On your way to attaining Net Zero, supply chain emissions cannot be ignored. For many organizations, these emissions can be a considerable heap of their overall emissions, but often go unnoticed as they arise from activities not directly owned by the company but crucial to its operations (Scope 3 Emissions).
Recognizing and tackling these hidden emissions is not just necessary; it’s urgent. The Science Based Targets initiative (SBTi) offers a roadmap to reduce the total greenhouse gas emissions, especially Scope 3 while bringing your company closer to achieving net zero. So, let’s understand how you can transform your supply chain into a pathway for a sustainable future.
SBTi Requirements and Supply Chain Engagement
To meet the SBTi criteria, you need to ensure that a significant portion of your Scope 3 emissions—those emissions stemming from activities not directly controlled by the company but related to its supply chain—are addressed through supplier engagement targets. Remember, your suppliers’ Scope 1 and Scope 2 Emissions are your Scope 3 corpus.
This means that you need to set clear, science-based goals for your suppliers to reduce their carbon emissions. The aim is to get a considerable percentage of your suppliers, measured by the level of their emissions, to commit to science-based targets for reducing their emissions by a certain deadline.
Because these emissions do not directly fall within the boundaries of your company’s operational endeavors, it may be difficult to gauge how big the problem really is. To put things into perspective, supply chain emissions constitute 70% of global carbon emissions.
But the ramifications are deeper for a company’s revenues as well. Since GHG emissions affect the climate drastically, they end up significantly affecting supply chains as well. For instance, the winter storms in Texas disrupted the food supply chain and even semiconductor production in the region. Similarly, heatwaves in Germany disrupted commodity transportation across Europe via waterways.
The concerning aspect is the rapid increase in the frequency of these extreme weather events. Consequently, we are heading towards a trajectory where an average company may lose a lot of its EBITDA every five years due to such disruptions. This presents a profound risk and financial impact.
Strategies for Effective Supply Chain Engagement
Kicking off your journey to a greener supply chain doesn’t have to be overwhelming. Start with these straightforward strategies:
- Start Soft and Scale
Take the first step and initiate a conversation with the primary stakeholders—the suppliers. Understand where your suppliers are in their journey to achieving net zero. Are they just starting, or have they already made some strides in reducing carbon emissions? This step is all about listening, learning, and then gradually stepping up your efforts based on what you learn from each other. Gradually develop a partnership that allows you and your suppliers to support each other to achieve common goals.
- Set and Track Supplier Engagement Targets
Work together with your suppliers to set realistic yet ambitious targets for cutting down emissions. Or you could have your suppliers set their own targets. This encourages suppliers to define their own realistic and measurable targets for cutting emissions. While this approach facilitates achievable standards for suppliers, it may introduce challenges in monitoring progress and aligning with more aggressive net-zero ambitions. So, keep an eye on how things are progressing. Regular updates and clear metrics help everyone stay on track.
- Use Digital Platforms and AI
Use digital tools and AI to make collecting and analyzing data a breeze. These tools can help you and your suppliers stay in sync, spot areas for improvement, and automate decision-making. For instance, there’s ZERO, a Science-based, end-to-end carbon footprint management solution. With ZERO, you can automate the collection of emissions data from various points in your supply chain. This could include everything from direct emissions from your operations to more complex indirect emissions from your suppliers.
- Monitoring and Incentive Systems
Integrate performance tracking and establish supplier scorecards to provide real-time feedback on emissions reductions, target achievement, and overall sustainability efforts. You may also initiate incentives such as preferential business terms or public recognition to encourage superior performance. At the same time, introduce penalties for underperformance.
- Validation and Feedback Mechanisms
Ensure that supplier targets align with SBTi criteria by collecting, validating, and managing data submissions. Facilitate ongoing reviews and provide feedback mechanisms.
Achieve Net Zero with Smart Supply Chain Management
Transforming the supply chain into a pathway for sustainability requires collaboration, innovation, and a commitment to driving meaningful change across the entire value chain. That is why you need to take proactive steps to engage suppliers and implement sustainable practices. Your company can then play a pivotal role in building a more resilient and sustainable future for generations to come.
