hardly increase end-consumer costs. Around 40 per cent of all emissions in these supply chains could be abated with readily available and affordable levers, such as circularity and renewable power, with only marginal impact on product costs. Even with zero supply chain emissions, end-consumer costs would go up by 1–4 per cent at the most in the medium term.
But the report adds that decarbonising supply chains is hard. Even leading companies struggle to get the data they need and to set clear targets and standards to which their suppliers must adhere. Engaging an often-fragmented supplier landscape is challenging – especially when emissions are deeply embedded in the supply chain, or when addressing them might require collective action at the industry level.
“Companies that act now really have an opportunity to gain competitive advantage as we transition to a low-carbon economy,” says O’Brien. “Most companies will need some help and advice on how to break through the largest barriers as they progress.”
Range of options
Moves and strategies to decarbonise supply chains range from low-cost (under €10/t CO2e) actions such as efficiency and renewable power to larger investments (over €100/t CO2e) in longer-term projects, such as switching fuels or carbon capture. Common barriers include a lack of transparency over emissions and a dearth of sector support and useful infrastructure.
The first major problem that companies encounter is often that greenhouse gas accounting is complicated, and it can take time to get more granular supply chain data. “The key there is that they don’t wait for perfect data. Companies can start by addressing the big categories of impact,” O’Brien says. For most companies, supplier energy use, and transportation and distribution are big sources of emissions, and they can work to reduce those.
Other companies feel they don’t have a clear map to achieve a decarbonisation target, which can make them reluctant to set an emissions reduction goal because they don’t know how they will get there. O’Brien points out that most companies don’t have a complete roadmap – there is often a gap to the target that will need to be addressed through innovation. Specific tactics to unlock innovation may include scenario planning and engaging employees to unlock additional innovations.
Good practice
The BCG/WEF report, called Net-Zero Challenge: The Supply Chain Opportunity, highlights case studies of companies that have taken big strides in the right direction.
The brewer Carlsberg, for example, teamed up with the Carbon Trust to develop an advanced supply chain emission calculation model. The model uses supplier-specific emissions data, available for more than half of the emissions. This comes from suppliers’ individual granular data for the materials they supply to Carlsberg. Where this is not available, Carlsberg looks to develop estimates based on material and location-specific factors.
Approximately 85 per cent of Carlsberg’s total emissions are not under the company’s direct control, so it works with suppliers to encourage a commitment to science-based targets. More than 110 suppliers in Carlsberg’s supply chain have already signed up.
“Progress has lagged in addressing scope 3 emissions because it is hard and complicated, but we find the biggest barrier to getting started is often complexity and inertia, not economics,” says O’Brien. “We know where and how to get started, and what steps to take. The costs of decarbonisation far less than the cost of inaction.”
