Why all that talk about supply chain emissions? And what are they in the first place?
Can you feel the buzz? Early 2021 a report by the World Economic Forum declared that “supply-chain decarbonization will be a ‘game changer’ for the impact of corporate climate action.”
In October, the Science-based Targets Initiative (SBTI) launched its new Corporate Net Zero Standard as a robust blueprint for corporate net zero GHG emission targets. In the long-term companies are required to address not only the emissions under their direct control but they need to tackle 90% of their upstream and downstream supply chain emissions as well.
Then at COP26 in Glasgow, WBCSD presented its “Business Manifesto for Climate Recovery“, outlining 12 action points for businesses and policy-makers to hit the brakes on climate change, including curbing supply chain greenhouse gas (GHG) emissions.
And just a couple of days ago on November 17th, the Gold Standard Foundation and its offshoot SustainCERT launched the Value Change Initiative, a multi-stakeholder partnership that will work on actionable guidelines and advice for businesses to tackle their supply chain GHG emissions. Organizations such as WWF, WRI, SBTi and CDP are in, and the list of corporate household names is even longer.
So why all that talk about supply chain emissions? And what are they in the first place?
Typically, the GHG emissions that occur in your company's entire value chain – both upstream with suppliers and downstream with customers – are all referred to as Scope 3 emissions. This includes emissions from:
Scope 3 emissions are essentially the indirect emissions that stem from your company's activities but are actually emitted by others, in contrast to your directly controllable, internal emissions (Scope 1) and the indirect emissions from the generation of energy you purchase (Scope 2).
You could also think of it this way. If there were no Scope 1 and Scope 2 emissions, there would also be no Scope 3 emissions – because one company’s Scope 1 and 2 emissions are the next company’s Scope 3 emissions.
In most sectors, more than 80% of corporate GHG emissions are actually Scope 3.
Scope 3 emissions are generally more difficult to account for because not all processes along the value chain are known to your company or can easily be influenced by you. Thus, companies taking their Scope 3 emissions head on play in the Champions League of corporate climate action, if you will. Unsurprisingly, that Champions League is a club of a few: the vast majority of businesses has until now shied away from dealing with Scope 3 emissions or only dealt with a selection of the various Scope 3 emission activities (usually the low-hanging fruits).
Both the EnviroLab at University of North Carolina and the Climate Action 100+ initiative put the number of companies that report their Scope 3 emissions at around 10%, even if they have pledged to become net zero.
But things are changing.
Almost all companies with emission targets approved by the Science-based Targets initiative do include Scope 3 emissions in their targets. Given that the normative power of the SBTi is attracting more and more companies, this is good news for climate.
Multinationals such as Microsoft, Unilever, Heineken, Tesco, Bosch, BT, and others have laid out plans to tackle their Scope 3 emissions and to actively engage their suppliers and buyers in reducing their own emissions. They realize that putting in the necessary work will not only lead to emission reductions but also to more resilient supply chains, increased efficiency, better ties with partners, new innovations, and ultimately financial savings.
Finally, regulators on both sides of the Atlantic are considering flexing their muscles. The Securities and Exchange Commission in the U.S. is said to contemplate having businesses report their value chain emissions for investor’s sake. And as mentioned in another Salacia Solutions article, the EU on their part will introduce the new Corporate Sustainability Reporting Directive (CSRD) in 2023 which will most likely have a strong focus on value chains. WBCSD’s new idea of Corporate Determined Contributions as a unified reporting and aggregation mechanism to increase accountability of corporate climate action under the auspices of the UN could provide further impetus to strengthen Scope 3 carbon accounting.
Mapping and tracking your Scope 3 GHG emissions is an essential part of business’s sustainability journey. And while addressing your Scope 3 emissions may be hard at first, it will help you strengthen and optimize your supply chain in the long run.
Luckily, we at Salacia Solutions are here to give you the insights you need. Simplified, automated, and real-time if needed. So you can move from green ambitions to green results quickly.